Page 222 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Indian Economic Policy

Notes 18.3 Summary

• The Industrial Policy Resolution 1956 gave the public sector a strategic role in the Indian economy.
For one thing, at the time of independence, the country was backward and underdeveloped —
basically an agrarian economy with a weak industrial base, heavy unemployment, low level of
savings and investment and near absence of infrastructural facilities, Indian economy needed a
big push.
• 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.
• 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.
• 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.
• After the attainment of independence and the advent of planning, there has been a progressive
expansion in the scope of the public sector. The passage of Industrial Policy Resolution of 1956
and the adoption of the socialist pattern of society as our national goal further led to a deliberate
enlargement of the role of public sector.
• There are two important categories of public sector employment : (a) Government administration
and defence and other government services like health, education, research and various activities
to promote economic development; and (b) public sector proper, i.e., economic enterprises owned
by the Centre, State and Local Government.
• Despite many criticisms against the public sector enterprises, there is no denying the fact that
rapid industrialisation in the first three decades after independence was mainly due to the
public sector.
• Most of the public sector enterprises have been started keeping in mind the requirements of the
Indian economy, in the fields of production and distribution.
• Internal resources consist of depreciation and retained profits. With every five year plan, the
public sector was able to mobilise larger internal resources. During the Seventh Plan internal
resources of the order of 29,750 crores were generated.
• From every angle, the public sector has grown in importance and has come to occupy a prominent
place in the Indian economy. What we have described above relates mostly to enterprises in the
Central sector.
• In a developing economy like India, some industries had to be brought within public ownership
and control, for otherwise rapid growth of the economy was thought to be impossible.
• The socialistic pattern of society calls for extension of public sector in two ways. For one thing,
production will have to be centrally planned as regards the type of goods to be produced, the
volume of output and the timing of their production.
• The behaviour and attitude of the private sector itself was an important factor responsible for
the expansion of the public sector in the country. When the Americans insisted on the Bokaro
Project to be set up in the private sector, Mr. J.R.D. Tata openly confessed that the private sector
was not in a position to mobilise resources to the tune of ` 700 crores.
• In a number of cases, the Government was forced to take over a private sector industry or
industrial units either in the interest of workers or to prevent excessive exploitation of consumers.

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