Public sector includes all such industrial units which are owned, operated and managed by either central or state or local-self Governments. The colonial administration was against these public sector units as they were the champions of a free market economy. Hence the public sector was limited only to arms and ammunitions, railways and post and telegraph under the colonial rule.
After independence the Govt. adopted a mixed economy model in which both the private and public sectors were allowed to function. The Industrial Policy Resolution (IPR) of 1948 demarcated the areas where the private entrepreneurs were allowed to develop their business. Adoption of a socialistic pattern of society in the constitution further expanded the scope of the public sector. The IPR-1956 strengthened the concept of mixed economy and the 2nd Five Year Plan stressed for creation of basic and key industries under the public sector. The Steel Authority of India Limited (SAIL) is the outcome of such policy decision and four big industries developed at Rourkela, Bokaro. Durgapur and Bhilai under the state banner. The Govt. had to invest in such industries where the financial requirement, was very high and private individuals were not able and interested in investing due to low profit margin. Further, to reduce concentration of wealth and income in the hands of a few industrial magnets, public sector was assigned the leading role.
In 1951, the number of Public Sector Undertakings (PSUs) was limited to 5 only and the total amount of investment was Rs. 29 crores. By 90’s, the total numbers of PSUs increased to 243 with a total investment of Rs. 1, 78, 628 crore. The public sector covered all the important units like iron and steel, mines and minerals, petroleum and chemicals, coal, civil aviation, transport and communication, electricity, fertiliser and cement. By 1992 – 93, the value of public sector fixed assets stood at Rs. 1, 50, 677 crore amounting to 43.2 percent of total fixed capital investment in the country. Similarly, this sector provided employment to 27, 84,000 workers accounting 27.2 percent of total factory workers of the country.
The state Government also played an important role in the growth of public sector. They made large investments in State Electricity Boards, different corporations, undertakings and irrigation projects.