Why was public sector given a leading role in industrial development during the planning period?

1.      

Answer:

At the time of independence, Indian economic conditions were very poor and weak. There was neither much private capital nor did India have international investment credibility so as to attract foreign investment. Moreover, Indian planners did not want to be dependent on foreign capital for economic development. In such a situation, it was only the public sector that could take the initiative.
The following are the reasons that explain the driving role of the public sector in the industrial development :

(i) Lack of Capital with the Private Enterpreneurs —Industrial development in India needed a big push. At the time of independence, the requirement of capital for diversified industrial growth far exceeded its availability with private enterpreneurs (Tata and Birla). Accordingly, it became essential for the state to.foster industrial growth through public sector undertakings.

(ii) Lack of Incentive among the Private Enterpreneurs—The private investors lacked incentives as well. Owing limited size of the market, there was no inducement to invest. Only a big push of public investment could break this vicious circle of low inducement to investment.

(iii) Socialistic Pattern of Society—The government realised that, this objective could be achieved only through direct participation of the state in the process of industrialisation, because it requires investment that generates employment rather than investment that maximises profit. Concentration of wealth.

was to be discouraged and public investment was considered as the best means to achieve it.

1.      Though public sector is very essential for industries, many publicsector undertakings incur huge losses and are a drain on theeconomy’s resources. Discuss the usefulness of public sectorundertakings in the light of this fact.

Answer:

Although, the inefficiency and low productivity in Public Sector Undertakings (PSUs) may lead to wastage of the scarce resources and result in huge losses forming a constraint on economic resources of the country, they do have some advantages,

Advantages:

(i)                 Social Welfare The basic objective of the PSU was to provide goods and services that add to the welfare of the society without looking for profits. Public welfare facilities such as schools hospitals, railways, electricity etc are necessary to be provided at reasonable cost to the people of the country.

(ii)                Heavy Investment and Long Gestation Projects like heavy and basic industries, power generation, railways, etc need a very huge initial investment and have long gestation period. Hence, government is the most appropriate to invest in these projects under public sector as private sector is reluctant to enter such ventures due to the high risk involved.

(iii)              Basic Infrastructure An important ideology that was inherited in the initial Five Year Plans was that the public sector should lay down the basic infrastructure required for Industrialization that would encourage and facilitate the private sector at the later stage of industrialization.

(iv)             Reduce Exploitation It is believed that In public sector units the labour is not exploited as it Is protected by the government. The consumers are also not exploited by charging high prices or serving low quality goods as PSUs do not operate with profit motive.

(v)               Generate Employment Private sector does not have the Inducement to invest and create employment opportunities during periods of low demand i.e., during economic recession. During such phases, PSUs are needed to generate employment opportunities with the help of government investment. Apart from this job security is also provided by the PSUs to their employees.