The government-owned corporations play a pivotal role in the economic development of emerging economies because their participation is higher in the industrial and commercial activities of these economies. Resource constraints and limited scope of the private sector in the early stages of development and planning have set the stage for predominance of the public enterprises in these economies. Thus, public sectors in the leading developing countries of the world (including the countries in the BRIC region) play a very important role.
Investments in public sector enterprises have also been greater and have continued to accelerate growth in core sectors of a developing economy (such as railways, telecommunications, nuclear power, defence etc). Many a times, public enterprises were created to operate in areas of national and international trade, consultancy, inland, and overseas communication and construction services; as a result, overall profits of the public sector have not been restricted to certain sectors. In other words, the public sector is a heterogeneous combination of basic infrastructure industries, industries engaged in providing trade services, consumer goods industries, et al.
Rapid industrialisation and infrastructure creation for economic development were the basic rationale behind setting up public enterprises. Governed by this rationale, the public enterprises were set up by the government to ensure easy availability of important articles of mass consumption, and to promote even distribution of income while keeping tabs on prices of vital products. Protection of workers’ interests was also one of the objectives as large number of enterprises was created from sick private sector enterprises (PSE) that were taken over. Promoting and ensuring that regions were developed in a balanced manner and earning foreign exchange by promoting import substitutions were some additional reasons for encouraging public enterprises.
In India and China, PSEs were key catalysts in capital formation in the early stages of industrial development. PSEs hold sizeable share in economic activity of a number of developed and developing economies - France, Japan, Germany, Italy, Australia, South Korea, China, Malaysia, Philippines, Indonesia, Sri Lanka, and India.
Policies governing the Indian public sector
The Indian government passed the Industrial Policy Resolution 1948 that outlined the importance of the economy and its continuous growth in production and equitable distribution. In this process, the policy envisaged active engagement of the State in development of industries. The resolution stipulated that in addition to arms and ammunition, atomic energy and railway transport, which continued to be government monopoly, the State would exclusively be responsible for establishment of new enterprises in six basic industries - except the industries where in the national interest, private sector participation and cooperation could be allowed. The public sector in India assumed a strategic role in the Indian economy after the introduction of the Industrial Policy Resolution 1956. The public sector was built over massive investments over the past five decades. Enterprises that came into existence under this regime expanded their production successfully, explored newer areas of technology and build reserves of technological competence in number of areas. Moreover, after the initial investments by the government in important infrastructure areas, public enterprises expanded to all areas of the economy, which included non-infrastructure areas and non-core areas. The Industrial Resolution Policy 1956 also classified industries into three categories with respect to the role played by the State; the first category (Schedule A) included industries whose future development would be the exclusive responsibility of the State; the second (Schedule B) category included enterprises...