Role of Public Enterprise in Underdeveloped Countries

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Role of Public Enterprise in Underdeveloped Countries

In under-developed countries, public enterprises are badly needed to initiate and accelerate the developmental process. They can promote economic development in the following ways.

(i) By Creating Social and Economic Overheads. Only State can provide educational facilities and technical training, medical aid and public health measures and develop irrigation and means of transport -all which is indispensable for economic growth.

(ii) By Building Bask Heavy Industries. It is beyond private enterprise to develop basic heavy industries like iron and steel. heavy electrical and heavy engineering industries. But these are essential for providing a base for industrial development.

(iii) By Optimum Allocation of Resources. Private enterprise is notorious for allocations of the country’s resources lured by profit motive. Public enterprise, which is guided by social gain rather than private profit, is needed to correct this tendency and help in bringing about an optimum allocation of resources.

(iv) Ensuring Balanced Regional Growth. State, as a guardian of people’s welfare. takes special pains to develop back warp regions, for this purpose, industrial units are deliberate } located in backward areas. In this way. regional development is  about.

(v) Listing Surplus Labour for Capital Formation. The public enterprises favorably located can drain out from the rural areas surplus labour in the form of disguised unemployment and use it more productively. This will promote economic development.

(vi) Creating Indigestible public enterprises are a good economic development.

(vii) Planning Lade Effective. If economic planing relied on private enterprise. it would be very ineffective. Hence public enterprise is seeded to make it effective.

Pricing Policy or public sector Enterprise. Public sector enterprises (PSE) were established with an economic and social objective to be achieved within a particular time frame. On the basis of these objectives the following price policy was introduced.

Pricing in PSE.

Pricing in PSE.

(i) Monopoly prick (MR = MC) The aim was to obtain certain amount of profit for providing other government expenditure including welfare activities. This use to include CONG, oil, electricity etc.

(ii) Profit no losses basis (AR = AC) : In this the aim of the government was to provide the services without earning profit but to recover the cost of providing these services. In other words no loss no profit.


(iii) Marginal cost pricing: In this case the govt is charging only the marginal cost. In other words AR = Me. The govt, is charging only the amount of additional cost incurred to manufacture additional unit.

Disinvestment Policy of Pub sector Enterprises. Intermediately after independence the govt. Put. more emphasis on socialistic pattern of the society. Those day’s the economy was picking up and require inducement. The Keynesian concept of well fare state was applied in different countries of the world. The govt. thought of bringing more important role of pubic sector enterprise. The objective of bringing abut more public sector enterprises was to (i) To bring about basic & key industries. (ii) To accelerate the role of economic growth. (iii) To achieve balance regional development (iv) to develop infra structure. (v) to mobilize capital formation.educe the concentration of economic power etc.

On the other hand due to the signing of GAIT agreement and the New Industrial policy of 1991. The govt initiated a process of disinvestment in process of disinvestment in public sector units. Though the privatization and disinvestment policy was started in 1984. Now the objective of the government completely changed. The government aimed.

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Role of Public Enterprise in Underdeveloped Countries