Model Answer
0 min readIntroduction
Post-independence India, influenced by socialist ideals and the need for rapid industrialization, adopted a policy of assigning ‘Commanding Heights’ – strategic sectors like steel, oil, banking, and telecommunications – to the public sector. This was premised on the belief that the state was best equipped to drive capital-intensive industries, ensure equitable distribution, and promote national self-reliance. However, with the advent of economic liberalization in 1991, the role of the public sector has been increasingly debated. The question of whether to continue prioritizing public undertakings in these sectors remains pertinent, demanding a critical assessment of their performance and relevance in a globally integrated economy.
Historical Context & Rationale
The rationale behind assigning ‘Commanding Heights’ to the public sector stemmed from several factors. Firstly, a lack of domestic private capital and entrepreneurial capacity necessitated state intervention. Secondly, the pursuit of social justice and equitable distribution of wealth led to the belief that private entities would prioritize profit over social welfare. Thirdly, the need for self-reliance in crucial sectors was considered vital for national security and economic independence. The Industrial Policy Resolution of 1956 formalized this approach, placing key industries under state control.
Arguments for Continued Public Sector Dominance
- Social Welfare & Inclusive Growth: Public sector undertakings (PSUs) often prioritize social objectives like providing employment, affordable services, and reaching remote areas, which private companies may neglect.
- Strategic Importance: Certain sectors, like defense production and atomic energy, require significant investment and long gestation periods, making private sector involvement less feasible.
- Infrastructure Development: PSUs have played a crucial role in building core infrastructure like power plants, dams, and transportation networks.
- Price Stability: In sectors like fertilizers and food grains, PSUs can help maintain price stability and ensure food security.
Arguments Against Continued Public Sector Dominance
- Inefficiency & Lack of Innovation: PSUs often suffer from bureaucratic inefficiencies, lack of competition, and limited incentives for innovation, leading to lower productivity and higher costs.
- Financial Burden on the Exchequer: Many PSUs are loss-making and require continuous financial support from the government, straining public finances. According to the Reserve Bank of India (RBI) data as of March 2023, the total debt of CPSEs stood at ₹62.2 lakh crore.
- Corruption & Political Interference: PSUs are often susceptible to corruption and political interference, hindering their operational efficiency and decision-making.
- Reduced Private Investment: Excessive public sector dominance can crowd out private investment and stifle economic growth.
The Evolving Landscape & Way Forward
The economic liberalization of 1991 marked a shift towards a more market-oriented economy. While complete privatization is not necessarily desirable or feasible in all sectors, a pragmatic approach is needed. This involves:
- Strategic Disinvestment: Continuing strategic disinvestment in non-core PSUs to generate revenue and improve efficiency.
- Corporate Governance Reforms: Strengthening corporate governance in PSUs to enhance transparency, accountability, and professionalism.
- Public-Private Partnerships (PPPs): Leveraging PPPs to attract private investment and expertise in infrastructure development and other sectors.
- Focus on Core Competencies: PSUs should focus on their core competencies and areas where they have a comparative advantage.
- Revitalizing PSUs: Investing in technology upgrades and skill development to improve the competitiveness of PSUs.
The NITI Aayog has consistently advocated for reforms in the PSU sector, emphasizing the need for efficiency and accountability. The government’s recent focus on ‘Atmanirbhar Bharat’ (Self-Reliant India) also necessitates a strong and efficient public sector, but one that operates on commercial principles.
Conclusion
The policy of assigning ‘Commanding Heights’ to public undertakings, while historically justified, requires re-evaluation in the context of a dynamic global economy. A blanket continuation of this policy is neither feasible nor desirable. A nuanced approach that combines strategic disinvestment, corporate governance reforms, and PPPs, while retaining public sector presence in strategically important sectors, is crucial. The goal should be to create a competitive, efficient, and socially responsible public sector that contributes to sustainable and inclusive growth.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.