National Commission on Labour (1967)||
The public sector has come to occupy an important place in the economy of the country. The manufacturing units in this sector accounted for about a fifth of the total number of employees working in industries in 1967. We, therefore, consider it necessary to deal with this sector of employment separately. Within the public sector, it is possible to distinguish two types of undertakings: (i) undertakings run directly by the departments or executive agencies of the Government, and (ii) undertakings run by statutory corporations and by Government companies registered in accordance with the provisions of the Companies Act, 1956. At the end of 1967-68, there were 83 Central undertakings belonging to the latter category, of which six were statutory corporations. Their distribution, according to the nature of undertaking and form of management, is shown in the table below:
TABLE 25.1: Distribution of Central Undertakings, 1967—68.
|Nature of Undertaking||Government Companies||Statutory Corporations||Total|
|Industrial and Manufacturing .....||52||••||52|
|Public Utilities and Services .....||.1||2||7|
|Promotional and Developmental .....||8||2||10|
|Commercial and Trading (including construction agencies|
|Financial Institutions (including Life Insurance Corporations)||2||1||3|
There is also a variety of patterns in the vast range of these enterprises. the list of projects which are covered under the title 'public sector projects' is at Annexure I.
25.1 Prior to Independence, Government's industrial activity which attracted some labour legislation or the other was confined mainly to sectors like railways (including their workshops), ports and docks, posts and telegraphs and their workshops, ordnance factories, printing presses and construction activities undertaken departmentally. The Government of those days had no intention of entering the industrial field as an employer or of setting up corporations to run industrial enterprises or even of financing industrial activities out of public funds. That field was mostly left to private entrepreneurs, the responsibility of the State being limited to providing the essential infrastructure. With the attainment of Independence, industrial development became one of the major objectives of Government policy. The Industrial Policy Resolution, 1948 stated that "a mere re-distribution of existing wealth would make no essential difference to the people and would merely mean the distribution of poverty. A dynamic national policy must, therefore, be directed to a continuous increase in production by all possible means, side by side with measures to secure its equitable distribution." The Government felt that, for some time to come, the State could contribute more quickly to the increase of national wealth by expanding its activities wherever it was already operating and concentrating on new units of production in other fields rather than acquiring and running existing private units. To achieve these objectives, the Resolution laid down that "the manufacture of arms and ammunition, control of atomic energy, and the ownership and the management of railway transport should be the exclusive monopoly of the Central Government". In industries like coal, iron and
steel, aircraft manufacture, shipbuilding, manufacture of telephone, telegraph and wireless apparatus (excluding radio receiving sets), and mineral oils, the State and public authorities were to be responsible for further development except to the extent that the cooperation of private enterprise was needed. The rest of the industrial field was left open to private individuals and cooperative enterprise, although State participation was not ruled out. Even before this Resolution was adopted, several State Governments had formed statutory transport corporations under the Road Transport Corporation Act, 1948, subsequently replaced by the revised Act of 1950. The activities of such corporations were mainly restricted to passenger transport.1 They have entered this field further since then, and now nearly all States have their transport undertakings. Another extension of public undertakings has been in respect of generation and distribution of power by State Governments and establishment of State Electricity Boards for the purpose.
25.2 The adoption of the Constitution and the process of planned development had their own impact on the policy of the State for entering wider fields of production; these together in a way buttressed the Industrial Policy Resolution, 1948. As a consequence, the First Plan included an outlay of Rs. 94 crores for industrial development in the public sector—Rs. 83 crores in respect of projects directly under the Central Government and the balance for the States. The major industrial project included in the Plan was for production of iron and steel, estimated to cost Rs. 80 crores over a period of six years from the date of commencement. The projected expenditure during the First Plan was Rs. 30 crores, of which half was to be provided by the Central Government and the remaining by participation of indigenous and external capital. Production of the fertiliser plant at Sindri was to be diversified. Among important projects included in the Plan were the expansion of the Chittaranjan Locomotive Works set up in January, 1950, the Integral Coach Factory at Perambur, the Machine Tools Factory in Bangalore and the Ship Building Yard at Visakhapatnam. Apart from these, units for manufacturing antibiotics and DDT were also a part of the Plan. The emphasis, however, was on manufacture of capital goods or intermediary goods which were of vital importance not only from the point of view of immediate needs, but also in terms of future economic development. Among the State Projects were the setting up of the newsprint factory in Madhya Pradesh and the expansion of the Mysore Iron and Steel Works. The organisations appropriate for the running of such enterprises also attracted the attention of the planners. The Plan pointed out, "The criteria of successful operations of private or public enterprises are basically the same. The public must get the services of requisite quality at minimum cost and the interest of the worker and the shareholder or the taxpayer must be adequately safeguarded. Indeed, standards of performance expected of public enterprises have to be more rigorous"2. These were the beginnings of public sector enterprises in the country.
25.3 As the First Plan progressed, certain significant developments took place. The Government felt the need for an adequate financial and credit mechanism for promoting overall development. The creation of financial institutions for which public funds were provided, the conversion of the Imperial Bank of India into a public owned and publicly managed State Bank, enlarging the activities of the Reserve Bank for development of cooperative credit agencies and the nationalisation of life insurance were some of the steps taken by Government to provide a better base for the operation and direction of investments where they were required.
25.4 The second Industrial Policy Resolution came in April, 1956, on the eve of the publication of the Second Plan. It was based on the experience of the working of the earlier Resolution. The Resolution referred to the adoption by Parliament in 1954, of the socialist pattern of society as the national objective, as well as to the need for planned and rapid development, both of which required that all industries which were of strategic importance or of the nature of public utility services should be in the public sector. The industries were divided into three categories: (i) industries, the future development of which was to be the exclusive responsibility of the State, listed in Schedule A to the Resolution, (ii) industries which were to be progressively State-owned and in which the State was generally to take the initiative in establishing new undertakings, listed in Schedule B3, and (iii) industries not specifically included in either of the Schedules. With regard to industries in Schedule B, the private sector was also given the opportunity either to develop on its
1 First Five Year Plan, pp. 482-483.
2 Ibid p. 429.
3 The industries in Schedule A and B are listed in Annexure II.
own or with State participation. The industries not specifically named in either of the Schedules were left for development by private enterprise exclusively. The Resolution explained further that the intention was not to place the industries in water-tight compartments. An element of overlapping and dovetailing between industries in different Schedules was envisaged. The role which Government had in mind for labour was explained, after emphasising the need for improved working and living conditions. To quote: "In a socialist democracy, labour is the partner in the common task of development and should participate in it with enthusiasm".1 Progressive association of workers and technicians with management also formed a part of the Resolution.
25.5 In terms of policy, therefore, growth and welfare considerations were combined in the Resolution. This combination reflected the dominant public mood at the time. As experience was gained during the Second Plan in the running of these units and finances for development became more difficult, public undertakings came to be looked upon as a source to which the State could look for funds. The welfare approach, which in its broad view covered within its beneficiaries the employees in the public sector as much as the general public (through appropriate pricing of its products) became somewhat modified. Considerations of a non-commercial type which could have been accorded primacy in the earlier years were, in this altered view, given a subordinate place. The public sector was expected to serve as an instrument for creating resources for development also.
25.6 This change in approach was reflected in the framing of the Third Plan; surpluses from public enterprises were expected to become one of the important sources of plan finance. Expansion of projects built up during the Second Plan and entering new lines of production was envisaged. The next landmark in the policy pronouncement for the public sector was the Prime Minister's address to the 'Round-table' Conference convened in June, 1966. While inaugurating the Conference, she said:
"There is no such thing as public sector technology and private sector technology. It is the same with project planning, costing, research, marketing and the rest. The public
sector must stand or fall, like the private sector, on the tests of efficiency, profit, service and technological advance. The only difference lies in the fact of social control and social purpose with regard to the public sector. The "philosophy" might be different. The operation is similar. She said:
"We advocate a public sector for three reasons: to gain control of the commanding heights of the economy; to promote critical development in terms of social gain or strategic value rather than primarily on considerations of profit; and to provide commercial surpluses with which to finance further economic development".
The Prime Minister then went on to point out the deficiencies in the working of the public sector, the over-staffing in the units, ineffective personnel policies, inability to generate adequate surpluses, lack of adequate forward planning and so on.
25.7 According to the Fourth Five Year Plan 1969—74 (Draft), Central investments in public sector projects in mining and manufacturing amounted to about Rs. 3,400 crores at the beginning of the Fourth Plan. During the Fourth Plan, another amount of Rs. 3,055 crores would be invested in industry and minerals in the public sector as against a proposed outlay of Rs. 2,150 crores in the private sector. These figures exclude public sector investments in transport, communication and power. On the whole, the growing ascendancy of the public sector in organised employments is obvious from these data. Productivity and profitability of these enterprises, according to the Draft, are a matter of urgent importance'2 The Plan, therefore, suggests 'the reorganisation of management of public enterprises to achieve the twin aims of a strong well-knit public sector and the autonomous operation of responsible units'.3 We have endeavoured to examine norms for guidance for public undertakings to develop appropriate conditions of work and healthy labour-management relations against this background. Because of the importance of the subject, we constituted a special study group to advise us, on problems connected with labour in the public sector. The suggestions made by the group will be referred to when occasion requires.
1 Second Five Year Plan, p. 49.
2 Fourth Five Year Plan, 1969-74 Draft, p. 242.
3 Ibid, p. 28.
25.8 The public sector has gradually expanded since 1951, and has played a vital role in our economy. Primarily it entered fields (a) which are basic for the growth process on the one hand and for prevention of monopolistic production on the other and (b) to which private enterprise could not have been attracted due to the magnitude of investment required, the needed technical know-how, the long period of gestation and above all the total output-pricing matrix limiting maximisation of profit or surplus. Without its development, however, little industrialisation would have been possible as no super-structure can be sustained without a strong base. Expansion of public sector has thus provided the ground for building up private industries, expanded their input and output markets, made their technological advance feasible and in a real sense contributed to their profit potential. Public sector financial institutions have given support to public, private and cooperative sectors alike. Not only has the establishment of financial institutions in the public sector made large-scale projects in public or private sector feasible, but it has been equally active, particularly in recent years, in enlarging resources for the cooperatives or small-scale enterprise as well as for agriculture. The nationalisation of banks which has recently been announced has the same purpose in view. Judging from this angle, the contribution of the public sector and the continuing importance of its expansion cannot be over-emphasised. The test of financial viability in a narrow accounting sense of the term or the rate of profit that is relevant for judging the performance of private enterprise is of secondary importance for the public sector for which economic viability or gain to the economy as a whole is much more relevant. In the long run, however, public sector projects must also be financially feasible and every effort should be made to minimise costs and earn surpluses. But their performance on this plane alone should not be used as an argument against their main utility as builders of the economy or of its infra-structure.