Business Finance in Less Developed Capital Markets

By Klaus P. Fischer; George J. Papaioannou | Go to book overview

15
Financial Management in Public Enterprises in India

V. N. HUKKU

The foundations of the public sector in India go back to the early years of planning. The Industrial Policy Resolution of April 30,1956, which is still the basis of present policy, proposed that all basic and strategic industries and public utilities should be in the public sector, given the objective of a socialistic pattern of society and the need for planned and rapid development. Public enterprises (PEs) have achieved a great deal in terms of their contribution to quantitative targets of production, to the establishments of a modern industrial structure, to balanced regional development, and to the formation of technological skills. They have become principal instruments of planning in India, occupying commanding heights of the economy and controlling and directing in a large measure the whole course of its development. Over the last 30 years or more, the growth of the PEs has been phenomenal in terms of investment and production as well as the scope of activities. But in spite of this phenomenal growth, the overall performance of public enterprises has remained unsatisfactory, especially in terms of their contribution to the generation of resources and financial profitability. Consequently, the net contribution of PEs to the requirements of funds for their investment proposals is small, resulting in pressures on budgetary resources. The ability of the budget to finance further public investment has been seriously eroded because of low returns on past investment and the rising burden of defense and other nonplan expenditures.

The rationale of the operation of PEs and the expectations that their management should be run on commercial and business lines, that they should earn profits to contribute to the revenues of the state, that they should be judged for their total results, and that subject to these performance criteria they should have full freedom of operation were clearly set out in the Industrial Policy Resolution of 1956. In accordance with this rationale, most of the activities of the public sector have been organized in the form of corporations or companies set up either under the statute

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