Studying this Article should  enable you to understand:

• Meaning of Public Sector Enterprises PSES),
• Rationale and Contribution of PSEs in Indian Economy,
 • Performance of Indian PSEs.

 •Problems inflicting PSEs.
 • Recent Government Initiatives for improving PSEs.


Public Sector Enterprises (PSEs) or State owned and managed units have played a strategic role in the Indian economy. The key factors contributing to stronghold of these enterprises are the need of rapid industrialization with equitable distribution of economic wealth and inadequacies of free market. India witnessed a greater degree of state ownership and increased regulation since second plan that envisaged industrialization as a development strategy. By 1980s the poor performance of state-owned companies was acknowledged and various efforts were 
made to improve performance. In an era of economic reform process initiated since 1991 privatization has become a key component of public sector policy of the ,government, The survival of PSEs now depends upon performance efficiency and profitability.

Definition of Public Sector Enterprises

Public Sector Enterprises often referred to as government owned undertakings:!enterprises or state-owned enterprises are wholly or partly owned and controlled by the government and produce marketable goods and services i.e, PSEs includes industrial and commercial enterprises which are managed and controlled ,by government.
Public sector anti PSEs are different from each other. The word public sector is wider and includes all kinds of organisation commercial PSEs) and non-commercial that are owned partly or fully and effectively managed by Government .'Thus government funded universities, colleges, hospitals, schools are
 part of publie sector but not PSEs because these organisations lack commercial orientation.

Rationale of PSEs In India

PUBLIC SECTOR ENTERPRISES(PSEs) IN INDIA The policy rationale for public ownership and government provision of certain goods and services  has been based on the presence of some form of  market which are addressed  through public ownership. In India, PSFs are assigned the responsibility Of fulfilling social goals like correcting regional –and  economic imbalances providing employment and reducing the concentration of monopoly power in the economy. Further, as a pre-requisite for growth, the state controls the key sectors of the economy which is popularly known thc commanding, heights' rationale .The rationale of  PSI's in India is discussed as follow …

1.Rapid Economic Development

The prerequisite of faster economic development is the creation of infrastructure and the growth of basic industries like power,steel transportation; communication ,banking etc. These industries require huge capital investment and involve long gestation period and so private sector may not be interested to undertake the development of such industries .Further, the private sector lack financial and technical skills to develop such industries.In other words, reluctance on the part of private entrepreneurs to develop key industries due to high risk  and low returns necessitated the establishment of PSEs. Government with its capacity  to mobilize huge economic resources can develop the industries that are significant for growth prospects of the country. Thus in the earlier
phase of development heavy state spending on  on investment in basic infrastructure sectors and service facilities(for example financial institutions,telecommunications banking etc is essential for providing a congenial atmosphere to the private sector to facilitate the process of accelerated developnient of the economy.

2. Reduction of Concentration of Economic Powers
PSEs reduce inequalities of income through welfare programmes.favourable pricing policy towards small industries 
and supply of cheaper  sector may manipulate the price 0f essential goods and indulge into quick profit making by controlling the volume and price of such goods. PSEs prevent such concentration 
of economic power.

3. Balanced Regional Growth

 Private sector generally neglects backward regions that lack infrastructure and other basic facilities such as power, roads, telecommunication, skilled labor etc. PSEs set up large projects in these areas and spend huge cost to develop such areas. In this manner PSEs help to achieve balanced regional growth.

4. Employment Generation

 The adequate generation of employment opportunities is a major objective of the public sector enterprises. This sector has provided direct employment to more than 80 percent of organized labor.

5.Import-Substitution and Export-Promotion

 In the initial period of development foreign exchange constraints exist due to huge imports of capital goods and low exportable surplus. PSEs produce importable goods domestically which tend
 to save precious foreign exchange and facilitate exports.

6.Resource mobilization

PSEs mobilize savings through large network of 'banking and financial institutions. The profits of PSEs are ploughed back into developmental activities of the country. Furthers PSEs contribute 
to the Government's exchequer through payment of tax and divideds


The role of PSEs in the provision of social and economic infrastructure has been impressive. It has significant contribution 
to the country s economy by filling the gaps in the industrial sector, generating employment and balanced regional development. The major contributions of PSEs are explained as under:

Contribution towards Industrial Development and GDP Growth

The role of Indian PSEs in the process of industrialization is widely acclaimed. The PSEs has helped to build sound and diversified industrial base. The capacity creation by PSEs in basic industries such as generation and distribution of electricity,
telecommunication public transportation stood at around 50 percent. In case of basic metals fuel and fertilizers it stood at 80 percent to 100 percent. These industries are central to economic development process of industrialization. PSEs contribute around PSEs contribute around 27percent of total industrial production of the economy. On the eve of the First Five Year Plan there were 5 central public sector enterprises (CPSEs) with a total (financial) investment of Rs. 29 crore. Both the number of enterprises and the investment in CPSEs recorded an
 overwhelming increase over the years, especially so after the Second Five Year Plan. As on 31st March, 2007, there were a total
 of 247 CPSEs with a total of Rs. 471089 crofts. The contribution of PSEs in the real gross capital formation as depicted in tablet clearly indicate that PSEs occupy a significant position in the process of country's capital formation and holds commanding heights of the economy.
As far as the share in national production is concerned, central 
PSEs in the 1950- 51 contribute 3 percent of national income which has increased to around 8.23percent in 2006-07.

Suggestions to Improve the Performance of Public Sector Enterprises (PSEs):

(1) Reforms in capital base.

(2) Increase the standard of public sector enterprises to manage the competition from both domestic and foreign competitors.

(3) Controlling the cost at every level of public sector enterprises.

(4) Increase the production,

(5) Identifying redundant manpower and dealing with it through means a retraining, redeployment and encouraging self-employment etc.                                                                                                              

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