Public Sector in India

Public Sector in India

Public Sector

In terms of ownership, Public Sector Enterprise (PSE) comprises all undertakings that are owned by the government or the public, whereas the private sector comprises enterprises that are owned by private persons.

Main Objectives of the Public Sector

• To promote rapid economic development through the creation and expansion of infrastructure;

• To generate financial resources for development;

• To promote redistribution of income and wealth;

• To create employment opportunities;

• To encourage the development of small-scale and ancillary industries;

• To promote exports on the new side and import substitution on the other;

• To promote balanced regional development.

Disinvestment and Privatisation

Difference Between Privatisation and Disinvestment

• Privatisation implies a change in ownership resulting in a change in management. Disinvestment is a wider term extending from dilution of the stake of the government to the transfer of ownership (when govt, stake is reduced beyond 51 %).

Disinvestment Commission

• The Government of India constituted the Disinvestment Commission with Mr. G.V. Ramakrishna as the chairman in August 1996 to advise it on the disinvestment programme of public sector enterprises.

• It has been suggested classification of PSE into core and non-core. In the core sector maximum of 49% disinvestment would be allowed, while in the non-core sector, disinvestment would be up to 74%.

• PSE shares will be given to small investors and employees to ensure the wide dispersal of shares, thus introducing mass ownership and workers' shareholding. It has also suggested greater autonomy to PSEs.

Disinvestment Policy

• The policy on disinvestment has evolved considerably. The policy includes strategic disinvestment by way of sale of a substantial portion of Government shareholdings in identified CPSEs up to 50% or more, along with transfer of management control.

• To minimize the financial burden on the Public Sector Enterprises, the Government has started the Voluntary Retirement Scheme (VRS) for the employees by giving full compensation to employees. This is called the ‘Golden Handshake Scheme’.

Privatisation

• Privatisation refers to a general process of involving the private sector in the ownership or operation of a state-owned enterprise. Thus, it refers to the private purchase of all or part of a company.

Small Scale Industries

Small-scale and cottage industries have an important role to play in a labour-surplus developing economy like India. Their importance can be explained as—

1. Employment Generation

• Large-scale industries are generally capital-intensive. Small-scale industries, on the other hand, are generally labour-intensive and have a substantially higher employment potential.

• As per the National Sample Survey (NSS) 73rd round, for the period 2015-16, there are 633.88 lakh unincorporated non-agriculture MSMEs in the country engaged in different economic activities, employing 11.10 crore workers.

[Source: ES 2017-18]

2. Equitable Distribution

• The ownership of SSIs is more widespread among both individuals as well as areas. Thus, these ensure the equitable distribution of income individually and regionally.

3. Mobilisation of Small Savings

• SSIs can be run with the help of small capital. Thus, they facilitate the mobilisation of small savings.

4. Contribution in GVA:

• The share of the MSME (Micro Small and Medium Enterprises) sector in the country's Gross Value Added (GVA) is approximately 32%.

[Source ES 2017-18]

5. Environment Friendly:

• As these are dispersed far away from urban centres, they do pollute the urban environment.

Problems of SSIs

However, Scale Industries is suffering from several problems, like—

(a) Lack of timely, adequate, and easy finance,

(b) Lack of availability of raw material,

(c) Lack of a sound marketing system,

(d) Competition with the large-scale sector.

Micro Small Medium Enterprise (MSME)

Contribution

• Micro, Small & Medium Enterprises (MSMEs) contribute significantly to the economic and social development of the country by fostering entrepreneurship and generating employment opportunities.

• The relative importance of MSMEs can be gauged from the fact that the share of MSME GVA in total GVA (current price for 2019-20 was 33.08 %).

Government Initiatives

• The government has taken several initiatives to support nature and promote the MSMEs.

• The revision in the definition of MSMEs brought in w.e.f. 1st July, 2020, as part of the AtmaNirbhar Bharat package, introduced a composite-criteria of investment and annual turnover and identical limits for the manufacturing and services sectors.

Number of MSMEs

As per the National Sample Survey (NSS) 73rd round, conducted by NSSO in 2015-16, there were 633.88 lakh unincorporated non-agriculture MSMEs in the country engaged in different economic activities, excluding the MSMEs registered under

(a) Sections 2m(i) and 2m(ii) of Factories Act, 1948,

(b) Companies Act, 1956 and

(c) Section F of the National Industrial Classification (NIC) 2008. [Source: INDIA 204]

The government included Retail and wholesale trades as MSMEs from July 2021. Benefits to retail and to be restricted to priority sector lending only. The Ministry of MSME also launched the Udyan Assist Platform in January 2023 to bring Informal Micro Enterprises under the formal ambit of MSMEs.

[Source: INDIA 2024]

Contribution of MSMEs to GDP

As per the latest information received from the Ministry of Statistics and Programme Implementation, the share of MSME gross value added (GVA) in all India manufacturing GVA is as follows:

Definition of MSMEs – Old and New

Sick Industries

• Sick Industrial unit is defined as a unit or a company (in existence for at least five years) which is found at the end of any financial year to have incurred accumulated losses equal to or exceeding its entire net worth or at the end of any financial year, it has accumulated losses equal to or exceeding 50% of its average net worth in the immediately preceding four financial years and has failed to repay debts to its creditor(s) in three consecutive quarters on demand made in writing for such repayment.

Financial Institutions Supporting Industry

• Indian Industrial Investment Bank Limited was established on 17th March 1997 by the government, under the Companies Act 1956. Presently, its authorized capital is 1000 crore rupees, and its head office is in Kolkata.

• With the aid of providing finance, the Small Industries Development Bank of India (SIDBI) was established in 1990.

• Abid Husain Committee is related to reforms in small industries.

• Industrial Finance Corporation of India (IFCI) was established on 1st July 1948 by a special Act of Parliament.

• Industrial Credit and Investment Corporation of India (ICICI) was established in 1955 under the Indian Companies Act. Its function is to support the establishment, development, and modernization of industries in the private sector.

• Industrial Development Bank of India (IDBI), established on 1st July 1964, is an apex institution in the field of industrial finance.

• The Industrial Reconstruction Board of India (IRBI) was established in 1971 to reconstruct the sick industrial units.

• Unit Trust of India (UTI), established in 1964, collects small savings of people through the sale of units and invests them in securities. The Husain Committee is related to reforms in small industries.

Final Thoughts

The Public Sector in India has always played a crucial role in driving economic growth, building infrastructure, generating resources, and ensuring equitable development. Over time, policies like disinvestment and privatisation were introduced to reduce the government’s burden, give enterprises more autonomy, and bring in wider public participation. The idea was not just to improve efficiency but also to encourage mass ownership through employee and small investor shareholding.

Alongside, Small Scale Industries (SSIs) and MSMEs emerged as the backbone of India’s economy by generating large-scale employment, mobilising small savings, and contributing nearly one-third to India’s Gross Value Added (GVA). Despite challenges like a lack of finance and market competition, they continue to empower local communities.

The government has modernised support by revising the definition of MSMEs, launching initiatives like the Udyan Assist Platform, and extending benefits to retail and wholesale trades. Financial institutions such as SIDBI, IDBI, ICICI, and IFCI have also been set up to provide funding and strengthen industrial growth.