ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Public SectorSubscribe to Public Sector

Can the Public Sector Revive the Economy?

The public sector's share in domestic output has stagnated since the late 1980s, its share in capital stock has fallen since 1990, and employment has contracted by 10% from the mid-1990s. Why has it fared so poorly even as its financial performance has improved? This paper argues that fiscal orthodoxy has throttled government borrowing for investment, and competitive politics has disallowed rational pricing by public utilities and recovery of user charges. If these constraints are relaxed by suitably adjusting fiscal deficit targets to accommodate the rise in input costs, and the prices of public utility services are adjusted for inflation, the public sector can revive the economy. Growing public sector enterprises with financial surpluses could also accommodate some political-economic demands.

The Transformation of India's Public Sector

This paper examines the paradox of the diminishing institutional role of large central public sector enterprises despite rising profitability and investment as a result of their being efficient competitors in the new market environment. Under the neo-liberal regime of the last two decades, these CPSES, with large cash balances and improved profitability, have emerged as the main drivers of public savings and investment. But instead of enhancing their strategic role, the union government has been treating them as cash cows. A comparison of the performance of large private and public sector firms in the manufacturing sector shows that the CPSES have provided higher returns on capital employed. And, performance in terms of technical parameters is in no way inferior to that of their private counterparts. Yet the Modi government intends to either privatise these CPSES or sell a significant part of their equity shares, a decision that is devoid of both strategic and business sense.
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