Question

“During the planning period, public sector was given a dominant role in Indian Economy.”

Justify the rationale behind this step taken by the Government of India.

Answer 1

Strategic economic and social goals motivated India’s choice to give the public sector a significant role during its planning period (1950s-1990s). The reason behind this policy is as follows:

1. After 1947, India’s socialist vision, based on the Nehru-Mahalanobis plan, placed great emphasis on state-led industrialization to achieve self-sufficiency.
2. The government is primarily responsible for addressing market problems, for example, by funding heavy industries such as steel and oil through SAIL/ONGC, ensuring fair regional growth through Bokaro Steel, and protecting key sectors, for example, defense and energy.
3. Through import substitution, public sector undertakings (PUs) protected new businesses, created jobs, and stopped monopolies. They made up 25% of GDP by 1991.
4. PSUs lay the groundwork for India’s industry by striking a balance between socialist objectives and economic expansion, despite the 1991 reforms reducing their significance owing to inefficiency.