What are the Problems of Public Enterprises?

Public enterprises in India suffer from several problems some of which are as follows:

1. Poor project planning:

Investment decisions in many public enterprises are not based upon proper evaluation of demand and supply, cost-benefit analysis and technical feasibility.

Lack of a precise criterion and flaws in planning have caused undue delays and inflated costs in the commissioning of projects. Sometimes, projects are launched without clear-cut objectives and serious thought.

Many projects in the public sector have not been finished according to the time schedule. Barauni Refinery was commissioned two years behind schedule and the Trombay Fertilizer plant was delayed by three years thereby causing an increase of Rs. 13 corers in the original cost estimates.

There is lack of clear-cut objectives and managers in the public sector often find themselves torn between conflicting goals of profitability and social service.

2. Over-capitalization:

Due to inefficient financial planning, lack of effective financial control and easy availability of money from the Government, several public enterprises suffer from over-capitalisation.

The Administrative Reforms Commission found that Hindustan Aero­nautics, Heavy Engineering Corporation and Indian Drugs and Pharmaceuticals Ltd., were overcapitalized. Such over-capitalization resulted in high capital-output ratio and wastage of scarce capital resources.

3. High establishment costs:

Public enterprises incur heavy expenditure on social infra­structure such as schools, hospitals, etc. Location in backward regions and the desire to make the undertaking a model employer lead to huge capital outlay on housing and other amenities for labour.

Recurring expenditure is required to maintain these facilities. High establishment costs, overhead costs and other expenses reduce the profitability of public enterprises.

4. Overstaffing:

Manpower planning is not effective due to which several State enterprises like Bhilai Steel have excess manpower. Recruitment is not based on sound labour projections. On the other hand, posts of Chief Executives remain unfilled for years despite the availability of required personnel.

5. Under-utilisation of capacity:

One serious problem of the public sector has been low utilisation of installed capacity.

In the absence of definite targets of production, effective produc­tion planning and control, proper assessment of future needs, adequate supply of power and industrial peace, many undertakings have failed to make full use of their fixed assets.

The average capacity utilisation in more than 50 per cent of the public enterprises has been less than 75 per cent. There is considerable idle capacity. In some cases productivity is low on account of poor materials management or ineffective inventory control.

6. Lack of a proper price policy:

There is no clear-cut price policy for State enterprises and the Government has not laid down guidelines for the rate of return to be earned by different undertakings.

State enterprises are expected to achieve various socio-economic objectives and in the absence of a clear directive, pricing decisions are not always based on rational analysis.

In addition to dogmatic price policy, there is lack of cost-consciousness, quality consciousness, and effective control on waste and efficiency.

7. Unsatisfactory industrial relations:

In several State enterprises relations between man­agement and labour are far from cordial. There has been serious and frequent labour trouble in Durgapur Steel Plant, Bharat Heavy Electricals, Bhopal, and in Bangalore-based undertaings.

Millions of days and output worth crores of rupees have been lost due to strikes and gheraos. Wage disparities have been the main cause of labour trouble in the public sector.

The percentage increase in the per capita emoluments of public sector employees has been higher than the percentage increase in consumer price index.

8. Lack of coordination:

Various state enterprises are dependent on one another as the output of one enterprise is the input of another. For instance, the efficient functioning of power and steel plants depends on the production and transportation of coal which in turn is dependent upon supplies of heavy equipment and machinery.

Despite such interdependence; effective coor­dination between different undertakings in the areas of personnel, finance, materials management and research has not been achieved.

9. Lack of motivation:

Directors and managers of public enterprises have little personal stake. There is little incentive to work hard and improve efficiency. Centralisation of authority and rigid bureaucratic control hamper initiative, quick decisions and flexibility of operations. Personal touch with employees and sensitivity to consumers’ needs are lacking.

10. Political interference:

There is excessive influence and interference by political leaders and civil servants in the functioning of public enterprises. Parliamentary control reduces the autonomy of these enterprises.