Q.What was the role of the public sector before 1991?

At Independence the public sector was expected to play a leading role — investing directly and acting as a catalyst in key areas the private sector avoided. Its role covered:

• Development of infrastructure — transport, energy, heavy industry the private sector wouldn't build.
• Regional balance — locating industries in backward areas.
• Economies of scale — large units in power, gas, petroleum, telephones.
• Check over concentration of economic power — preventing wealth collecting in a few private hands.
• Import substitution — heavy-engineering PSUs for self-reliance; STC/MMTC to boost exports.

At the time of Independence, the public sector was expected to play a leading role in the economy — either by taking part in business directly or by acting as a catalyst. It was to build infrastructure for other sectors and invest in key areas where the private sector was unwilling to go, because those projects needed heavy investment and had long gestation periods. The early Five Year Plans gave great importance to the public sector. Its role before 1991 can be understood along these dimensions:

• Development of infrastructure: infrastructure is a prerequisite for industrialisation. The private sector showed no initiative to invest in heavy industries, lacking the personnel and finance. Only the government could mobilise huge capital, coordinate industrial construction, and train the workforce, so it built transport and communication, fuel and energy, and basic and heavy industries — steel plants, power plants, railways, petroleum, coal and more.

• Regional balance: to remove regional disparities, the government deliberately located public enterprises in backward areas (for example, four major steel plants) to spur development, employment and ancillary industries, and to prevent industry piling up only in already-advanced areas.

• Economies of scale: where industries needed a huge capital outlay and a large base to operate economically — electric power, natural gas, petroleum, telephones — the public sector set up large-scale units to reap economies of scale, possible only with government resources.

• Check over concentration of economic power: because only a few industrial houses could invest in heavy industry, wealth tended to concentrate in a few hands, encouraging monopoly and inequality. By setting up large industries whose income and benefits were shared among many employees and workers, the public sector prevented this concentration of wealth and economic power.

• Import substitution: during the second and third Five Year Plans, India aimed to be self-reliant. Foreign exchange was scarce, making heavy machinery hard to import, so heavy-engineering PSUs were set up to substitute imports; meanwhile STC and MMTC helped expand the country's exports.

In short, before 1991 the public sector was a builder and catalyst — laying the industrial foundation the private sector could not or would not lay, and steering the economy towards self-reliance and balanced growth.