(b) Lack of Political Interference : It is argued that governments make poor economic managers. They are motivated by political pressures rather than Sound economic and business sense. State owned enterprises often employ too many workers which increases inefficiency.
(c) Short Term View : A government may think only in terms of next election. Therefore, they may be unwilling to invest in infrastructure improvements which will benefit the firm in the long- term because they are more concerned about projects that give a benefit before the election.
(d) Shareholders : A private firm has pressure from shareholders to perform efficiently If the firm is inefficient then the firm could be subject to a takeover. A state owned firm doesn’t have this pressure, so the firms become inefficient
Section-B (BBA Short Answer Questions)
Note : Attempt any two questions out of the following three questions. Each question carries 7.5 marks. Short answer is required not exceeding 200 words. (7.5 x 2 = 15)
5. Discuss the main problems of public sector undertakings.
Ans. The main problems of the public sector undertakings are discussed in detail as follows:
(a) Underutilisation of Capacity: In recent years both the volume and value of public sector output have rapidly increased. In spite of that, most of the public sector enterprises suffer from the general problem of under utilization of capacity. In view of the paucity of investible resources and widespread shortages prevalent in the economy, capacity utilisation becomes an important criterion to judge the performance of an enterprise. But, we find that in most of the cases, a major part of the installed capacity of manufacturing units in the public sector remains unutilised. When the capacity utilisation in the public sector steel plants is even below 70 per cent, we are importing two million tons of steel from abroad, at a price two and a half times the local rate.
(b) Undesirable Bureaucratic Interference: Gradually all public enterprises have come to be treated as if they were all departmental undertakings and most of them have fallen into civil service culture. The control of management by specialists and technocrats so necessary for the efficient and productive operation of the public sector, is being inexorably weaned out. The infiltration of the bureaucracy in the public sector in a number of developing countries has become real and extensive with the interference of redtape, dilution, of accountability, leveling down of skill, enterprise, efficiency and even genius and eventually, loss of productivity and profitability becoming the order of the day.
(c) Remuneration Divorced from Productivity : At present uncalled for industrial disputes have played havoc with productivity and profitability of these enterprises. Sometimes even the normal functioning is paralysed. There is little social pressure to promote a moral ethic conducive to better performance. The tendency to weaken the link between higher reward and higher productivity is basically inimical to both growth and distributive justice. This tendency affects the public sector badly, since a variety of forces in society tend to treat it as an instrument for subsidisation of wages and salaries. The absence of any link between productivity and reward is inconsistent with the egalitarian system that we aim to establish.
(d) Stagnation in Production : In certain vital public sector undertakings production has been more or less stagnant. The coal industry had been into crisis, the magnitude of which could be guessed from the fact that some time back 1,000 trains were cancelled. Due to coal scarcity power generation also plummetted.
(e) Incurring of Losses Public undertakings are different from the private enterprises. Profit maximisation is not the primary objective of the public sector. Its principal aim is to promote 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 is an established desideratum. It is an important performance criterion.