Public Enterprises in India
There were only a few public enterprises in India when the country gained independence. These were departmental undertakings and were related to the Post, Telegraphs, Railways, and Defense Production. With the passing time, economists and the government worked hard to increase the development of public sector enterprises in India. Learn how the country observed an evolution of the public enterprise landscape.
Foundation of Public Sector undertakings in India
In the era of British Colonialism, there were few public sector units in India, namely, Defense Production, Railways, Post, and Telegraph. The role of Defense Production was to ensure that the nation maintained a strictly guarded border, Railways helped in the transport of resources, and Post and Telegraph were crucial for functional and strategic reasons.
However, after independence, Jawaharlal Lal Nehru, the first Prime Minister of India laid the foundations of public enterprises in India. Josip Broz Tito and Abdel Gamal Naseer supported the Prime Minister in their decision. The total investment in 1951 in the public sector was less than half a billion Euros. In today’s time, there are about 247 enterprises with a growing investment of around 130 billion Euros.
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The above picture describes how rapidly public enterprise businesses are expanding in the country.
The substantial contribution that government enterprises in India make to the resources of the Central Government serves as one of the major reasons for their evolution.
What is the Importance of the Public Sector in India?
India is a country with a varied geographical spread, and hence public sector enterprises ensure that there is a balance in the regional investment. There are several regions where public sector enterprises in India require concessions and incentives to persuade them to operate. It ensures that multiple industries grow and flourish in various parts of the nation.
Combined controls of public enterprises in India ensure proper economic functioning along with effective scales of economics.
In comparison to the private sector, employees can receive a fair deal in the public sector. It employs nearly 1.9 million people as compared with the private sector employing nearly 0.9 million people. Thus, the development of public enterprises in India benefits consumers as well as employees.
The importance of public corporations can be seen from the fact that public enterprises account for nearly 20% of India’s GDP. It is because the sector enhances export earnings as well as import substitution by paying dividends to the government.
Role of Public Sector Enterprises In-Country Development
The public sector initiated several jobs to tackle the problem of unemployment in the nation. It has contributed a lot towards the improvements in working conditions, as well as in the living conditions of workers. The public sector enterprises in India have taken the lead to initiate development in the strategic sectors that provide externalities to the economy. It has arranged a robust and wide base for self-reliance in the field of maintenance, technical know-how, machinery, cultured industrial plans, and more in the country.
Public sector undertakings in India have located their different branches in the various parts of the nation. By bringing about a comprehensive change in the socio-economic life of workers, public enterprises have settled certain facilities.
Initiatives are taken to improve the performance of the Public Sector in India
Public enterprises are crucial for the Indian economy as the rate of return on capital investment is very low. That is why the Government took various steps to enhance the overall performance of the public sector liberalization and to enhance the portfolio as well as performance, the Indian Government announced an Industrial Policy in July 1991. Liberalization, Privatization, and Globalization of the Indian economy were explicitly stressed.
In July 1997, nine central public enterprises, namely BPCL, BHEL, HPCL, GAIL, SAIL, IOC, ONGC, MTNL, and NTPC, were identified as ‘Navratnas’. All these enterprises got sovereignty for capital investment, raised capital from domestic or international markets, and entered into joint ventures.
Further in October 1947, the Indian Government identified 45 Miniratnas as public enterprises in India and granted an allocation of financial power.
Over many years, the Indian Government stressed on stimulating the loss-making enterprises. BIFR, Board for Industrial and Financial Reconstruction helps them to prepare appropriate renewal packages.
The Government of India created a Board for Reconstruction of Public Enterprises. It aims to offer advice on proposals of restructuring loss-making sector units along with those for closure.
The expansion of the public sector in India aims to fulfill the national goals such as a reduction in income inequalities, removal of poverty, and more. It not only promotes research and development but also contributes to promoting export and foreign exchange earnings in India.
FAQs on Public Enterprises Development in India
1. What is a public enterprise in the context of the Indian economy?
A public enterprise, also known as a Public Sector Undertaking (PSU) or a state-owned enterprise, is an organisation that is owned, managed, and controlled by the central or state government. Its primary purpose is to undertake commercial activities to provide goods and services to the public, while also serving broader socio-economic objectives. Unlike purely administrative government departments, these enterprises are expected to be self-financing and operate on business principles.
2. How did public enterprises develop in India after independence?
After India gained independence in 1947, the government adopted a policy of a mixed economy, where the public sector was given a strategic role in development. The development occurred in phases:
- Initially, the focus was on establishing industries in core and heavy sectors like steel, mining, and machine tools, which required massive capital investment and had long gestation periods.
- The goal was to build a strong industrial base, create infrastructure, and achieve economic self-reliance.
- Starting with only a few enterprises like Railways and Post & Telegraphs, the public sector expanded significantly through the Five-Year Plans, covering diverse areas from manufacturing to services.
3. What are the main forms of public sector enterprises in India as per the CBSE syllabus?
According to the CBSE curriculum for the 2025-26 session, public sector enterprises are primarily organised in three forms:
- Departmental Undertakings: These are managed directly by a government ministry and are considered a part of the government itself. Examples include Indian Railways and the Postal Department.
- Statutory Corporations: These are established by a special Act passed in the Parliament or State Legislature. They have a separate legal identity and are autonomous in their operations. Examples include the Life Insurance Corporation of India (LIC) and the Reserve Bank of India (RBI).
- Government Companies: These are companies registered under the Indian Companies Act, 2013, in which at least 51% of the paid-up share capital is held by the government. Examples include Steel Authority of India Ltd. (SAIL) and Bharat Heavy Electricals Ltd. (BHEL).
4. What is the key difference between a Departmental Undertaking and a Statutory Corporation?
The key difference lies in their legal status and operational autonomy. A Departmental Undertaking has no separate legal existence from the government; its finances are part of the government budget, and its employees are civil servants. In contrast, a Statutory Corporation is a separate legal entity created by a specific Act of Parliament. It has financial autonomy, can borrow and use its own revenues, and its employees are not government servants, allowing for greater flexibility in operations.
5. What was the impact of the Industrial Policy of 1991 on public enterprises in India?
The New Industrial Policy of 1991 marked a significant shift in the role of the public sector. The focus moved from expansion to improving efficiency and performance. The key impacts included:
- Disinvestment: The government started selling parts of its equity in select PSUs to the public and financial institutions to raise resources and improve corporate governance.
- Restructuring and Revival: A framework was created through the Board for Industrial and Financial Reconstruction (BIFR) to review and restructure sick or loss-making PSUs.
- Increased Autonomy: Profitable PSUs were granted more operational, financial, and managerial autonomy to compete globally. This led to the creation of categories like Maharatnas, Navratnas, and Miniratnas.
- Reduced Reservation: The number of industries reserved exclusively for the public sector was drastically reduced, opening them up to private sector participation.
6. Why was disinvestment considered necessary for some public sector enterprises?
Disinvestment was considered necessary for several critical reasons. Primarily, it aimed to improve the financial discipline and performance of PSUs by introducing private sector ownership and accountability. Secondly, it helped the government raise funds to reduce its fiscal deficit and finance social and infrastructure projects. Thirdly, it encouraged a wider distribution of wealth by allowing the public to own shares in these large enterprises. Finally, it helped unlock the potential of PSUs that were struggling due to bureaucratic hurdles and a lack of professional management.
7. What are 'Navratnas', 'Maharatnas', and 'Miniratnas' in the Indian public sector?
These are special categories or statuses granted to high-performing Central Public Sector Enterprises (CPSEs) to give them greater financial and operational autonomy.
- Maharatnas: This is the highest status, given to large, highly profitable CPSEs, allowing them significant freedom in making investment decisions. Examples include Indian Oil Corporation (IOC) and Steel Authority of India Ltd. (SAIL).
- Navratnas: These are a select group of profitable CPSEs that have the autonomy to invest up to a certain limit without seeking government approval, facilitating their expansion and diversification. Examples include Bharat Electronics Limited (BEL) and Hindustan Aeronautics Ltd. (HAL).
- Miniratnas: This category is further divided into Category-I and Category-II, granting moderate autonomy to profitable PSUs that do not meet the criteria for Navratna status.
8. How do public enterprises contribute to balanced regional development in India?
Public enterprises play a crucial role in promoting balanced regional development by deliberately setting up their manufacturing plants and operational units in economically backward or remote areas. This strategy helps by:
- Creating direct and indirect employment opportunities in regions where private investment is scarce.
- Developing essential infrastructure such as roads, power, water supply, and townships.
- Fostering the growth of ancillary industries and small-scale businesses in the surrounding areas.
- Reducing the migration of the workforce to already congested urban centres.
9. In today's globalised economy, what is the continuing relevance of public enterprises in India?
Even in a liberalised and globalised economy, public enterprises remain relevant for several reasons. They continue to operate in strategic sectors vital to national security and economic stability, such as defence, atomic energy, and key natural resources. They act as a price stabiliser for essential goods and services, preventing private monopolies. Furthermore, PSUs often serve as a benchmark for fair labour practices and employee welfare, and they undertake large, long-term infrastructure projects that private companies might find financially unviable.
