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Unit 18: Issues and Problems of Public Sector

That such issues cannot be taken in isolation applies to almost all the main aspects of this book. For Notes
example, questions about the form of external financial statements cannot be separated from the
nature and objectives of particular public sector operations and the fact that there are a variety of
users for financial statements in the public sector, with different kinds of needs. Similarly, the
relationship between auditing practices in the public and private sectors cannot be examined without
looking at the different ways in which accountability is exercised for public sector institutions compared
to the purposes and forms of accountability of private concerns.
In the area of financial reporting, for example, there is the question of how far there should be
uniformity, and how much flexibility ought to be allowed between similar types of institutions. Another
recurrent theme is the issue of how accounting rules should be developed, while on the use of external
financial information the nature and rights of different user groups are not always clear. As for
internal financial control, the pressure on resources has in most cases given rise to a call for improved
systems for monitoring, not only internally but also for external disclosure and performance review.
Finally, on a more personal level, the role and status of accountants within their organizations and in
relation to the accountancy profession as a whole continues to be a matter of concern to many public
sector accountants.
The public sector is both extremely diverse and, despite privatizations, extremely large. Even ignoring
the large sums expended on transfer payments (such as pensions, welfare benefits and subsidies),
the total expenditure of the public sector on employing people, goods and services in carrying out
both trading and public service activities is enormous – about 40% of the gross domestic product. It
gives an idea of the relative size of net public sector expenditure analysed in four ways. It can be seen
that local authority expenditure amounts to more than a quarter of all public expenditure, and
expenditure on health rather more than 10%. The nationalized industries, by contrast, make little
overall demand on the public purse because, although the amounts they spend are large.
18.2 Problems of Public Sector

A number of charges are leveled against the public sector in India. Some are lopsided and some are
genuine, to a certain extent.
Objective and Role

In the history of planning in the country, over the last six decades, there has been a definite shift in
the assigned role of public enterprises in the country through various Five Year Plans from ‘attaining
the commanding heights’ in the national economy and ‘easing out private sector’ to the ‘opening up’,
‘liberalisation’ and ‘globalisation. It has been a perennial problem for the policy makers to set the role
of the public sector in the Indian economy and it would continue to be so.
Secondly, the objectives of public sector have been defined and goals being set not very systematically
in each case. Even the objectives at the macro level have been mixed-up with a number of propositions,
sometimes contradictory in nature.
Extent and Coverage

Whether the public sector should extend to wide variety of economic activities or to be confined to a
selected few only, is a very crucial decision of great magnitude.
Similarly, whether the economy of the country should be open to private sector or be confined only to
the public sector monopoly or both should be given a competitive share in open market becomes
another crucial political decision. The problem is consistently persisting in the Indian polity, more
particularly from the recent past.
Organisation and Management
The organisation and management of the public sector enterprises has been on ‘trial and error’ ever
since independence in the country. Initially, the enterprises were organised as departmental
undertakings owing to their simplicity of operations and management.

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