Economics

(Loopholes of Public Sector

Enterprise)

Presented By:

Dipanway Bhabuk

Public Sector Enterprise

Business units owned, managed and controlled by the central or state

government are termed as public sector enterprises.

Commercial or industrial undertakings owned and managed by the

government with a view to maximize social welfare and uphold the public

interest.

Loopholes of PSE

Underutilization of capacity: most of the PSE suffer from the problem of

underutilization of capacity.in most of the cases, a major part of the

installed capacity of manufacturing units in the PSE remains unutilized.

capacity utilization in the public sector steel plants is even below 70%, we

are importing two millions tons of steel from abroad. Coal India is not operating

even 50% of its 925 coalmines.

Overstaffing : Manpower planning is not effective due to which several State enterprises like Bhilai Steel have excess manpower. Recruitment is not

based on sound labour projections. On the other hand, posts of Chief

Executives remain unfilled for years despite the availability of required

personnel.

Stagnation in production : In certain vital public sector undertakings

production has been more or less stagnant. For instance, in spite of colossal

investment, subsequent to nationalization, the persistent stagnation in the

coal industry is evident from the foregoing table.

Incurring of losses : Public undertakings are different from the private enterprises. Profit maximization is not the primary objective of the public

sector. Its principal aim is the promotion of social welfare. Still, as the public

sector utilizes a vast quantity of resources, it is expected that they should

operate efficiently and earn profit. The fact that public enterprises should

create financial surpluses or profit.

Political interference : There is excessive influence and interference by

political leaders and civil servants in the functioning of public enterprises.

Parliamentary control reduces the autonomy of these enterprises.

Lack of motivation : Directors and managers of public enterprises have little

personal stake. There is little incentive to work hard and improve efficiency.

Centralization of authority and rigid bureaucratic control hamper initiative,

quick decisions and flexibility of operations. Personal touch with employees

and sensitivity to consumers' needs are lacking.

Lack of coordination : Various state enterprises are dependent on one another as the output of one enterprise is the input of another. For instance,

the efficient functioning of power and steel plants depends on the

production and transportation of coal which in turn is dependent upon

supplies of heavy equipment and machinery.

Despite such interdependence; effective coordination between different

undertakings in the areas of personnel, finance, materials management and

research has not been achieved.

THANK YOU…