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Essay on Public Sector Undertaking (PSUs)
- Essay on the Introduction to Public Sector Undertaking
- Essay on the Classification of Public Sector Enterprises
- Essay on the Objectives of Public Sector Undertakings
- Essay on the Role and Definition of Public and Private Sector
- Essay on the Advantages of Public Sector
- Essay on the Disadvantages of PSUs
- Essay on the Major Problems of PSUs
- Essay on the Growth of PSUs
Essay # 1. Introduction to Public Sector Undertaking:
In India, before independence, there were limited public sector undertakings. Except Post and Telegraphs and Railways, there were practically no public sector undertakings, though in some States and Provinces very small undertakings had been set up. Even after independence, for some time no attempt was made to set by industries in the public sector, because the Government had no clear policy and attitude in this regard.
It was in Industrial Policy Resolution of 1948, that the Government decided that there were some vital sectors of economy in which industries will be set up in the public sector. Public Sector became, however, more important in 1954, when Indian Parliament accepted and adopted a resolution to the effect that socialistic pattern of economy was the future development of India’s economy.
In 1956, when new Industrial Policy Resolution was adopted, it was made clear that all basic and key industries will be set up in the public rather than private sector, with the result that the State accepted direct responsibility for setting up of new industries. The result of this clear Policy has been that over the years the government has been setting up more and more industries in key and important sectors of national economy, including fertilisers, steel, electronics, machine tools, heavy engineering goods etc.
Essay # 2. Classification of Public Sector Enterprises:
Public sector enterprises can broadly be classified as- (a) those under construction, (b) running concerns, (c) promotional and development and (d) financial institutions. What amount of money should be spent on each category of industry is of course, dependent on stage at which the industry is and the amount available with the government. In fact stress has been changing both from year to year and plan to plan.
But one thing is certain that the investment has been increasing from year to year. At the time of commencement of the first Five Year Plan the total investment was Rs. 29 crores, which rose to 81 crores when second plan started. At the commencement of Third Plan this figure rose to Rs. 95 crores, whereas in March 1973, the investment was of Rs. 5426 crores.
At the end of March, 1972, total amount invested, in some of the important industries in the public sector was Hindustan Steel Ltd. (Rs. 1038 crores); Bokaro Steel Ltd. (Rs. 656 crores); Shipping Corporation of India Ltd. (Rs. 129 crores); Fertilisers Corporation of India (Rs. 252 crores) and National Coal Development Corporation Ltd (Rs. 209 crores). At the end of 1973-74, there were as many as 122 undertakings under construction and in the running stage, which is directly under the moneylenders of the Central Government whereas in 1971 -72 this number was 101 and it stood at 113 in 1972-73.
Total investment in 1971-72 was Rs. 5052 crores; in 1972-73 it was Rs. 5571 crores and in 1973-74 investment stood at Rs. 6237 crores. The percentage rate of annual growth was 8, 10 and 12% respectively. At the end of 1977-78 amount invested in the sector was Rs. 12,851 crores.
In India, working of Public sector undertakings is subject to parliamentary control. It is however, admitted that the Parliamentary control should be only in respect of policy matters and nothing beyond that. For the purpose the Parliament has also set up a separate committee on Public Undertakings.
Essay # 3. Objectives of the Public Sector Undertakings:
A very interesting question arises is whether the undertakings should or not be run on profit and loss basis. Today it is, however, believed that public sector undertakings should be run on ‘profit and loss’ basis, though there should be no exploitation of the society.
Some of the main objectives of public sector undertakings in India are that:
1. Rate of economic growth should be maximised.
2. Sound economic foundations should be laid down, so that the people are in a position to have gainful employment.
3. Living conditions and standards of the workers should be improved.
4. Disparity of income and wealth, which is created by private sector, should be reduced to the minimum.
5. Growth of private monopolies and concentration of economic power in the hands of only few persons should be checked and protected.
6. To properly channelise small savings, too wide as well and deepen its scope.
But all these objectives are to be achieved with some considerations namely that there is maximisation of output, quality of goods produced, creation of funds needed for reinvestment, maintenance of labor efficiency and operation of the whole undertaking in such a fashion that the society feels the utility of the undertaking as a whole.
Essay # 4. Role and Definition of Public and Private Sector:
In every society private and public sectors go hand in hand in the economic field. Till the close of 19th century the role of public sector in the development of industries was almost negligible. It was because till then the concept of laissez fair for free trade was catching the imagination of the people. It was believed that each industry must face the competition and let there be survival of the fittest.
The idea of laissez faire when put into practical be however, resulted in many evils. It was responsible for the exploitation of the workers who were paid very low wages. There was also concentration of wealth in the hands of very few people. On the whole the outcome was that in the industries where the workers toiled and laboured from morning till evening, they got not enough to maintain themselves.
There was therefore a great demand that the state must step in to save the workers from exploitation and more industries should be set up by the government, so that the workers could be provided adequate amenities and facilities and their ruthless exploitation could be effectively checked. Soon after when welfare states began to emerge the concept of police state gave way to that.
Private Sector Defined:
Industry needs money and capital. It also requires man power, initiative and risk. When the money is invested by a person or by only few persons who are very closely related to each other and have personal interests only that is called private sector. In such a system responsibility for taking initiative, vests with that person or group of persons.
They formulate, and execute all policies and all appointments etc. are made by the investors of the money. All the losses suffered by the industry are borne by them. Similarly they pocket all the profits earned by the industry. The industry is then not responsible to the public for its doings and activities.
Public Sector Defined:
As against private sector, there is public sector. In this sector all the money spent in setting up an industry is spent from the public exchequer. The management is responsible to the Parliament/Legislature for all its failures as well as achievements. In this sector, it is not the profit which is major consideration, but important consideration is need and necessity of the people. The demand of the society is considered paramount. Profit and losses are shared by the tax payers.
Essay # 5. Advantages of Public Sector Undertaking:
Public and private sectors have their own advantages and disadvantages. In fact advantages of one are the disadvantages of the other and vice-versa. Advantages of Public Sector are as under.
1. Possible to Spend Heavy Amounts:
There are some industries which need heavy investment. A private sector may not have enough resources to raise capital with the result that industry will either be completely ignored, or not flourish. On the other hand, the state has sufficient resources. Once it is felt that there is need for setting up the industry the state will find finances and see that the industry is set up. In this category one can quote instances of heavy amounts required for setting up steel or shipping industry etc.
2. Easy to Raise Loans:
In case the finances are needed for setting up of an industry public sector which is backed by the state, will have much more credit than the private sector. The result will be that it will be easy for the public sector to raise loans as compared with the private sector which will obviously face many difficulties in raising loans for setting up an industry.
3. No Desire for Quick Returns:
Even if the private sector has enough capital, it will like to have quick returns. Every capitalist will therefore, be tempted to spend in such projects which are of short duration and likely to repay money. On the other hand in so far as public sector is concerned, there is no such consideration. The amount spent is primarily for meeting social needs, rather than expecting quick returns.
4. Non Shyness of Capital:
Capital with the investor is always shy. It will not easily come out in the market. Private industrialist will think several times before spending. But in so far as public sector is concerned, the capital is not shy. It is always ready to make up any gap.
5. Availability of Better Skills:
For running each good industry, it is essential that well qualified and trained staff should be available. It is also essential that there should be adequate research and training facilities. All these are costly affair and not possible for the private industrialists. But in so far as public sector is concerned state will be in a position to spend.
6. Mass Production Possible:
In so far as production is concerned private sector will be guided by many factors. The greatest restraint is the capital. Though in some cases, this sector may like to produce large quantities of goods, but by and large it may not be in a position to do so, for want to finances or machinery or trained staff etc. But in so far as public sector is concerned, with its vast resources, it is possible for the Government to produce at large scale, once it is convinced that such a production is badly needed.
7. Better Control over Marketing:
Private Sector with limited resources cannot have that effective control over the market, as that is enjoyed by the public sector. The later has more distribution facilities. It can approach the customers with ease and provide better utility services, as compared with the private sector, which would provide them comparatively costly good with less dependency. Moreover, private sector will be in a position to cover a limited market.
8. Social Utility of Profits:
Industry is run with a view to earning profits. But when the profits are available to private sector then these are used for their personal advancement. On the other hand, when these are available to the public sector, these are used for the welfare of the society as a whole. Thus whereas in the private sector the profits become a source of exploitation, in public the same profit becomes source of public service.
9. Money becomes Available for Priority Development Areas:
In every society the sources are scarce and limited as compared with the needs of the society which are always unlimited. The State has therefore, no other alternative, but to fix priorities. When the industry is in private sector, there is no such consideration.
On the other hand when it is in public sector, then alone such priority areas are located. If the industry in other areas is earning profits, the amounts available can be spent on the development of priority areas, resulting in overall development of the national economy.
10. Easy Availability of Resources:
In every society there are always shortages. The state is but to regulate great able resources. This is done by issuing licences etc. But when the industry is in the public sector, then many of the problems which ordinarily arise and are considered hurdles by the private sector, do not come on the way at all.
The state arranges raw material as a matter of responsibility and ensures that production does not go down simply because the supplies in one form or the other were not available.
11. Sense of Confidence:
When a commodity is being manufactured in a private sector, the consumer can not sure about standards. He thus remains under the impression that he is being cheated and paying more. On the other hand when the articles are being manufactured in the public sector, there is confidence that the goods manufactured will be of high standard. There is also a sense of confidence that there will be no unreasonable margin of profit.
12. Foreign Loans can be Obtained:
For setting up many industries foreign exchange is badly needed in many cases. In fact there can be industries in which foreign exchange component can be very high. It is essential to arrange for foreign loan to proceed with the work. But at the same time it cannot be expected that the industry will immediately start repaying the loans. The loan will therefore, have to be arranged on long term basis.
13. Foreign Collaboration becomes Available:
There are many projects which need foreign collaboration. This collaboration can be both for longer as well as shorter period. This can be in the form of technical knowhow on in the shape of financial assistance. Such a collaboration can be in term of lending the experts for planning and execution of the industrial programmes. Without such collaboration, it may even not be possible to set up highly technical or sophisticated industries. Obviously a private sector industrialist cannot manage to have successful international collaboration.
He will have to look to the Government to arrange for the people and machine from abroad. On the other hand, when industry is proposed to be set up in the public sector, or it has already started working and its expansion is needed, then foreign collaboration in any form can easily be managed.
14. Attraction for Foreign Investment:
Most of the developing countries, both in the public and private sectors, do not have enough economic resources. Inspite of their best efforts the nation cannot have rapid economic development for want of finances. The result is that either industrial advancement should be slowed down or foreign capital should be attracted.
If foreign capital is allowed to set up industry in the private sector, then one day or the other this sector might possibly control the nation’s industrial advancement and exploit the situation. We find that in many developing countries, the Governments had to terminate the agreements with the foreign investors, as soon as their term of the contract was over. The only other alternative is to attract them to spend money in the public sector.
15. Sense of Guarantee to the Investor:
The investor has a sense of guarantee that the money which he is loaning will be rapid to him after the prescribed date. He therefore, is quite willing to advance money to the public sector undertaking even to low rate of interest.
We find that when the loans are floated by the Government, these are subscribed by the people very quickly and the amount is paid much before the closing date and that too when the rate of interests is not very attractive. Thus public sector industries can get loans at low rate of interest as compared with private sector enterprise.
16. Checking Economic Fluctuations:
When the industry is controlled by the private sector, then national economy becomes dependent on that and it exploits the situation. In order to earn maximum profits, the industry creates artificial or manmade scarcities and shortages.
There are many economic fluctuations in the market. Black marketing and smuggling is encouraged. Not only this, but price discrimination is maintained. The effective and positive reply is that the industries should be set up in the public sector as well, so that as soon as the industry in the private sector begins to misbehave public sector industry steps in and checks as well as controls the situation.
17. Desire for Nationalisation:
In many countries of the world, particularly in the developing countries, as well as the countries which have won their freedom very recently, there is a desire that industries should be nationalised, so that the masses are saved form the capitalists.
Then a great advantage of the public sector undertaking is that it meets the aspiration of the people and their demand for nationalisation, which is quite powerful these days among newly emerging nations of the world.
18. Effective Check on Monopoly:
In private sector the industries will try to combine with each other and in one form or the other will make an attempt to create monopoly conditions, so that the market goes under their control and they can regulate that in the way they like. One of the most effective checks to check monopoly situation is to set up industries in the public sector. Thus one important gain of public sector industrial set up is that it can check monopoly and no one can under-estimate this important advantage to the society.
19. Defence and Other Needs are Adequately Met:
National defence is always paramount for every country. The defence requires many equipments which are quite costly and their manufacturing involves highly technical knowledge and expertise. It is also essential that the supplies should be very regular and quality of goods provided precise and specific. All this cannot be done by the private sector. In fact it will not like to undertake production of defence material usually because the profit is not in keeping with their aspirations.
Essay # 6. Disadvantages of PSUs:
Public sector undertakings are becoming very popular in developing countries because of the advantages which that give to the society.
But along with the advantages there are many equally serious disadvantages of system. Few such disadvantages are as under:
1. No Body’s Concern:
As industry can successful run when the industrialist pays proper care and attention to every detail of the work. In private sector those who own the industry devote their maximum time and attention. In so far as public sector undertaking is concerned in it no body considers that industry is his own. This psychology prevails from top to bottom.
2. Uneconomical Buying:
Since nobody pays due attention and care, the result is that nobody cares to buy the raw-material and machinery at economical rates. The result of all this is that when costly raw material is purchased, finished goods become costly. This will not happen in the case of private sector undertaking. The industrialist will ensure that he is purchasing cheap and good quality goods to maintain both his reputation as well as profit.
3. Top Heavy Administrative Expenditure:
Usually in the public sector undertakings expenditure is top heavy. The undertaking employs Managers, Deputy Managers, Chief Engineers, Shift Engineers and what not. It has also staff to complete many formalities.
The result of all this is that the amount which is required to be paid on the salaries of the personnel becomes a burden on the undertaking. Coupled with uneconomical purchasing cost of production goes up very much and the consumer is required to pay a higher price for the same commodity, which he would have paid, had he purchased from the private sector.
4. Shirking Responsibility:
In this sector everybody shirks responsibility. In fact the man at the lower status will pass the bulk to his next superior and that one to his still next senior officer. When nobody is prepared to take responsibility, naturally the industry will suffer for want of decision taking authority and clear cut policy.
5. Non-Clearness of Objective:
A private sector undertaking works with the objective of earning profits and all its activities are directed towards profit making. But in public sector undertakings there are no clear objectives. In case the undertaking takes social welfare into consideration, then it will incur losses and these are bound to be burden on the exchequer. Not only this, but there is bound to be public criticism as well. In case it works with profit motive, then a criticism is bound to be there that like a private industrialist, the government is also exploiting the consumer and so on.
6. Too Much Political Interference:
In this sector there is usually too much interference from political leaders. They wish to run the industry in such a way that suits their political ends. Change in political power brings change in the public undertaking as well. Accordingly too much political interference very much spoils the image and economic position of the public sector undertakings.
7. Difficult to Adjust Conflicting Interests:
In public sector undertakings there are many conflicting interests. On the one hand are workers and labourers who organize themselves into trade unions and wish to bargain with the management. Then are the interests of the technical staff, secretariat staff, who all organise themselves into trade union. Usually the interests are very conflicting and it becomes difficult to adjust. Not only this, but there is serious problem of discipline due to conflicting interests.
On the one hand is the problem of maintaining discipline, in which government and management is interested, whereas on the other is the strong trade union system, which feels that demands can be effectively met by creating indiscipline and such problems as strike, work to rule, mass leave and so on.
8. Inconsistency due to Transfers:
In a private sector undertaking the enterpriser, after deciding the policy follows that. There is no question of his transfer from one place to the other. Accordingly, there is always consistency in the policy. On the other hand in public sector undertakings there cannot be consistency in policy. Officers at higher levels, who are required to implement policy decisions and execute programmes, get transferred quite frequently. With the transfer of one officer, there is always change, both in policy as well as its implementation.
9. Influence of Civil Servants:
In many public undertakings, management is headed by civil servants. These people are trained in a particular manner. They have administration oriented training. When put in a commercial undertaking, they find themselves as complete misfit. They lay more stress on administration rather than on economic aspect of the problem. Moreover, mostly the civil servants are not enterprising. They fear that in case their initiative does not succeed, it is just possible that they may invite the wrath of the superiors.
10. Corruption and Nepotism:
A private sector undertaking will never tolerate that incompetent persons should in any way occupy any positions high or low. On the other hand in so far as public sector undertakings are concerned, usually many appointments are made on the basis of patronage and influences. Corruption and nepotism in making appointments, giving contracts, supply of raw material, giving distributing agencies is quite common.
It is due to this that competent people do not occupy senior positions. Due to their incompetency goods get stocked, wishes of people are not properly assessed, opportunists manage to plot scandals and make away with public funds and so on. Due to their appointments and favours the staff gets discontented and there are grudges and grumbles.
11. Red Tapism and Routine:
No private undertaking will ever think of red tapism and routine to the extent that it delays their whole process and programme of production, purchase and distribution. But in public sector undertakings usually there is red tapism and routine.
In fact the whole system becomes so much burdened with red tapism and routines that it becomes almost impossible to come out of the rut. The result is that the things set delayed and the undertaking always suffers for want of policies, decisions and quick disposal of the issues.
Essay # 7. Major Problems of PSUs:
Before we actually discuss the problems of public sector undertakings, it must be remembered that forms of organisation of these industries very widely differ. Some of the industries have been set up and organised as Private Limited Companies which include Fertilisers and Chemicals Ltd.; Hindustan Air Craft Ltd. and Hindustan Ship Yard Ltd. etc.
But this form of organisation has been criticised on the plea that in such a set up the company can evade the constitutional responsibilities, which a state owned enterprise owes to the Parliament. It is also said that in such a form of organisation the law regulating limited companies becomes a mere fiction.
The problem was examined by the Administrative Reforms Commission in all its forms and in 1967, the Commission came to the conclusion that the form of a statutory corporation should in general be adopted for public sector projects in the industrial field.
The Estimates Committee also made some other important recommendations in respect of public sector undertakings in the country. The Committee was of the view that there was no need of organising a new company or corporation for each new enterprise.
There should be only small number of operating corporations and each in command of a considerable and increasing number of enterprises. It is only then that the Government and the Parliament can effectively deal with them. The Administrative Reforms Commission in 1967, supported this view point while giving the idea of Sector Corporations.
In addition to the patterns of organisation available in Hindustan Aircraft Ltd. in India we also have the pattern of a holding company as well. In 1973 a holding company for steel was set up known as the Steel Authority of India Ltd. commonly known as SAIL, which has been loaded with the overall responsibility of steel development in the private and public sectors and also to exercise control over steel input industries.
Essay # 8. Growth of PSUs:
Public Sector Undertakings in India have their own serious problems. But inspite of these difficulties, public sector undertakings are rapidly growing. We find that at the beginning of First Five Year Plan there were only rive units in this sector, with total investment of Rs. 29 crores. This number rose to 21 at beginning of second plan, to 48 in Third Plan and at the beginning of Fourth Plan, the number rose to 85. On March 31, 1973, the number of public sector undertakings was 113.
Similarly there was increase in total investment made in these undertakings. At the end of Second Five Year Plan, total investment made was Rs. 81 crores whereas at the end of third plan, this investment rose to Rs. 953 crores. According to information collected by the Government the amount invested as on 31st March, 1973 was Rs.5671 crores. Since then investment in this sector has been very rapidly increasing.
Causes Responsible for Rapid Growth of Public Enterprises in India:
1. Defence and Public Industries:
Private sector was least prepared to spend heavy amounts on setting up industries which produce defence material. Even if it was prepared to do so, it was not safe to depend on it. It was therefore imperative need of the hour that industries connected with production of defence material should be set up in the public rather than private sector.
2. Socialistic Pattern of Society:
India has adopted socialistic pattern of society as its goal and ultimate objective. It was, therefore, essential that the state should step in the industrial field and up industries in key sector of economy, particularly where heavy investment .and no returns.
3. Essential for Rapid Economic Growth:
In India it was felt that if industries were left to the case of private sector alone then the nation could not hope to have rapid economic growth. Whereas private sector should be allowed to contribute, the major part should be played by the public sector for industrial development of the country. This attitude of the Government also resulted in rapid growth of public sector enterprises in the country.
4. Equal Distribution of Wealth:
In India it was decided that benefits of industrial growth and development must be shared by the society as a whole. This was possible only when industries were in the public and not in the private sector.
5. Essential for Capital Formation:
Private sector is always interested in producing consumer goods, where the investments are not heavy and returns very good. In India, the Government was always keen in capital formation industries. Accordingly these industries could be set up only in public sector.
6. Misbehavior of Private Sector:
Unfortunately in India, private sector has not properly behaved. It has always tried exploit to the masses created artificial scarcity, encouraged smuggling and black marketing and used the profits thus earned in creating parallel economy, thereby under-valuing rupee value of the country. In order to check all these evils, it as most essential that public sector should be encouraged.
7. Essential for the Growth of Industrial Research:
The work of industrial research cannot make any significant headway unless proper time and care is taken. Private sector will obviously not be interested in making this kind of investment. It can be done only in the public sector and for this reason too public sector is receiving encouragement.
8. Foreign Aid Collaboration:
Most of the major projects and industries can be started only when foreign exchange component is available. Foreign collaboration can easily be obtained for public sector enterprises and not private sector undertakings, where investment is not considered safe.
9. Essential for the Welfare of the Workers:
The workers in the private sector are simply exploited ruthlessly. One of the reasons for the rapid expansion of public sector in India is favourable climate which the workers find in the public sector.
10. Essential for Balanced Regional Growth:
In India there are industrially both backward, and forward regions. But for balanced growth of the country it is essential that there should be development of industrially backward areas. This can be done in India, in case industries in the public sector are set up.
11. Nature of Investment:
There are many projects in every country where nature of investment is such that only public sector can step in and private sector will be least interested to invest e.g., construction of irrigation projects, roads, railways, dams etc. Since in India these are priority projects, therefore, public sector is becoming increasingly popular.