Public sector had a prominent role before 1991, as discussed below
(i) Development of Infrastructure and Heavy Industries At the time of independence, basic infrastructure was not developed and hence industrialisation was difficult due to lack of adequate transportation / communication facilities, fuel / energy and basic / heavy industries. The private sector did not take initiative to invest in heavy industries and infrastructure due to heavy capital requirements and long gestation periods involved in these projects. Therefore, government took the lead in these projects through public sector enterprises.
(ii) Regional Balance After the inception of planning in 1951, the government started paying special attention to those regions which were lagging behind and public sector industries were deliberately set up in those backward regions. Four major steel plants were set up as public sector units in the backward areas to accelerate economic development, provide employment to the workforce and develop ancilliary industries.
(iii) Economies of Scale Average cost of production is lowered when the scale of production is large. But large scale industries require huge capital outlay and hence the public sector had to step into take advantage of economies of scale. Units of electric power, natural gas, petroleum, etc were set up in public sector as these units required a larger base to function economically which was possible only with government resources and mass production.
(iv) Concentration of Economic Power At the time of independence, there were very few industrial houses which had the required capital to invest in heavy industries and if public sector units were not established wealth could get concentrated in few hands. By investing in such industries public sector ensures that the benefits and wealth would not concentrate in few hands. It will be equally distributed.