In spite of tremendous progress and achievement of the public sector., It is not free from demerits and defects. They are facing various problems and shortcomings. They are criticized on the basis of their shortcomings.
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Major Problems of Public Sector
Following are the role and problems of public sector in an economy:
1. Inefficient Management
It has been found that these enterprises are managed by public savants. They are not professionally qualified nor experts in the management of industrial enterprises.
Public enterprises always suffer from delayed decision making.
Whereas, private enterprises are managed by professionals which makes them more punctual in working.
Private enterprises are operated for the profit motive, resulting in optimum utilization of available resources.
Managerial dis-economies are there in public enterprises because of the lack of proper management cadre in the public sector.
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Public enterprises are usually managed by the bureaucrat. Organizational hierarchy, fix up responsibility, the delegation of authority and management information system is the weak part of public enterprises.
2. Lack of Efficiency
They are not run on commercial principles. Their main motto is social welfare, not profit earning.
If a public enterprise in-cursed losses due to efficiency, it is overlooked. Whereas private enterprises are run for profit.
Profitability is the man criterion of their efficiency.
It is assumed by the private sector that competition can be faced on the basis of efficiency.
Lack of competition is one of the causes of the insufficiency of public enterprises.
3. Delayed Decisions
Delayed in decision making is one of the key problems. Lack of personal interest No one wanted to take responsibility for making decisions.
The loss in public enterprises is a loss of public. It is not a personal loss.
Therefore public enterprises have been undergoing losses and the number of losses is the mounting year after year.
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4. Lack of Innovations
Innovations are essential for economic development.
Public enterprise lacks it due to monopoly or lack of competition.
The private sector is always busy with innovating new techniques, new production methods, etc.
For the purpose of cost reduction and profit maximization.
On the other hand, public sector employees are government employees and their jobs are secure.
They do not bother about the cost and profit of public enterprises.
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5. Excessive Government Control
It has been found that the government is always interfering in the petty decisions of public enterprise.
Decision making takes a long time due to the complex procedure in public enterprises.
Autonomous corporations were set up to avoid excessive government control in public enterprises.
It is, therefore, suggested that government control should not be diffused and dispersed over a wide area, but there should be confined to basic issues and key points.
6. Mounting Losses
A review of the working of PSUs reveals that either their profits are deplorably low or they are making losses.
The losses are mounting year after year.
Although some of the public enterprises are earning profits, the amount is very thin in comparison to capital employed and our expectations.
The losses in public enterprises can be justified during the gestation period but afterward, they must try to wipe out losses and earn profits.
The government should, therefore, make a case by the case study of the loss incurring enterprises and take remedial, measures.
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7. Political Interference
Public enterprises are becoming a means of fulfilling the political objective of political parties. They have to serve the political interests of the ruling parties.
It has been observed that political factors influence decisions about the location of projects, appointments, and even daily operations.
The location of the project is decided on the basis of political interest and not on the basis of the economic viability of the project, resulting in incurring losses. Top 13 Politicals Factors Affecting Business Activities.
This approach leads to considerable wastage of capital resources. Politicians are nominated on the board of directors of public enterprises.
8. Under Utilization of Capacity
Public enterprise is facing the problems of underutilization of its installed capacity.
Thus, the capital resources are not fully utilized by public enterprise.
Therefore, it is necessary to find the causes of low capacity utilization and thus remedy the situation with appropriate measures.
Shortage of power, inadequate demand, equipment breakdowns, inadequate raw material, managerial inefficiency, etc. Are the major causes of underutilization of capacity.
9. Time and Cost Over-Runs
Most of the public sector projects take the long ester time to complete than was initially envisaged.
The cost of the projects also run upwards due to delay in completion of projects.
Poor and adequate project planning is the main cause of their delay in the construction time schedule and an increase in cost.
Therefore, it is essential to prepare the completion of other project and an increase in cost can be avoided.
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10. Problems of Autonomy and Control
Public funds are invested in public enterprise and govt. It is responsible for the optimum utilization of public funds.
At present, control is exercised by the finance minister and the minister in charge of the undertaking and the parliament to check misuse of public funds.
Parliamentary control over the operations and capital development plans of public enterprises tends to become quite rigid.
There is a need to provide greater functional autonomy in the management of public enterprises, so that they may work efficiently, economically and enthusiastically.
Therefore, there is a problem of coordination between control and autonomy.
In order to provide more autonomy in parliament can help by not interfering in the working of public enterprises.
Related: 22 Advantages and Disadvantages of Privatization (Economics).
11. Problems of Price Policy
Profit earning is not the main object of public enterprises.
They are operated for social welfare. If they indulge themselves in profit-making activities then there will be no difference left between public enterprise.
Regarding price policy, public enterprises should adopt no profit any loss theory or the theory of minimum profit.
So that they can maintain their relevance in the economy.
If they follow the below cost price policy, they have to bear losses and it cannot be justified.
If they charge heavy profits, then the social objective cannot be fulfilled.
Therefore, they have to keep in mind the social implications of price policy. In many cases, prices are kept low even then the cost. This naturally affects their profitability.
This is very fine major problem of public sector.
12. Over Staffing
It has been noticed that in a most public enterprise, manpower is in excess of actual requirements.
Due to poor manpower planning, public enterprises are facing the problem of overstaffing.
There is a lack of proper education and training of the employees in the public sector.
Therefore, it is suggested to reduce the staff and top positions should be open to its employees.
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13. Problems Of Over Capitalisation
Public enterprises are facing problems of overcapitalization.
The Input-output ratio in many projects was unfavorable. Defective project planning, lack of cost-consciousness, underutilization of capacity, etc.
Are the main causes of overcapitalization in public understandings.
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A study team has mentioned, “The causes leading to overcapitalization can be traced to inadequate planning, delays and avoidable expenditure during construction, surplus machine capacity, tide aid resulting in the combustion to purchase imported equipment on a non-competitive basis, expensive turnkey contracts, bad location of projects and the provisions of housing and other amen ties on liberal scale.”
14. Lack of Motivation
There is a lack of motivation in public enterprises. Employees get fixed salaries and other perks.
There is no reward for good work and no punishment for bad.
Thus, efficient and innovative employees are not motivated to do hard work. Elon Musk’s Top 12 Tips for Every Entrepreneur & Student (@elonmusk).
15. Problems of Managerial Structure
Public enterprises are governed by a board of directors. All imported decisions are taken by the board.
Therefore, the success of the enterprise depends on the ability and efficiency of the members of the board.
It is a difficult question, as to who should be made a member of the board of directors and what should be his qualifications.
Politicians, bureau-craft, etc. Are nominated as a member of the board of directors in public enterprises.
16. Problems of Audit and Inspection
Although there is a system of audit and inspection in such enterprises, it is not followed in practice.
Accounts should be audited by the competent authority at least once a year. It should be seen that public funds are not misused.
The audit department of government is already overburdened and the employees of the enterprise are not cooperative.
Hence, it is suggested to appoint an expert committee that can audit the accounts of each public enterprise to judge its efficiency.
17. Problems of Protection of Consumer’s Interests
As the number of public enterprises is increasing the problem of the protection of consumer’s interests is also increasing.
Public enterprises are producing various consumer goods and providing various public utility services.
Therefore, public enterprises have to bear the responsibility to serve consumers interesting providing quality goods in sufficient quantity at economic rates.
This will lead to control over the exploitation of consumers by the private sector.
The public sector acts as the monopolist in various sectors, therefore it is in a position to exploit consumers. But the public sector is not run for the profit motive, it works for social service.
Therefore it is the responsibility of the public enterprises to look after the interests of the general public. But the public sector has failed to protect the interstates of consumers.
They misuse their monopoly position and earn a profit by increasing prices. They are unable to provide better services to their customers.
Thus, now you know the major problems of public sector in the economy of the country.
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