Independent India Economy
Planned And Mixed Economy
Independent India was declared to be a planned and a mixed economy. India needed national planning; it was decided by the political leadership almost a decade before independence. India was not only facing regional disparities at the level of resources but inter-regional disparities were also prevalent, since centuries. Mass poverty could only be remedied once the government started the process of economic planning. Economic planning was thus considered an established tool of doing away with such disparities.
Emphasis On the Public Sector
The state was to be given an active and dominant role in the economy; it was very much decided by the time India became independent. There were no doubts about it in the minds of the people who formed the dominant political force at the time. Naturally, there was going to be a giant structure of the government-controlled enterprises to be known as the public sector undertakings (PSUs). Criticism aside, there were at that time, a strong logic behind the glorification of PSUs. Some of the reasons for heavy investment in the PSUs were purely natural while others were consequential in nature.
1. Infrastructural Needs
Every economy whether it is an agrarian, industrial or post-industrial, needs suitable levels of infrastructure such as – power, transportation and communication. Without their healthy presence and expansion, no economy can grow, and develop.
At the eve of the independence, India was having almost no presence of these three basic requirements. There was just a beginning in the area of the railways, and post and telegraph. Power was restricted to selective homes of the government and the princely states.
These sectors require too much capital investment as well as heavy engineering and technological support for their development. Expansion of the infrastructure sector was considered not possible by the private sector of the time as they could possibly not manage the following components:
i. Heavy investment (in domestic as well as foreign currency),
ii. Technology,
iii. Skilled manpower
iv. Entrepreneurship
Even if these inputs were available to the private sector, it was not feasible for them as there was no market for such infrastructure. These infrastructures were essential for the economy, but they needed either subsidized or almost free supply as the masses lacked the market-determined purchasing capacity. Under this typical condition, it was only the government which could have managed not only the inputs required for the development of the sector but could also supply and distribute them to the needy areas and the consumers for the proper growth of the economy.
There were no alternatives and that is why the infrastructure sector in India has such a dominant state presence that many areas have obvious government monopolies – as in power, railway, aviation, telecommunication, etc.
2. Industrial Needs
i. Iron and Steel
ii. Cement
iii. Coal
iv. Crude oil
v. Oil refining and
vi. Electricity
These basic industries also require high level of capital, technology, skilled manpower and articulation in entrepreneurship which was again considered not feasible for the private sector of the time to manage. Even if the private sector supplied goods from the ‘basic industries’, they might not be able to sell their products in the markets due to the lower purchasing power of the consumers.
Out of the six basic industries the cement sector was having some strength in the private and in iron and steel sector a lone private company was present. The coal sector was controlled by the private sector and crude oil and refining was just a beginning by them. The level of demand of an industrializing India was never to be met by the existing strength of the basic industries. Neither the required level of expansion in them was possible by the existing number of private players. With no choice left, the government decided to play a main role in them.
3. Employment Generation
The PSUs were also seen as an important part of the employment generation strategy. A government in a democratic set up cannot think only economics, but it has to realize the socio-political dimensions of the nation too. The country was faced with the serious problem of poverty and the workforce was increasing at a fast rate. Giving employment to the poor people is time-tested tool of poverty alleviation. The PSUs were thought to create enough jobs for the employable workforce of the economy.
The government had decided to provide reservation to the weaker sections of the society in government jobs. The upcoming PSUs were supposed to put such jobs at the disposal of the government which could have been distributed along the decided reservation policy-such reservations were considered an economic tool for social change.
In the highly capital-intensive sectors in which the government companies were going to enter, managing investible funds to set them up was not going to be an easy task. The government did manage the funds with sources like taxation, internal and external borrowing and even taking last refuge in the printing of fresh currencies. The government went to justify the high taxation and heavy public independent indebtness in supplying employment to the Indian employable population.
The PSUs were considered by the government as the focus of the ‘trickle-down effect’. The government did everything to set up and run the PSUs as the benefits were supposed to percolate to the masses, finally reinforcing growth and development in the country. Employment in the PSUs was seen as the effort of the trickle-down theory, simply said. At the point of time, Nehru even mentioned the PSUs as the ‘temples of modern India’.
The government went to commit even a job in every household via the PSUs-without calculating the dimensions of labour force in the country and the required resources to create jobs at such a high scale. But the government went on creating new PSUs without analysing the fiscal repercussions-moreover believing them to be the real engine of equitable growth. The employment generation responsibility of the PSUs was extended to such an extent by the government that most of them had over-supply of the labour force which started draining its profits on account of the salaries, wages, pensions and provident funds.
4. Profit And Development Of The Social Sector
The investments to be made by the government in PSUs was in the nature of asset creation and these entities were to be involved in production activities. It was natural for the government to gain control over the profits and the dividends accruing from them. The goods and services the PSUs were to produce and sell were going to provide disposable income to the generation. The government had a conscious policy of spending the income generated by PSUs. They were to be used in the supply of the ‘social goods’ or what it is called the ‘public goods’.
India was to have a developed social sector. By the social goods the government meant the universal supply of certain goods and services to the Indian people. These included education, healthcare, nutrition, drinking water, social security, etc., in India. It means that the PSUs were also visioned as the revenue generators for the development of the social sector.
Due to many reasons the PSUs would not be able to generate as much profit as required for the healthy development of the social sector. This eventually hampered the availability of public goods in the country. In place of giving profits back to the government , a large number of PSUs started incurring huge losses and required budgetary supports as a regular phenomenon.
5. Rise Of The Private Sectors
The PSUs will take the responsibility of supplying the infrastructure and the basic industries to the economy, a base for the rise of the private sector industries will be built. With the rise of the private sector industries in the country, the process of industrialization will be completed. Out of the many roles the PSUs were supposed to play this was the far-sighted.
The PSUs were aimed to many other connected areas of developmental concerns, such as, self sufficiency in production, balanced regional development, spread of small and ancillary industries, low and stable prices, and long-term equilibrium in balance of payments. Over time the PSUs have played a critical role in promoting the growth and development of the country.
Comments
Post a Comment