7/25/2019 STUDY 2 Ref

1/18

PUBLIC SECTOR ENTERPRISES

AN OVERVIE W

Section 1: Public Sector Enterprises An Overvie

Since the time of the great depression no one is left with any doubt that the invisible hand does not

work the way it was contemplated, even if the individual initiative is allowed the maximum possible free

play. The theory that if the government is kept out of the business, it would automatically provide the

community with all it desired, without any plan or conscious planning opened the door to the devil has long

ago been exploded .

!overnment intervention in the economic system for social and economic reasons is now clearly

accepted and has come to stay. !overnments all over the world, particularly in developing countries, have

gone far beyond the indicative planning to price, wage, and numerous other controls and to state

entrepreneurship.

"adical transformation from a purely agrarian economy to one of the important industriali#ed nations

of the world, and demolishing of a regimented structured society to one based on social $ustice, would not

have been possible without the emphasis which has been laid on the growth and development of %ublic

&nterprises . 'oal industry in (ritain is nationali#ed. )ther !overnment enterprises in (ritain include

activities so diverse as the production and distribution of electricity and gas and the operations of airlines

and road transport. *ikewise, +taly which is the member of the Western &uropean 'ommon arket has a

nationali#ed oil industry. (esides this, the !overnment owns and manages a large number of industrial and

commercial undertakings, such as railways, steel plants, mines, chemical factories, engineering

establishments and banks.

-ccording to Singh /012 3 , in 4rance, even towards the end of the second world war, the policy of

nationali#ation had been vigorously pursued in coal, mining, gas and electricity industries. The (ank of

7/25/2019 STUDY 2 Ref

2/18

4rance and several other big banks and insurance companies were nationali#ed. 5hera /662 7 went on to

tell that the story of 'anada is also not different. +n 'anada, public corporations have existed over a century.

(ut it was in /38, that they were given legislative recognition. These corporations cover a wide field of

activities such as the operation of railways, steam ships, air services and harbour facilities, operation of

arsenals, atomic energy, television and radio. +n exico, oil production and prospecting is done by

nationali#ed industries. The %etroleos exicans, a nationali#ed industrial undertaking in exico has a

monopoly over oil prospecting and production in the country.

Thus it is evident that public enterprises were organi#ed in both capitalist and socialist countries.

Socialist countries across the globe were not exceptions as far as the theory in support of public enterprises

is concerned. -s is opined by ishra and Shankar /012 1 in socialist countries, the organi#ation of public

enterprises was a matter of policy, to check monopoly and to avoid concentration of economic power in the

hands of private individuals. +n 9SS" now 'ommonwealth of +ndependent States2 after the )ctober

"evolution of / 6, the (olshevik %arty took over the state power and proclaimed that its first ob$ective was

the creation of society and in the distant future a communist party. -s pointed by :as /112 6 , the roots of

exploitation have been seen in the institution of private property. So private property has to be abolished in

a series of steps and the public sector has to be the engine of development. The 'onstitution of 9SS" laid

down that the economic foundation of the nation is the socialist system of economy and the socialist

ownership of the instrument and means of production and the elimination of exploitation of man by

management. +n his study ;atara$a +yer //72 0 made a reference about 'hinahow and want

of managerial expertise. +n these circumstances, as explained by ;atara$a +yer //72 / only through the

development of public enterprises can these countries plan their economic development. So they invest

huge sums of money in the public sector. -s opined by -ravind !upta /032 ?8, in developing countries,

7/25/2019 STUDY 2 Ref

3/18

public enterprises are viewed as an effective instrument to break the longstanding stagnation and thereby

facilitate economic development. With this conviction most of the developing countries have invested

massive resources for the promotion of public enterprises.

Evolution o! Public Sector Enterprises in In"i#

+n +ndia, modern industries emerged during the pre>independence period itself. %ost partition, +ndia

got 66 per cent of the total area of the undivided country with 0? per cent of the total population, / per cent

of the total number of industrial establishments, and /@ per cent of the total number of workers employed

5uchal /0/2 ? . We have identified the importance of self reliance and decided the pattern of investment in

the industrial sector by giving top priority to build ade=uate capacity in basic industries such as steel, non>

ferrous metals, capital goods, fertilisers and petro>chemicals. The public sector was given the task to assume

a ma$or role in the expansion of these industries which they have fulfilled to a great extent with plan support.

+n the public sector, problems began with cost and time overruns in a large number of pro$ects. %ost

commissioning, inefficiency tended to persist at the operational stages of the pro$ects. The widening

technological gap between the +ndian industry and the rest of the world also had contributed for

obsolescence, raising costs and poor =uality compliances. -s capacities remained underutili#ed in many

industries, the shortages in production, apart from eroding the economic viability of the units, had a chain

reaction within the industrial sector, more specifically in public sector. Aence, it is a well thought and

conceived idea to bring into picture a mechanism that not only provides a sound platform to rebuild the

industrial units in deep trouble but also to pull back potential sick units from imminent disaster. -s a bail

out option evolved was the (+4", which came into existence with the passing of the Sick +ndustries

'ompanies Special %rovisions2 -ct, /07.

+ndia was one of the ma$or nations who opted for a mixed economy. "esultantly, the public

undertakings have come to play an important role in +ndia. The distinction between private sector and public

sector in +ndia became clearly pronounced only in the post independence era. )f late, the !overnment has

accepted the concept of welfare state and socialistic pattern of society as its ultimate aim. The mixed

economy concept envisaged by the !overnment of +ndia implied the creation of two definite and well

defined segments of the economy, vi#., public and private. )f these the public sector is called upon to play

7/25/2019 STUDY 2 Ref

4/18

an increasingly predominant role in the planned economic development of our country. They help to

promote self>dependence in strategic sectors of economy, build up a balanced infrastructure for the

development of a nation to accelerate industrial development and encourage social control on trade and

industry for ensuring e=uitable distribution of goods and services. %ublic enterprises, in addition to the

above achievements, create more employment opportunities, reduce disparities in income and wealth, and

also check the growth of private monopolies.

%rior to /36, there was virtually no public sector, barring the field of transport and communication,

"ailways, %ostal and Telegraph, etc. have been managed by the 'entral !overnment since pre>independence

period. :uring the post independence period, the growth and development of industries in +ndia has been

largely governed by the +ndustrial %olicy announced by the !overnment, in /30, which placed the

responsibility for the economic welfare of the people on the State. +n pursuance of this policy, government

decided to enter the field of industry and defined the scope of activities for the public and private sectors.

The +ndustrial %olicy Statement, /30 needed to be modified to suit new challenges and changing

conditions. -s a result !overnment of +ndia issued +ndustrial %olicy statements in /71, /6@, /66, /08

and // . +n each of these documents, the role of the %S9s in +ndia in the process of industriali#ation has

been clearly spelt out.

The +ndustrial %olicy "esolution /71 stated that in order to realise the ob$ectives of the socialistic

pattern of society, it was essential to expand this sector. This would provide the economic foundation for

increasing opportunities for gainful employment and improving living standards and working conditions for

the mass of the people. +t would also reduce disparities in income and wealth, present private monopoly and

the concentration of economic power in the hands of a small number of individuals. The adoption of the

socialistic pattern of society as the national ob$ective, as well as the need for planned and rapid development

re=uires that all industries of basic and strategic importance or in the nature of public utility services should

be in the public sector. )ther industries which are essential and re=uire investment on a scale which only the

state, in present circumstances could provide have also to be in the public sector. -ccordingly, the state

must progressively assume a predominant and direct responsibility for setting up new industrial

undertakings and for developing transport facilities.

7/25/2019 STUDY 2 Ref

5/18

Though the State enterprises have now become a world wide phenomenon, in the +ndian perspective,

it bears more weight probably because of our new experiment of mixed economy. Since, its existence, the

public sector in +ndia has made a tremendous rise. With a vital role thus assigned to the public sector it is

important that public sector enterprises should flourish and make their due contribution towards the

economic progress of the country. +t has made a valuable contribution to the industrial moderni#ation of the

country, building up vitally important infrastructure for economic growth and in achieving a degree of

import substitution.

When +ndia became independent, it had a population of @68 million mostly illiterate. +ts agriculture

and industrial sectors were in primary stages of development and the per capita income was estimated at "s.

?88. -t this stage it is the public enterprises which had to lay the basis upon which the structure of a

dynamic and diversified economy is to be built up. (efore the initiation of planning in +ndia, public sector

used to restrict its activity to sectors like railways, ports, communication, broadcasting, irrigation, power and

a few departmental industrial undertakings. -fter the commencement of five year plans and the declaration

of industrial policy resolutions, public sector started to cover a vast and varied range of activities. +t

occupied a dominant position in the basic industries and capital goods industries. +t could provide the

re=uired impetus in the development of backward regions also. +t is expected that the public sector will give

relief to the economic strain that is being experienced by our country.

Role o! Public Section Enterprises in In"ustri#li$in% In"i#

-s highlighted by Sharma /672 ?? , contributing an estimated . ? per cent of !ross :omestic

%roduct at market prices in ?887>81, the 'entral %ublic Sector &nterprises '%S&s2 continued to be engaged

in the production and supply of a wide range of products and services including basic goods like steel

cement and chemicals, capital goods like pressure vessels, boilers and drilling rigs and intermediate goods

like electricity and gas. They also rendered a large number of services like telecommunications, tourism and

warehousing.

The role played by the '%S&s in industriali#ation of +ndian economy can be visuali#ed from the

following facts as sourced from the "eview of 'entral %ublic &nterprises ?@ by the (ureau of %ublic

&nterprises !ovt. of +ndia, ?8802B

7/25/2019 STUDY 2 Ref

6/18

'umulative investment of all '%S&s as on @ st arch ?886 amounted to "s.@,/@,876 crores. The

share of manufacturing enterprises in such investment was the highest at 7 per cent followed by service

sector enterprises at 38 per cent and mining at 6 per cent.

? +n terms of capacity utili#ation, 7 per cent of all 'entral %ublic Sector &nterprises operated at 67 per

cent or higherC 1 per cent at 78>67 per cent and the residual @@ per cent at less than 78 per cent.

@ The long term loans of '%S&s went up to "s. @,1 ,6 3 crores.

3 The accumulated losses of all '%S&s declined by "s. 8,760 crores from "s. 0@,6?7 crores in ?887>

81 to "s.6@, 36 crores

7 33 '%S&s are listed on domestic stock exchanges while shares of T;* -:"2 are listed on ;ew

Dork Stock &xchange, the shares of !-+* and S-+* are listed on *ondon Stock &xchange.

1 +n net value addition of '%S&s at market prices, the share of taxes and duties was the highest at 31

per cent, followed by net profit ?1 per cent2, salaries and wages / per cent2 and interest / per cent2.

6 -t the end of arch ?886, the ?@/ '%S&s employed over 1.3/ lakh people excluding causal

workers. The comparable figures in the previous 3 years were /./? lakh and 0.11 lakh, 6.1? lakh and 6

lakh respectively.

&ven though the +ndian %S9s show a rosy picture, some setbacks can also be seen among them.

Aence, efforts are being made to moderni#e and restructure sick '%S&s and revive sick industry. )nly the

chronically loss making '%S&s are considered for closure or sell>off, after payment of due compensation to

their laid off employees. The problem of sickness in '%S&s is addressed by the -dministrative inistries

and :epartments by evolving an appropriate need based strategy concerning a particular '%S&.

!overnment further helped the '%S& to turn around financially, set up the (oards for "econstruction of

%ublic Sector &nterprises ("%S&2 in :ecember ?883 to recommend measures for restructuringEreviving

'%S&s referred to them. The ("%S& also recommends cases where disinvestments or closure or sale are

$ustified. Till @ st )ctober ?881, ("%S& has made recommendations in respect of @1 '%S&s and

!overnment has approved the proposals in ? cases (ureau of %ublic &nterprises, ?8802 ?3 .

+n order to ensure and encourage efficiency in their functioning, !overnment has taken various steps

to professionali#e the (oards of '%S&s. These include provision of outside professionals in the form of

7/25/2019 STUDY 2 Ref

7/18

part>time non>official directors, restricting the number of !overnment nominated :irectors to one>sixth of

actual strength of the (oard sub$ect to a maximum of two, and incorporation of functional directors up to a

limit of 78 per cent of actual strength of the (oard (ureau of %ublic &nterprises, ?8802 ?7 .

)n the recommendations of -r$un Sen !upta 'ommittee, the !overnment during /06>00

introduced the concept of emorandum of 9nderstanding )92 to ensure clarity in the functioning of

'%S&s and proper balance between accountability and autonomy for better results. The number of '%S&s

signing )9 went up from 3 in /06>00 to ? in ?881>86. +n order to further the competitive spirit, an

attempt has also been made to evaluate the performance of the '%S& on the basis of a2 sales b2 growth of

sales c2 net profit d2 growth in net profit e2 return on net worth g2 earning per share and h2 dividend pay

out ratio (ureau of %ublic &nterprises, ?8802 ?1 .

The !overnment policy on disinvestments has evolved over the last decade and is generally

announced through the budget. :isinvestment of !overnment e=uity in '%S&s began in // >/?. Till

///>?888, disinvestment was primarily through sale of minority shares in small lots. (etween ///>?888

and ?88@>83, the emphasis of disinvestments changed in favour of strategic sale. The proceeds from

disinvestment from -pril // to arch ?886 amounted to "s. 3/,?3 .?/ crores. -t present, the policy is to

list large, profitable '%S&s on domestic stock exchanges (ureau of %ublic &nterprises, ?8802 ?6 .

Public Enterprises Polic&

+n any scheme of economic liberali#ation, a proper se=uencing of reforms is very vital. +t may be

observed that to begin with reforms around the world were initiated with %ublic &nterprise restructuring.

+ndia did not pay any heed to this critical dimension of reform. ;ot to mention, the first generation economic

reforms, there is no clarity about the approach to be adopted with regard to %ublic &nterprise restructuring as

a part of second generation reforms. The reforms in their first stage have more or less been limited to the

central government. 'onse=uently, the talk about reforming the %ublic enterprise has veered around only the

'entral %ublic &nterprises leaving out of its scope a vast number of State *evel %ublic &nterprises,

municipal enterprises and co>operatives with a ma$ority shareholding of the government. (esides the impact

of coalition politics, the lack of bureaucracy has been the principal cause of shying away from formulating a

transparent %ublic &nterprise reform policy.

7/25/2019 STUDY 2 Ref

8/18

7/25/2019 STUDY 2 Ref

9/18

i. Through bankruptcies of some enterprises

ii. (y virtual en$oyment of monopoly power over a span of time sufficient to compensate high initial

costs and losses

iii. Subsidies offered by the government as in railways2 C and

iv. Through multi national operations with all its conse=uences @

This policy pronouncement provided a forceful hint to public enterprises to review their spectrum of

activities with the ob$ective of unloading non core and peripheral functions. +t was expected that the follow

up of this measure would result in making public enterprises lean and mean. The government felt that a

selective public enterprise portfolio would bring down the transaction cost, improve the =uality of control

and add to the efficiency of the public enterprise system.

Re!erence to Bo#r" !or In"ustri#l #n" ,in#nci#l Reconstruction - BI,R.

-t the beginning of the //8s itself, a large number of public enterprises had fallen sick. They

constituted about ?7 per cent of the then operating public enterprises. The trends in the financial results of

the remaining public enterprises revealed the likelihood of more public enterprises falling sick. The

government did not have an exit policy for public enterprises and it refrained from following the path

adopted by the private sector. +t therefore, decided to use the (+4" route, which provided a fair opportunity

to public enterprises to evolve suitable revival packages and implement them or else wind up with a social

safety net. 9nlike the private sector which throws away the baby with the bathwater, the government

suggested public enterprises to have a human face. &ach enterprise was directed to formulate its own social

safety net comprising voluntary retirement, and retaining and redeployment schemes for workers. The

government made an announcement to set up the ;ational "enewal 4und ;"42, the finances for which had

to be gathered from global agencies, while parts of the proceeds were to come from disinvestments.

'obilis#tion o! ,un"s/ 0isinvest ents #n" Public P#rticip#tion

The //8s started with a severe resource crunch. +n 4ebruary //8 the coffers of the government did

not have ade=uate money to pay for the employees< salaries. This was an ade=uate hint about the shape of

things to come. The constant increase in social sector spending and the move to curtail fiscal deficits did not

7/25/2019 STUDY 2 Ref

10/18

leave much scope for public enterprise to depend on the government for funding. The government permitted

public enterprises to access international capital markets and make forays into the +ndian capital market .The

partial disinvestment in public enterprises was introduced as a double edged sword aimed to reduce, on the

one hand, the fiscal deficits of the government, and enhance the degree of publicness in public enterprises,

on the other, through wider participation in their shareholdings by general investing public, banks, mutual

funds, workers and financial institutions.

Up%r#"#tion o! Tec2nolo%&

4or the introduction of the state of the art technology, it was decided that public enterprises would

be given a free hand and the funds for such upgradation would come from the disinvestment proceeds or

restructuring packages approved by the global financial institution 3

4overnin% Bo#r"s

+t was realised that strengthening the institution of the !overning (oards was necessary in order to

professionalise public enterprises and make them effective business entities. - number of steps were

suggested for revamp. +t was decided that the number of government nominees was not to exceed two.

4urther, part time directors were expected to bring in a breath of fresh air to the public enterprises and were

to have a greater say. ore room was made for the representation of professionals, who were expected to

provide sound business advice. The representation of different interest groups also received attention and the

worker

7/25/2019 STUDY 2 Ref

11/18

1((5 Perio"s

The Fanata :al !overnment, during this period, initiated some important measures and made public

its unambiguous stand of speeding up the disinvestment process through ma$ority stake in shareholdings.

0isinvest ent Co ission

The government set up through an executive order, the :isinvestment 'ommission which was

responsible for reporting its scheme on the disinvestment of selected public enterprises. +t was also

empowered, among other things, to suggest to the government the appointment of global advisors.

N#vr#tn#s #n" 'inir#tn#s

+n order to prepare giant public enterprises for global competition and enable them to assume the role

of +ndia multinationals, the government identified / enterprises namely, .(harat Aeavy &lectricals *td,

?.Steel -uthority of +ndia *td, @.)il and ;atural !as 'orporation , 3. Gidesh Sanchar ;igam *td, 7.;ational

Thermal %ower 'orporation, 1.(harat %etroleum 'orporation, 6.Aindustan %etroleum 'orporation *td,0.

+ndian )il 'orporation *td, /.+ndian %etrochemicals 'orporation *td, as navaratnas and /6 enterprises as

miniratnas based on their record with regard to constant profitablility and si#e of capital . *ater, the list of

navaratnas was extended from / to . Subse=uently, the number of miniratnas was scaled down from /6 to

37. The rationale behind identification of these enterprises as navaratnas and miniratnas was to increase

their economic and operational autonomy in proportion to their financial and commercial success , as also to

provide them special leverage to face competition in +ndian and global markets by freeing them from

bureaucratic and procedural hurdles.

1((6 perio"s

The coalition government during this year had to do a lot of tight rope walking with the left front and

had to therefore adopt a mild posture with regard to off>loading public enterprises from its portfolio.

Re2#bilit#tion P#c7#%e

The government decided to prepare rehabilitation packages for sick public enterprises to give them a

chance for revival instead of going for their =uiet closureEprivatisation.

7/25/2019 STUDY 2 Ref

12/18

Re!inin% t2e scope o! t2e 0isinvest ent Co ission

The government wanted the commission to make suggestions regarding disinvestments of only those

enterprises which it referred to the commission. The commission was divested of its powers to recommend

the names of global advisors.

1((( Perio"s

The rightist government of the day was prepared to accelerate the tempo of the disinvestment

programme and reduce the scope of public enterprise activities in the +ndian economy.

Priv#tis#tion

4or the first time, during the //8s, the !overnment in its budget presented to the %arliament used

the word privatisation. The !overnment went all out to show its commitment to privati#e public enterprises

and restore the powers of the :isinvestment commission.

Co petition

The government initiated the process of evolving a competition policy . +t exhorted public enterprises

to be competitive.

S#l#ries #n" 8#%es

While accepting the ohan 'ommittee report on wage revision in public enterprises, the government

left it to each and every public enterprise to examine its paying capacity to meet the burden arising out of its

implementation. The government categorised public enterprises into @ divisionsB

%ublic enterprises earning profits continuously for three yearsC public enterprises recording mixed

performanceC and public enterprises suffering from sickness. Those enterprises which were consistently

earning profits could implement the revision, the mixed performance enterprises were re=uired to take the

approval of the respective ministries and the sick enterprises had to get the burden of implementation

incorporated in the rehabilitation packages.

Polic& 'e#sures: 9)))*9))9

The government decided to discontinue the ;ational "enewal 4und in its present form and place the

7/25/2019 STUDY 2 Ref

13/18

funds re=uired for retrainingErehabilitation of employees who had availed G"S under the :epartment of

%ublic &nterprises. The :epartment of %ublic &nterprises involved itself in this work from ?88 >?88? with

a plan fund of "s .78 crores. The :epartment of %ublic &nterprises were concerned with the employees

of the 'entral %ublic enterprises. The inistry of *abour and the inistry of small scale industries were

concerned themselves with the employees of the State *evel %ublic &nterprises.

The period // >/? to ?88 >8? saw a series of policy measures aimed to dismantle public sector to

give fillip to private monopoly and increase the dependence of the +ndian economy on global economic

powers.

'e#nin% o! Public Enterprises

eaning of the term public enterprise continues to remain vague and varying. +t is rightly said that

%ublic &nterprises is a neat label for a very untidy concept 3. %ublic &nterprises is a general word which

masks very different realities. There is no authoritative internationally accepted definition of the term %ublic

enterprise. +t is each country

7/25/2019 STUDY 2 Ref

14/18

redefinition of what is public interest for a public enterprise.

The public ownership would cover central, state and local governments, as well as autonomous

public institutions. The ownership is thus held directly or indirectly through the shareholding of public

enterprises. The ownership should be more than 78 per cent to ensure managerial control. &ven if the

ownership is less than 78 per cent, the enterprise could ac=uire a public enterprises character, if the minority

ownership is accompanied by an ade=uate measure of public control and public management. +n many cases

in +ndia, the government has a substantial and even ma$ority holding in ma$or private sector companies via

the public financial corporations, but as this is not accompanied by public management and public control

these enterprises cannot be called public enterprises .

4or companies under Section 1 /( of the 'ompanies -ct, /71, 7 per cent or more of the paid up

capital is held by the government along with one or more public enterprise, or by one or more public

enterprise, without the government holding any direct interest. These enterprises have 6 only partial public

control because of the provisions of section 1 / of the companies -ct regarding the appointment of auditors

by the government on the advice of the 'omptroller and -uditor !eneral '-!2.

%ublic control is another essential characteristic of public enterprise. This control is different from

the regulatory, legislative and executive controls exercised over the entire economy by the government. +t

refers to the exercise of top management functions of %ublic &nterprises. The implications of public control

are public management, that is, top %ublic &nterprise managers are appointed by owner public authorities.

"egarding the enterprise aspect of public enterprise, they have a business character which is more

likely to be found in areas of economic activity such as agriculture, mining, manufacture, utilities,

construction, commerce, communication, finance and services. )n the other hand, public administration,

national defence, education and a variety of cultural and social services generally do not lend themselves to

the business idea.

The business character implies capital investment in which the investors would normally expect a

return. 4or this purpose, the goods and services could be made available by a %ublic &nterprise for a price,

which may be ad$usted from time to time to cover the cost of inputs. %ublic enterprise is assumed to be an

7/25/2019 STUDY 2 Ref

15/18

7/25/2019 STUDY 2 Ref

16/18

+n many *atin -merican and -frican countries, %ublic &nterprises is known as parastatal or

parastatal sector that is, the group of institutions, organisms and enterprises that, empowered by the State,

cooperate in its aims without being part of the public administration.

A R#tion#le ,or Public Enterprises

%ublic enterprises occupy a vital role in the economy of almost all countries of the globe irrespective

of their political affiliation. Still, if one analyse the ultimate causes of the emergence of public enterprises, it

varies from one country to another. +n the western countries, the reason could be located with infeasibility of

application of laisse# faire policy and widespread social tensions created by capitalism that resulted in the

emergence of public enterprises. The classical economic view of laisse# faire aimed at full employment, full

investment and maximum wealth. Aowever, in actual practice, underemployment, exploitation, ine=uality in

the wealth distribution and poverty were the after effects.

The important reason for the origin of public enterprises was that through private capitalism, the total

society was divided into two classes, namely, Ithe haves< and Ithe have>nots

7/25/2019 STUDY 2 Ref

17/18

to the government exche=uer in the form of taxes and interest. +n their opinion, financial yardsticks should

not be used for evaluation of performance of public enterprises.

-ccording to Fain /162 / , in the modern world, the laisse# faire policy has no existence. +t is

absolutely improbable and impracticable to think about noninterference of government in business matters.

%roper intervention of !overnment at the right time in the industrial matters of a nation will provide for its

economic development. The affairs of government industry and trade have got so much mixed up that their

separation is neither easy nor desirable. -s rightly pointed by -ravind !upta /032 8 , when we summarise

the causes of the emergence of public enterprises, globally, it is found that there are two ma$or compelling

factors for the government to participate, first, the risk involved in the enormous capital investment in

certain key industries and secondly, the need to achieve and maintain certain desirable socio>economic

ob$ectives.

Public Sector Un"ert#7in%s T2e 4lob#l Scen#rio

)nce we compare the growth of public enterprises in the capitalist and socialist countries, we can

find that the capitalist countries started public enterprises in order to reconstruct their economies after World

War +, or to accelerate the pace of their development or to save their economies from the ravages of great

depression. Singh /012 further clarified that in the 'ommunist countries, public enterprises were formed

as part of their ideological commitment.

%ost>Second World War era is characteri#ed by the emergence of large number of countries free from

&uropean 'olonialism in -sia, -frica and ;orth -merica. The options available with these countries were to

accept the 'apitalist System or 'ommunism or to adopt a middle way encompassing the merits of both, the

ixed &conomy. +t has been proved beyond doubt that both developed and developing countries have used

%ublic Sector &nterprises as a vehicle for their sustained development. 4or instance, in the 9nited States of

-merica, where private sector enterprises are playing a vital role in the economy, critical areas of essential

services are managed by %ublic Sector &nterprises.

To =uote Fuma Walter wapachu /0@2 ? , in a capitalist market economy as that of the 9nited

States of -merica where the private sector constitutes the core of economy, we find perhaps the most well

7/25/2019 STUDY 2 Ref

18/18

managed public enterprises covering critical areas of essential services like energy, water transport, postal

services, airlines and defence production. -s is observed by 5hera /662 @, the whole of