Division of the Economy between Public Sector and Private Sector:
The present economic structure of Indian economy is known as mixed economy, where there is a coexistence of both the public sector and the private sector. All the different types of industries are divided between these two sectors. From the very beginning, most of the industries of the country were within the purview of private sector.
But after independence and especially after the introduction of economic planning followed by the introduction of Industrial Policy Resolutions, 1948 and 1956 the importance of the public sector was realised. Accordingly, some definite category of industries was gradually reserved for the public sector for their expansion and development.
In this way, the sizes and activities of the public sector gained its momentum with the growing volume of planned expenditure for the development of public sector under different Five Year Plans of the country. Thus in a mixed economy like India, some industries are owned and managed by the State through its public sector and the remaining others are owned and managed by the private sector of the country.
In India, only those industries are reserved for the public sector which are essential for speedy development of the economy and where private sector is reluctant to invest either due to low rate of return or heavy risk involved in it.
In India, the area of activities of the public sector were very much restricted to a limited range like power, irrigation, roads, railways, port, communications and some departmental undertakings at the time of independence. But after independence, the area of activities of the public sector was expanded at a rapid pace. Two industrial policy resolutions adopted in 1948 and 1956 respectively have divided the industries of the country into different categories.
Accordingly, some industries were entirely reserved for the public sector, some industrial fields were left completely for the private sector. Such division of areas between the public and private sector reveals that while the heavy, basic and strategic industries were reserved for the public sector, the entire group of consumer goods industries, producing both consumer durables and non-durables was kept open for the private sector.
The entire agricultural sector, being the largest sector of the country has been left for the private sector. Again the infra-structural fields like railway, air transport, port, power, communications, banks, insurance, financial corporation’s etc. are reserved for the public sector.
The logic behind reserving the heavy and basic industries like iron and steel, heavy electrical plant, heavy engineering etc. for the public sector and the quick-yielding consumer goods industries for the private sector is quite simple.
R.K. Hazari made an attempt to analyse the logic behind such strategy of the Government, where he argued that the industrial programme of the government adopted after 1955 were finalised as per the following two hypotheses:
(a) Private investment activity in relatively simple goods would generally be promoted by shutting out imports as well as through utilisation of excess capacity at home, with a consequent boost to profits; and
(b) Public investment, being indifferent to profits, would be made in those basic and strategic- areas which had long gestation periods, poor or zero rate of profits, a large exchange requirement, complex technology and equally complex problems of co-ordination.
Here the first hypother is argued that private investment was in the form of ‘induced investment’ and could be promoted by adopting a policy of protection against various imported substitutes. The argument in favour of the second hypothesis was that the flow of investments in low profit yielding and heavy investment requiring industries were in the form of ‘autonomous investment’ and, therefore, could be undertaken by the state.
Relative Role of Public Sector and Private Sector in the Indian Economy:
Relative Role of Public and Private Sector as reflected in the Industrial Policy of India:
In a country like India, both the public sectors as well as the private sector are playing their relative role quite effectively. The Industrial Policy Resolutions of 1948 and 1956 have made special provision for the reservation of sphere for both the public as well as the private sector considering their relative role in the economy of the country.
The Industrial Policy, 1948 has divided Indian industries into four broad categories, involving both the public as well as the private sector and thereby laid the foundation of mixed economy. Thereafter, Industrial Policy Resolutions, 1956, classified the Indian industries into three schedules, i.e., state owned sector, progressively state-owned sector and private sector.
As per this policy, 1956, the State would facilitate and encourage the private sector industries by ensuring infra- structural facilities like power, transport and other services and provided non-discriminatory treatment to both public and private owned units.
Moreover, the philosophy and programme of action for the promotion of public sector was incorporated in the Industrial Policy Resolutions of 1948 and 1956. The Industrial Policy Resolutions of 1956 aptly observed, “The adoption of the socialistic pattern of society as the national objective, as well as the need for planned development requires that all industries of basic and strategic importance or in the nature of public utility services, should be in the public sector. Other industries which are essential and require investment on a scale which only the state in present circumstances, could provide, have also to be in the public sector. The state has, therefore, to assume direct responsibility for the future development of industries over a wider area.” Thus, the Industrial Policy Resolutions of 1948 and 1956 have clearly mentioned the relative role of both public and private sector in a country like India.
While analyzing the role of public sector in Indian economy, Mrs. Indira Gandhi the then Prime Minister of India, rightly observed, “We advocate a public sector for those reasons to gain control of the commanding heights of the economy to promote critical development in terms of social gain or strategic value rather than primarily on consideration of profit and to provide commercial surpluses with which to finance further economic development.”
The Industrial Policy Statement, 1977, has also mentioned about the role of public sector and thereby it prescribed the expansion of the role of public sector especially in respect of strategic goods of basic nature. The public sector was also encouraged to develop ancillary industries and to transfer its expertise in technology and management to small scale and cottage industry sector.
Considering the growing problem of sickness of public sector enterprises, the Industrial Policy of 1980 reaffirmed its faith on the public sector in-spite of having erosion of faith in it in recent years. Therefore, the policy introduced a time bound programme in order to revive the efficiency of public sector undertakings through its effective operational system of management.
Again the industrial Policy of 1980 also made an attempt to integrate industrial development in the private sector by promoting the concept of economic federalism with setting up of a few nucleus plants in each district, identified as industrially backward district, to generate as many ancillaries and small and cottage units as possible.
The new Industrial Policy, 1991 radically liberalized the industrial policy itself and deregulates both the public and private sector industries substantially, in line with the liberalisation move introduced during the 1980s. Realising the relative role of both public and private sector industries of the economy, the new industrial policy, 1991 un-shakled both the two industrial sectors from the cobwebs of unnecessary bureaucratic controls and introduced liberalisation measures in order to integrate Indian economy with the world economy, liberated the indigenous private sector enterprises from the restrictions of MRTP Act so as to attain sustained growth in productivity and employment and also to achieve international competitiveness.
Moreover, the new policy also made provision for reducing the load of public sector enterprises most in their expansion programmes. The policy for the public sector has helped them to restructure their potentially viable units. Moreover, the priority areas for the growth of future public sector enterprises are also rescheduled to include essential infrastructure, exploration and exploitation of minerals and oil, technology development and products with strategic consideration.
Thus, we have seen that various industrial policies, formulated by the Government since 1948 have given due consideration to the relative role of both public and private sector in Indian economy. Therefore, these policies have made sincere attempts for the sustained development of both the public as well as private sector simultaneously.
Relative Role of Public Sector in India:
Public sector occupied a no worthy place for achieving systematic and planned development in a developing country like India. In a country like India suffering from multi-dimensional problems, private sector is not in a position to make necessary effort for the development of its various sectors simultaneously.
Thus, in order to provide the necessary support to the development strategy of the country, the public sector offers the necessary minimum push for bringing the economy to a path of self sustained growth. Thus it is now well recognized that public sector plays a positive role in the industrial development of the country by laying down a sound foundation of industrial structure in the initial stage of its development.
The following are some of the important relative roles of the public sector in the economic development of a country like India:
(a) Promoting economic development at a rapid pace by filling gaps in the industrial structure;
(b) Promoting adequate infrastructural facilities for the growth of the economy;
(c) Undertaking economic activity in those strategically significant development areas, where private sector may distort the spirit of national objective;
(d) Checking monopolies and concentration of power in the hands of few;
(e) Promoting balanced regional development and diversifying natural resources and other infrastructural facilities in those less developed areas of the country;
(f) Reducing the disparities in the distribution of income and wealth by bridging the gap between the rich and the poor;
(g) Creating and enhancing sufficient employment opportunities in different sectors by making heavy investments;
(h) Attaining self-reliance in different technologies as per requirement;
(i) Eliminating dependence on foreign aid and foreign technology;
(j) Exercising social control and regulation through various public finance institutions;
(k) Controlling the sensitive sectors such as distribution system, allocating the scarce imported goods rationally etc.; and
(l) Reducing the pressure of balance of payments by promoting export and reducing imports.
Relative Role of Private Sector in India:
India, being a mixed economy, has assigned a great importance on the private sector of the country for attaining rapid economic development. The Government has fixed a specific role to the private sector in the field of industries, trade and services sector.
The most dominant sector of India, i.e., agriculture and other allied activities like dairying, animal husbandry, poultry etc. is totally under the control of the private sector. Thus private sector is playing an important role in managing the entire agricultural sector and thereby providing the entire food supply to the millions.
Moreover, the major portion of the industrial sector engaged in the non-strategic and light areas, producing various consumer goods both durables and non-durables, electronics and electrical goods, automobiles, textiles, chemicals, food products, light engineering goods etc., is also under the control of the private sector. Private sector is playing a positive role in the development and expansion of aforesaid group of industries. Besides, the development of small scale and cottage industries is also the responsibility of-the private sector.
Finally, the private sector is also having its relative role in the development of tertiary sector of the country. The private sector is managing the entire services sector providing various types of services to the people in general.
The entire wholesale and retail trade in the country is also being managed by the private sector in a most rational manner. Moreover, the major portion of the transportation, especially in the road transport is also managed by the private sector. With the growing liberalization of Indian economy in recent years, the private sector is being assigned with much greater responsibility in various spheres of economic activities.