Question

What is the role of public sector in the economy?

Answer 1

Role of the public sector in the economy are as follows:

1. Share in Employment: Public sector in India has been playing a positive role in the generation of employment opportunities in the economy. The public sector employs 70% of the workers in the organised sector of the Indian economy. Government administration, defence, and related services like health and education, account for 50% of total public sector employment. The remaining 50% work in government-run economic entities at the national, state, and municipal levels.
2. Share of Public Sector in National Income: The public sector’s share of national income has increased over the years. It increased from 7.5% of national income in 1950-51 to 14% in 2020. Thus, the public sector accounts for around one-fourth of total national output.
3. Capital Formation: Capital formation refers to the net addition to existing capital stock (physical assets) during a specific time period. The public sector contributes significantly to the country’s gross capital formation. Public investments in industries, infrastructure, and transportation have resulted in capital formation. In 2008-09, the public sector contributed 26% of gross domestic capital formation. The public sector’s impact on capital formation is significant, as it invests heavily in infrastructure and critical industries.
4. Development of Infrastructure: Economic development requires the development of infrastructure, including transportation, communication, power, irrigation, education, and basic industries. The country’s infrastructure is mostly constructed by the public sector due to limited resources and profitability in the private sector.
5. Strong Industrial Base: The public sector played a significant role in the country’s fast industrialisation during the first three decades after Independence. The 1956 Industrial Policy Resolution reserved industries such as atomic energy, ammunition, and aircraft for the government for national security. Industries such as iron and steel, heavy engineering, electrical machines, petroleum, and fertilisers have historically been developed in the public sector. The public sector has established a strong industrial basis, making the way for fast industrialisation in the country.
6. Export Promotion and Import Substitution: India’s public sector firms have made significant contributions to promoting its exports. This has resulted in foreign exchange earnings. Public firms such as Hindustan Machine Tools Ltd., Hindustan Steel Ltd., Bharat Electronics Ltd., State Trading Corporation, and Metals and Minerals Trading Corporation are all key players in this area.
7. Balanced Regional Development: In past years, India’s industrial development was centralised on major port cities such as Mumbai, Kolkata, and Chennai. The public sector has effectively addressed regional inequities. It has developed industries in backward states, including Bihar, Odisha, and Madhya Pradesh. These backward states now have three large public steel plants.