Public sector units in India and China: inefficient producers or creators of crucial knowledge assets?
Introduction India and China, two of world’s fastest growing economies, face similar policy challenges in relation to their respective public sectors. A view that has gained much influence is that the public sectors are a weak link in these countries’ otherwise exciting growth stories, and therefore they must be reduced in size. This chapter, reviewing the relation between public sector and economic growth in India and China over a long period, contests the above opinion. Public sector units in India and China are frequently portrayed as ‘inefficient’ producers, causing a drain on the national economies. On the other hand, this paper highlights that public sector units are also creators of knowledge assets that are so crucial to these countries’ future growth and competitiveness. This chapter is organized as follows. The major objective of public sector investments in India and China from the 1950s was to speed up the industrialization programme in these countries. Even in 2009-10, the share of industrial sector (manufacturing, electricity and mining) in real investments by central government public sector enterprises was 74.4 per cent in India (GOI 2011a). The next section of this chapter makes a broad review of the state of industrial and especially manufacturing sector in India, making comparisons with China wherever possible. Next is a review of the various stages in the evolution of India’s policies towards the public sector from the 1950s until the 1980s, and the following section analyses the policy changes in India after the beginning of economic reforms in 1991-92. Then I review the various phases in China’s economic transition and the role played by the public sector in each. The next section discusses the role of the public sector as a creator of crucial knowledge assets, followed by concluding remarks.