Essay on Evolution and Growth of Public Sector Enterprises in India


In India, the trend of state intervention operated much before the outbreak of the World War-I but it became more apparent since 1939 when the country became participant in the World War-II and also with a military base in 1941 with the entry of Japan in the world war.

After independence, through various Industrial Policy Resolutions, an attempt has been made to demarcate the role of the public enterprises in the country. The successive governments in independent India have made the policy statements, starting with one in 1948.

In India, like in most developing countries, the 60s and 70s were characterised by interventions by the State in the market place and the public sectors seem to have grown at a rapid pace.


Even though the Indian public sector attracted the best human resource in brains, talents and skills, the problem of poor performance, lack of competitiveness and low productivity was entirely due to management control structure characterised by multiple principles and multiple goals, which forced them into a bureaucratic rather than commercial mode of behaviour characteristics of which were lack of autonomy and accountability.

A large number of CPSEs have been set up as Greenfield projects consequent to the initiative taken during the Five Year Plans such as NTC Ltd., Coal India have however been taken over from the private sector, consequent to their nationalization. Many industrial units e.g. IPCL, Hindustan Zinc, Bharat Aluminum Co., Maruti, etc. ceased to be CPSEs after their privatization.

The post-1991 period has witnessed significant changes in the public sector policy. The areas re­served for public sector were reduced. The Central Public Sector Enterprises (CPSEs) were expected to look for internal resources and borrowings and concentrate on improvement in operations and effi­ciency on commercial lines of operation aimed at earning profit.

In pursuance of the Industrial Policy Statement of 24.7.1991, detailed guidelines on composition of Board of Directors were issued by the Department of Public Enterprises (DPE) in March 1992. These guidelines inter-alia provided that at least one-third of the Directors on the Board of a CPSE should be non-official Directors.


The Navratna and Miniratna schemes evolved by the Government in 1997 pro­vided that these CPSEs should set up Audit Committees. Based on the SEBI guidelines, further instruc­tions were issued by DPE in November 2001 stating that at least half of the Board of listed CPSEs with executive Chairman should be Independent Directors.

The Public Sector Enterprises are categorized into four schedules namely ‘A’, ‘B’, ‘C’ & ‘D’. The pay scales of chief executives and full time functional Directors of CPSEs are linked with the schedule of the concerned enterprise. Normally the Chief Executive of the enterprise is given the scale of pay attached to the schedule of the company while the functional Directors are allowed the scale of pay attached to the next below schedule.

At times the posts of Chief Executives or functional Directors are upgraded on personal basis so that exceptionally capable executives are retained in the CPSEs where they had rendered meritorious service. Such arrangements also help in attracting talent to sick or high-tech enterprises.

The initial categorization of CPSEs in the mid- Sixties was made on the basis of their importance to the economy and complexities of their problems. Over the years the Department of Public Enterprises has evolved norms for the purpose of categorization/recategorization of CPSEs.


Categorization is based on criteria such as quantitative factors like investment, capital employed, net sales, profit, number of employees and qualitative factors like national importance, complexity of problems, level of technol­ogy, prospects for expansion and diversification of activities and competition from other sectors, etc.

In addition, a criterion relating to the strategic importance of the CPSE is also taken into account. The present procedure involves consideration of the proposals in the administrative Ministry concerned and the Department of Public Enterprises which consults the Public Enterprises Selection Board.

At present (as on 31.1.2010) there are 59 Schedule ‘A’, 70 Schedule ‘B\ 45 Schedule ‘C\ 6 Schedule ‘D’ and 67 uncategorized PSEs. During the year, one CPSE has been upgraded from Schedule ‘B’ to ‘A’ and one CPSE has been upgraded from Schedule ‘C’ to ‘B’.

Apart from this, two Chief Executives have been given higher schedule on personal basis and four posts of Functional Directors have been created.


The total investment proposed in the First Five Year Plan (1951-56) for the public enterprises, rose from 5 units in the beginning of the Plan to 21 units by the end of the Plan period.

In the Second Five Year Plan, the Planning commission expanded the role of the public sector by increasing the total outlay in the Plan a little over 46 per cent to 54 per cent amounting to Rs. 720 crores. The number of public enterprises consequently grew up from 21 to 48.

In the Third Five Year Plan, the Planning Commission made the major outlay for the completion of ongoing projects in the public sector. The total outlay was Rs. 7,815 crore and the number of public enterprises grew to 74 with an investment of Rs. 2,415 crores.

In the Fourth Five Year Plan, the total outlay in the public sector was Rs. 13,469 crore, major share having been earmarked for the completion of ongoing projects. The number of enterprises in the public sector grew up to 122 and their investment to Rs. 6,237 crore.


In the Fifth Five Year Plan, the total outlay was Rs. 36,703 crore, but due to early termination of the plan, the total expenditure on the public sector remained only Rs. 31,4000 crore and the number of the enterprises went up to 176 by March 1978.

In the Fifth Five Year Plan (1978-83) the total outlay was originally Rs. 69,380 crore, which was revised to Rs. 71,000 crore. The new government, which took over office, terminated this plan midway in 1980.

In the Sixth Five Year Plan commanding heights of economy were assigned to the public sector. It envisaged an outlay of Rs. 97,500 crore in the public sector. The number of enterprises went up to 221 during the plan period.

In the Seventh Plan period, an outlay of Rs. 1, 80,000 crore was provided for the public sector. The number of enterprises rose to 224 during the plan period.

In the Eighth Plan (1992-97), an outlay of Rs. 3,61,000 crore has been provided for the public sector and the number of public enterprises stood at 242 as on 31st April, 1992.

In the Ninth Plan (1997-02) the public sector outlay was Rs. 4, 92,221 crore and number of public enterprises was 240.

During the Tenth Plan period (2002-07), the outlay for public sector was Rs. 9, 21,291 crores. The number of public enterprises stood at 247.

As on 31st March 2009, there were as many as 246 CPSEs (excluding 7 Insurance Companies) with a total investment of Rs. 5,28,951 crore.

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