The promotion of public sector to achieve “commanding heights” of the economy was the most natewbrthy feature of India’s industrial policy. Did public sector achieve the “commanding heights” in terms of its performance?
The prominent objective of promoting Public Enterprises (PEs) in India, as emerged out of the Industrial Policy Resolution 1956, was to enable PEs to achieve “Commanding heights of the economy. This mean to facilitate PEs to grow and function in all strategic and core areas of the economy to produce goods and services, to generate employment, to promote balanced regional development, to generate the resources to accelerate the overall economic development and become the pillar of India’s economic prosperity.
Since the Commencement of planning, there had been a phenomenal growth of the public sector. The IPR 1956 enlarged the role of pubic sector. It stated. The adoption of socialist pattern of the society as a national objective as well as the need for planned and rapid development require that all industries of basic and strategic importance, or in the nature of public utility services should be in the public sector. At the beginning of 1990s, the public sector was dominant, in many industries.
The contribution of entire output of PSEs is in the case of petroleum, lignite, copper and primary lead, about 98 of zinc, over 90% of coal, more than half of steel and aluminum and about one-third of fertilizers. Thus, the public sector, came to occupy a commanding position in several crititcal industries up of new enterprises was mainly responsible for the fast growth of the public sector. The predominance of investment in few crucial sectors, namely: steel, minerals and metals, petroleum, coal and chemicals and fertilizers is the significant feature of the public sector investment.
A large number of PSEs. including several monopolies, have made huge losses. Despite the huge, losses incurred by a number of enterprises, the PSEs as a whole could make profits mainly because of the enormous profits made by several public sector monopolies. PSEs were set-up not only for commercial consideration but also for factors such as generation of employment, promoting balanced regional development, etc. Low return on investments on account of price constraints imposed on certain infrastructural goods and services of public enterprises.
In addition to reservation of industries and preferences in licensing, PSEs enjoyed low financial costs due to equity capital contributions from the Government. PSEs had the access to budgetary Funds which reduced pressures to minimize costs and charge appropriate prices for their products. On the whole, there was all round protection for the public sector.