Public Sector and Promotion of Economic Growth

Here we detail about the functions of public sector for promotion of economic growth.

1. Accelerating Economic Growth:

First, public sector and planning are required to initiate and speed up the process of economic growth. As is quite well known, developing countries are caught up in vicious circle of poverty.

Only through economic planning and expansion of public sector it would be possible to break the vicious circle of poverty and accelerate the rate of e economic growth.

The free private enterprise working in an unplanned manner would fail to bring about rapid economic development. Prof. Galbraith rightly points out that, “What is not in doubt is the need for planning by the less developed country there is much that the market can usefully encourage and accomplish. But the market cannot reach forward to take great strides when these are called for. As it cannot put a man into space so it cannot bring quickly into existence a steel industry where there was little or no steel making capacity before. Nor can it quickly create an integrated industrial plant. Above all no one can be certain that it will do so in countries where development has lagged and where there is not only a need for development but an urgent demand that it should occur promptly. To trust the market is to take an unacceptable risk that nothing or too little will happen”. This clearly shows that economic planning and expansion of public sector alone can guarantee quick economic growth in less developed countries like India.

2. Building up of Economic Infrastructure:

Second, building up of what is often called economic infrastructure, such as power, fuel, transport and telecommunication in the Indian economy. Without the expansion of the basic infrastructure process of economic development cannot be speeded up and optimum utilisation of a country’s resources cannot be made.

However, it is noteworthy that investment in the economic infrastructure is not profitable from the viewpoint of private enterprise since most of the gains from them accrue in the form of external economies for the growth of other enterprises and industries rather than money profits for the investors themselves.

Moreover, profits from these infrastructure take a long time to accrue. Private enterprise is generally interested in quick returns and therefore does not feel interested in making investment in them. Therefore, it is the task of public sector to make adequate investment in them so as to remove bottlenecks to economic development.

3. Investment in Basic Heavy Industries:

Third, the public sector in the Indian economy has to expand the basic heavy industries such as steel, fertilizers and other chemical industries, engineering industries (i.e. industries which make machines). The investment in these industries, as has been brought out by Prof PC. Mahalanobis in his well-known growth model, would ensure rapid capital formation which crucially determines rate of economic growth and employment generation in the economy and help achieve self-reliance.

But, as in case of infrastructure, private entrepreneurs hesitate to make sufficient investment in them, for they do not yield quick and high rate of profits. Besides, investment in them requires a huge amount of resources which private enterprise may not be able to mobilize.

4. Occupying Commanding Heights of the Economy:

Fourth, in the industrial policy resolution, 1956 public sector in India was expected to occupy the commanding heights of the economy such as banks, other financial institutions, Life and General Insurance so as to regulate the functioning of the private enterprise in the public interest and in accordance with the priorities of planning. It is on the basis of these considerations that Industrial Policy Resolution of 1956 visualized that efforts would be made to expand the public sector so that it occupies the commanding heights in the Indian economy.

5. Preventing Concentration of Economic Power:

Fifth, the public sector has to be expanded so that it not only provides countervailing power to the big business houses but also to check the concentration of economic power in a few private hands. This implies that sphere of public sector should not remain merely confined to the infrastructure and basic heavy industries but if it is to check the emergence of monopolistic conditions it should include investment in and production of those consumer goods industries which due to technological considerations require large-scale production.

6. Balanced Regional Development:

Sixth, the public sector has an important role to set up industries in the economically backward regions of the country which in spite of having natural resources have remained poor. This would help in ensuring balanced regional development and generate income and employment opportunities for poor people all over the country.

7. Investment in Social Sectors:

Finally, the public sector has a significant role to play in promoting social sectors such as education, healthcare, poverty alleviation and to ensure drinking water supply in all parts of the country. Development economists such as Amartya Sen call for more public action with regard to factors such as education, healthcare, nutrition, drinking water supply to promote economic growth and improve the quality of life. Therefore, government and public sector have to play more active role in these areas of social development.

It is worthwhile to mention that it was expected of the public sector that it would work with efficiency so as to minimise cost of production and also to generate surpluses or savings which when ploughed back into investment would help accelerate overall rate of investment and capital formation in the economy.

Dilution of the Role of Public Sector in the New Economic Policy:

It is worth mentioning that under the ongoing economic reforms being implemented since July 1991 under the New Economic Policy of Structural Adjustment the role of public sector has been greatly reduced. In the New Economic Policy, private sector and foreign investment have been given more important role to promote economic growth in India.