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Jul 31, 2012

Public Sector Policy in India

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The public sector has been central to India’s industrialization within the mixed framework. The industrial policy resolution in 1956 accorded a strategic role to public enterprises. Accordingly, areas of strategic importance and core sectors were exclusively reserved for public sector enterprises.

At centre and state levels, the public enterprises grew dominantly in terms of units and investments. Nationalized sick units accounted for one-third of the public enterprises in due course of time. A number of public enterprises had come up in non-strategic, non-core, consumer goods and services sector. By 1993, only about 60 per cent of total investment in public enterprises was in areas originally envisaged as the “commanding heights”.

Public sector would be confined to strategic, high tech industries and essential infrastructure. In 1992, the government established a Non-statutory National Renewal Fund to provide assistance to cover the cost of retraining and redeployment of labour and also provide compensation to labour affected by the closure of unviable public sector units, etc.,

Many public sector units were brought under the MoU (Memorandum of Understanding) system, which is a performance contract, a freely negotiated document between the Government and specific public enterprise.

MoU was started in 1987-88 with public enterprises, as of now more than 100 such units are covered by MoU. In 1995-96, financial performance was accorded 60 per cent weightage in MoUs. Many areas previously reserved for the public sector have been opened up to the private sector. Although its shares has declined in the past ten years, the public sector still accounts for 25 per cent of India’s GDP, 31 per cent of capital investment and 17 percent of the final consumption expenditure in the country.

At the start of the reforms 18 important industries including iron and steel, heavy plant and machinery, telecommunications and telecom equipment, mineral oils, mining of various ores, air transport services, and electricity generation and distribution, were reserved for public sector.


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