Public sector Undertakings are a major part of the Indian economy that comprises public services

and enterprises and it provides services that benefit the entire society. This article gives details on
the objectives of setting up PSU’s, their role in the upliftment of society, problems, and reforms
undertaken by them.

Public Sector – 3 Major Classifications

The public sector can be classified into:-

 Departmental Undertaking – Directly managed by concerned ministry or department. (e.g.

Railways, Posts, etc.)
 Non-Departmental Undertaking – PSU (e.g. HPCL, IOCL, etc.)
 Financial Institution (e.g. SBI, UTI, LIC, etc.)

The rationale behind the establishment of PSU’s was Industrialisation and the establishment of
Capital Goods Industries and Basic Industries. The organizations that are not a part of the public
sector are termed as private sector that works to raise profit for the organization.

Objectives of Setting up Public Sector Unit (PSU)

 To create an industrial base in the country
 To generate a better quality of employment
 To develop basic infrastructure in the country
 To provide resources to the government
 To promote exports and reduce imports
 To reduce inequalities and accelerate the economic growth and development of a country.

How Public Sector Contributes to the Economic Development of a

Nation?

The public sector of an economy is the part of the economy that provides
infrastructure, public transportation, public education, health care, and police and
military services, among other things. Governments, as well as other publicly
managed or sponsored agencies, corporations, and other entities that supply public
programmers, goods, or services, make up the public sector. However, it is not always
clear if a specific organization should be included in that umbrella. As a result,
particular criteria must be identified to properly define the limits.
The public sector encompasses more than just core government and may intersect
with the not-for-profit and private sectors. The public sector is described as a growing
ring of institutions, with the central government at the center and agencies and public
firms following. A grey zone surrounds this ring, consisting of government-sponsored
contractors and publicly held enterprises that may or may not be part of the public
sector. Public sector agencies include the police, military, public roads, public transit,
and public education. Public companies and NGOs are similar to government
organizations in that they produce programmers, goods, or services, but they are not
governed by the government and may have revenue sources other than government
money.
7 Ways By Which the Public Sector Boost Economic Development
1. By developing Infrastructure: 
Economic development is impossible without the development of infrastructure.
Infrastructure investment by the public sector in areas such as power, transportation,
communication, basic and heavy industries, irrigation, canals, education, and technical
training, and so on has set the way for the country’s agricultural and industrial
development, resulting in overall economic growth. These infrastructural facilities
produced by the country’s public sector are also dependent on private sector
investments.
2. Strong industrial foundation:
Another significant contribution of the public sector is that it has successfully built the
country’s strong industrial foundation. With the expansion of public sector enterprises
in diverse disciplines such as iron and steel, coal, heavy engineering, heavy electrical
machinery, petroleum and natural gas, fertilizers, chemicals, and medicines, the
economy’s industrial basis has been significantly strengthened. These industries are
also primarily responsible for the development of private sector industries. As a result
of creating a solid industrial basis, the public sector has laid the groundwork for the
country’s rapid industrialization. Furthermore, the public sector has dominated key
industries such as petroleum products, coal, copper, lead, hydro and steam turbines,
and so on.
3. Opportunities for employment: 
Employment in the public sector can also be a source of resource redistribution. When
governments, for example, create more public sector positions in less affluent areas
with higher unemployment and lower salaries, they may be inadvertently draining
resources from more affluent areas of the economy to fund those jobs. This happens
when tax collection is unified and public sector wages become more uniform.
Furthermore, the development of public sector jobs has significant compositional
implications on the economy’s various sectors. Employment in government
 administration, defense, and other government services are available in the public
sector.

4. By creating job  opportunities: 

The public sector helps a country’s economic development by promoting rapid

economic growth through infrastructure creation and expansion. Hence, it generates
job opportunities, which further contribute to the development of the financial
resources of a country.
5. Formation of Capital:
The public sector has played a significant role to influence the country’s gross
domestic capital production. In India, the public sector’s share in gross domestic
capital formation has risen from 3.5 percent in the First five years’ plan to 9.2 percent
in the Eighth five years plan. The country’s comparative proportions of public sector
gross capital formation likewise changed from 33.67 percent under the First Plan to 50
percent during the Sixth Plan, before falling to 21.9 percent in 2005-06.
6. Export Promotion and Import Substitution: 
Some public sector firms have a track record of attaining import substitution and
thereby saving the country’s valuable foreign exchange. In this regard, Bharat Heavy
Electricals Limited (BHEL), Bharat Electronics Ltd., Indian Oil Corporations, and the
Oil and Natural Gas Commission should be mentioned (ONGC). For
example, Hindustan Antibiotics Ltd. (HAL), has cleared the road for import
substitution in India.
7. Contributes to community development:
The central exchequer receives a significant amount of revenue from public sector
firms in the form of dividends, excise duty, customs duty, corporate taxes, and other
sources.

In general, a nation’s economic development can be characterized as long-term

growth in per capita income combined with an improved quality of life. As listed
below, the public sector contributes to a country’s economic development in a variety
of ways:

 The government owns the majority of assets in the public sector and provides a
variety of services for the general public’s benefit. The Steel Authority of India and
the Indian Oil Corporation are both government-owned companies.
 Banks like the State Bank of India and Canara Bank are government-owned banks.
 The public sector plays a prominent role in a country’s economic development
because it undertakes large-scale development projects, whereas the private
sector often lacks the resources and motivation to undertake large-scale
development projects for the benefit of the people.

Public Sector Undertakings (PSU) – Problems

The major problems of PSUs can be stated below:

 Inappropriate investment decisions

 Improper Pricing Policy
 Excessive overhead cost
 Lack of Autonomy & Accountability
 Overstaffing
 Trade Unionism
 Under Utilization of capacity

Conclusion:
The public sector is a component of the economy that includes all levels of
government as well as government-controlled businesses. It excludes private
businesses, non-profit organizations, and households. The word “public sector” is also
used to describe a comparison between the commercial sector and the third, or
voluntary, sector. This makes it possible to map the scope of government activity
inside the larger economy. The public sector helps a country’s economic development
in more ways than one, through its health and education services, which contributes
significantly to the Human Development Index. The government also ensures that
people have a good life by purchasing food grains at a “fair price” from farmers and
providing low-cost power, water, and postal services. It does it with the help of taxes
and grants. As a result, it is critical for a nation’s economic development to be based
on its human development situation.