Q.Though public sector is very essential for industries, many public sector undertakings incur huge losses and are a drain on the economy's resources. Discuss the usefulness of public sector undertakings in the light of this fact.
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Start your 14-day free trial to unlock the full solution →Public sector undertakings (PSUs) laid the industrial and infrastructural foundations that private firms would not build, and they served social goals like equity, regional balance and employment. Many did make losses through inefficiency and non-commercial duties — but profit alone is the wrong yardstick for institutions created to serve society. They are useful, provided they are run efficiently and held accountable.
Why the public sector was created
After independence India needed to build heavy and basic industries (steel, power, machinery) and infrastructure. These required vast capital and gave returns only after many years — investments the small private sector was unwilling or unable to make. The state therefore built them through public sector undertakings, guided by a socialist vision that wanted to prevent the concentration of wealth and to promote equitable, balanced development.
The usefulness of PSUs
- Built the industrial base. PSUs created the heavy industries and infrastructure — the foundation on which all later industrial growth, public and private, was built.
- Promoted self-reliance. By producing basic and capital goods at home, they reduced dependence on imports.
- Balanced regional development. PSUs were deliberately located in backward regions, bringing industry, jobs and development to areas private firms ignored.
- Prevented concentration of economic power. State ownership of key industries kept economic power from collecting in a few private hands.
- Generated employment and provided their workers with security and welfare, serving the equity goal.
- Served social objectives, sometimes selling essential goods at affordable prices rather than at maximum profit.
The criticism — and why loss is not the whole story
It is true that many PSUs incurred huge losses and became a drain on resources, because of:
- overstaffing and low productivity,
- political interference in decisions,
- inefficiency and lack of the profit motive, and
- social obligations (like locating in backward areas or holding down prices) that a private firm would never accept.
But several of these losses arose precisely because PSUs were pursuing social and developmental goals rather than profit. Judging them only by their profit-and-loss account misses the point of why they were set up. Where PSUs were run inefficiently for no such social reason, that inefficiency is a genuine problem to be corrected. …
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