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271, , Mixed Economy, , omy wliicli, 'Jl mb( ea economy is merely sem i-so cial izea econ, ., means a semi-ensfavea society.·, , .!4..yn 1uB-nd, ~ 1. CONCEPT OF A MIXED ECONOMY, es' idea of, The concept of mixed economy has been evolved from Keyn, s of economic, mixed statecraft as a better alternative to the extreme type, d economy is a, systems-laissez faire capitalism and socialism. A mixe, to remove the, middle path between these two systems and is intended, harsh features of both types of economic systems., , (' Definition, economy"., It is very difficult to precisely define the term "mixed, omists. Since, Hence, this concept is widely used and abused by many econ, exploitation of, capitalism has earned worldwide notoriety for its ruthless, motive is profit, the working people and the consumers alike, and its only, as a whole, no, making regardless of its serious consequences to society, the American, county today wishes to call itself a capitalist country. So even, omy but as a, economy is being described today not as a capitalist econ, Samuelson. •, variant of mixed economy by some economists, including, Clarke calls it a, Hansen, for instance, calls it a udual economy", while, the balanced, "balanced eco nom t. They deem it to be composed -of, featur~s of both, economy. They-- deem it to be composed of the balancing, capitalism and socialism, whatever it may in reality mean., ribed as a, However, strictly speaking, a mixed economy may be desc, bine all the best, blend ·of capitalism and socialism. It is _intended to com, to do away with ·, features and merits of both capitalism and socialism and, the obnoxious features of both the systems., e to the, A mixed economy . is a system which provides equal scop, . sector of the, - private and public sectors. In this system, the state, rs supposed to, economy (or the public sector as it is otherwise known), all goals of the, assist an support the private sector in achieving the over

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-··"'"Y81~, , national economy, i.e., to achieve economic prosperity and the improvemen, in the living standards of the people., t, In a mixed economy, public and private en.terprises are not to functio, as rivals competing with each other, but as complementary partners in th n, national economy, each supporting and supplementing the other., e, A mixed economy, therefore, c~n be defined as one in which material, resources are allocated and exploited partly throu~h. the decisions of, private individuals and firms and partly through the dec1s1ons of the state., Lipsey puts rt that 'in a mixed economy! on the one h~nd, the market, mechanism and the price syscem are g1v~n _su~stant1~I freedom to, influence the allocation of resources and the d1stribut1on of income, on the, other hand, the central authorities intervene in many different ways and, exert substantial influence on the working of the market.' 1, In short, a mixed economy is a state controlled market oriented, economy., In reality, however, there is no pure capitalist or pure socialist, economy. Each system contains a few elements of the other system. For, instance, in the capitalist system today, the state to some extent controls, the allocation of resources, while the command economies permit some, amount of decision making in the hand_s of individuals or the private sector., Thus, we can describe American and Russian economies as mixed, economies. However, looked at from the viewpoint of ideological principles,, these economies are referred to as capitalist and socialist economies, respectively., Presently, economies of Great Britain, India and Pakistan are described, as 'mixed economies· because they all contain elements of both the, economic syslems. However, the individual patterns of these mixed, economies vary in content, depending upon the typical internal economic, situation obtaining in each country., , ~, - CHARACTERISTICS OF MIXED ECONOMY, rn(m~j~r characteristics of a mixed economy may be described as, under :, )·, , Co-existence of Private and Public Sectors, ~nlike capitalism a~ Socialism, a mixed economy contains a balancing, co-exist~nce of both prrvate and public sectors. Both the sectors have, su~stant,al scope to function in their individual spheres according to the, 0ationaf P18 0 formulat~d by the state. So both have more or Jess equal, importance in th e workrng of the mixed economic pattern., 11:. 70Jip>ise8'yi:-,~Rlc:lc:ihfiia;;irdr, °IAn;;-7,;/n;;::trod;:;r.;:uc:.iJor-n:.::to.,Pr:-o-r,,,:r, ,v-•,£-co_n_om-,....,-,-p.....4...., 1.,...1- - - - -, , Mlxedt,c()nC/IIIJ, , 77.3, , In a mixed economy, the private sector is formed by individuals ano, enterprises which own, control and operate in·the three sectors of the, economy_primary, secondary ~nd tertiary, compose.d of agriculture, industry, and trade. It operates a~ an rntegral part of the whole economy. Similarly,, the public sector consists of enterprises solely owned, controlled and, operated by the. state., A socialist economy too has a private sector, but it plays an, Insignificant role in the national economy., To sum up, it can be concluded that a mixed economy is pubfic private, enterprise ·economy. In addition, in the mixed economy of India, there is a, third sector, called the joint sector, in which private and state enterprises, collaborate with each other., ~ Combination of Capltallst and Socialist Values, A mixed economy seeks to combine the features of both capitalism, and socialism. It contains the following good aspects of capitalism :, • Institution of private property., • Competition., • Profrt motive and free enterprise., • Market mechanism and price system as a guiding force in, decision making in the private sector., • Freedom of consumption. and occupation., Likewise, the mixed economy possesses the following good features, of socialism :, • Economic planning., • State enterprises to promote social welfare, • Economic equality., e Price regulation . ., • Growth with stability., • Check on the abuse of property., Thus according to Shreeman Narayan, 'the mixed economy is a go_, kle~, mean wtii~h avoids the extremes of both Communism 3nd free enterprise;, . 3., (, , Economic Plannin&, t nlike, . . •t bly a planned economy. 8u u, A mixed economy 1s mevi a, ., cratic and decentralised., socialism, planning in a mi~ed econ~my is dem~ocratic. usually, a mixed, Planning in India, however, 1s centrahs_ed but :e rivate and public sectors., econol!}Y adopts comprehensive planning for 5 ~e country as a whole and, The Planning Commission formulates a pla~ for t heres of operation and, allots to the public and private sectors. their ?wn, offered to the private, sets targets for them to fulfil.. Several incent~!t by the plan., sector to encourage it to achieve the targets, , !ie

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Economic Systems, , 1}4., , Through planning and budgetary_pr?gr~mmin~, the government also, seeks to bring about equality in the d1stnbut1on of ·income and wealth in a, mixed economy., 1n short a mixed economy is a comprehensively planned economy but, less coerciv~ than a socialist economy, though it pursues egalitarian goals., Predominant Social Interest, <, Though a mixed economy offers ~nough scope for '.he gr~wth of the, private sector in its pursuit of self-interest and profit motive, social, interest has a predominant place in the economy., The public sector in a mixed economy is solely devoted to the pursuit, of social interest. However, it permits profit making in order to achieve, sodal ends. It thus, restricts the earning of ex~ess profit and checks the, growth of private monopoiies. Wh~re _and wti~n n_ecessary, it repla_ces, private monopolies by public monopolies 1n the wider interests of the nation., for instance, the Indian government nationalised fourteen major commercial, banks in 1969 and six mo.re in 1980 in the interest of the nation., 4., , (, , Positive Role of Government, In a mixed economy the government takes on its shoulde rs the, responsibility to maintain economic equilibrium in the economy. For this, purpose it intervenes, from time to time, in the working of the private, sector with the help of various economic policies-monetary, fiscal, industria l,, welfare-so ·as to cure the economic ills of the market mechanism. It adopts, anti-cyclical and anti-inflationary policies . It undertakes to build social, overhead capital and public investment in such spheres of economy where, private capital is either too shy to enter or incapable of entering or where, the government is of the view that such areas should be under its control, in the national interest., The government stimulates and supports the growth of the private, sector through various public programmes and projects . It seeks to solve, the problems of poverty and unemployment by bringing about close, cooperation between the private and public sectors ., 5., , ~, , ,, , ~~e~~, , A mixed economy in essence is welfare oriented . Its basic aims is to, promote public welfare in general. It seeks to minimise the gap of, i~~qualities of income and wealth. It strives hard to uplift the standards of, f,v1ng of the masses. It primary goal is to eradicate poverty and misery., .,n short, democracy, economic freedom social and economic justice,, improve~ l~ing sta~dard of the people, aboliti~n of poverty, minimisation of, ec~nom1c inequaht1e_s, full employment and growth with stability are the, goals of a mixed economy., ma1or macro-economic, ., , ., , ¥, , MJ,redl!conomY, , 2'S, , - MIXED ECONOMY IN INDIA, During British rule, India had a colonial economy . But after attaining, independence the national government realised the special role of the state, in accelerating the pace of industrialisation and economic growth in the, country. As a result, the system of mixed economy was evolved in the, country when the government passed the Industrial Policy Resolution in, April 1948, specifying the industrial fields for the public and private, sectors to operate., Initially, in the First Five Year Plan, however, the private sector was, assigned a major role and the public sector a subsidiary role in the, economic arena. But from the Second Plan onwards , with the objective of, achieving a socialist patter of society, the government adopted a new, industrial policy as per the Industrial Policy Resolution passed in 1956. This, Resol:.rtion, however, retained the structure of a mixed econom~ for the, country, but it paved the way for a greater expansion of the pub!,c sector, · to achieve the socialist goals adopted by the country. Accord1~gly, _the, spheres .of operation of the economy as a whole were categori sed into, ., three groups as under :, . .,.1. The Public Sector. The development of important, basic and key, industries was assumed to be the exclusive domain of t~e state. Thus,, some 17 industries were included in this category . The important ones, among them were defence production, ~to~i~ energy,iron and steel,, ., aircraft, railways, electricity generation, sh1pbu1ldmg, etc. ., v2. The Joint Sector. Certaini ndustries having unique im~rtanstc~ m, economic development were included in this group. In these mdu " es,, private enterprises were allowed to function , but they were tod be, st, progressively taken over by the State. Thus! the_ ate was su~pos~va!~, take the initiative in starting new ventures~~ : \ fi:'~~pap~~~e~ti~g the, sector was also expected to cooperate "! st '. u ve been named in, 12 mdu ,~~~/~ s ferro-alloys,, government's industrial efforts . .Some, 001, ', are mac 1, them, this list. The important among, . were left free for, chemicals, fertilisers, road transport, etc._. ., ._,3. The Private Secto~. The rema,n_mg ~~~us~~~! too, the private, · the private sector undertaking ~o exploidt.. t~ the framework of social, •, enterprises were required to function accor mg, st, the, f, ., and economic policies laid down by the ate., 1956,, . d t ·al Policy Resolution o, By, periqd., planning, the, rin, n, us, ., in, new, As an impact of the, ~f, economy, total, the, of, ce~t, d~, ably, consider, d, public sector has expande, 6, s, Th~, sector., private, the, to, ft, P~, ~, nearly, now, the public sector controls, m, goal~, socialist, achieving, of, e, s, ,_, cent, ~er, 35, only_, the country whereas, was inevitable under planning with the obJet to improper implementation, the national economy. But unfortunately, ue, ~

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'IT6, , Economic Sysll!ms, , of the plans, the mixed economy in our country has given rise to a unique, type of state capitalism instead of the avowed socialism preached by the, /, \ ~, government., c 4. THE ROLE OF PUBLIC SECTOR ~ ,, ' / ", Public sector refers to the wide range of eGonomic activities carried, out by the go:vemment. It comprises all the state owned institutions and, enterprises., , ~ sector is the king pin of a mixed economy., .....__/ In recent day, there has been an increasing participation by the state, in the economic life of a country. Due to increased state intervention and, participation in the economic field, there has been a .tremendous growth of, the public sector in the developing countries which are, by and large,, mixed econom ies. "A political revolution is in progress: the state as, poiceman is giving place to the state as producer" says Walter Lippmann., Functions of Public Sector, The economic performance of the public sector is wide and varied. Its, major functions are :, ..,...1. To Provide Public Utility Services. Most of the public utility, services of mass consumption such as water supply, railways, posts and, telegraph, telephone exchange, electricity generation and distribution etc.,, are controlled by the government with a view to prevent profiteering and, consumer exploitation, and.to ensure their constant supply at reasonable, rates., v-2 To develop an Industrial Base. To accelerate the tempo of, economic development, rapid industrialisation of the country is essential., Its prerequisite is the development of basic and key industries like iron and, steel, heavy machinery and tools, heavy electricals, heavy chemicals etc., . On account of the least possibility of immediate returns on capital,, th~ involvement of huge investment and high risks in these industries,, prrvate entrepreneurs are usually shy to undertake these ventures. Hence,, it is the duty of the government to set up these industries in the public, sector and to construct an industrial base which will facilitate the growth, of overall industrial activity in the country., , " v-3·, , To Augment and Conserve Natural Resourc.es. Economic, progress of a country depends on the optimal use of its natural resources., In a developed country, there is inefficient or underutilisation of natural, resourc_e~. by the private sector. Thus, the public sector assumes, respons,brl~ to ~a~, develop and conserve the old and new fields of natur~I, resour~es hke mining, forests, oil fields, fisheries etc., and channelise their, output into the most desirable lines of production., , fdi,GedF.conomY, , u,, , m, , ,.A. T~ Btul_ld Sotclantl ahndd Economic Overhead Capital. In a poor, ar ly comes forward to provide for social and, country,_pr,va e mves m_e, ucti?n of roads, bridges, canals,, rhead ca_p1tal, such as constr_, ono~1c ove_, ~c_, 1ons, electrification or rural, telecommurucat, railways,, proJects,, rrrgat1on, 1, areas-~t~. Ev1de~tly, the state has t~ provide such social over head capital, which 1s 1mperatrve for the acceleration of economic growth in the country., · .S. To Stimulate Private Sector Investment In order to induce, the private sector to undertake further investments, the state not only, creates an environment through the provision of economic and social, overheads, basic and key industries, but also provides financial assistance, by establishing state financial corporations, banks etc. in the money and, capital markets of the country. For instance, fourteen major commercial, banks in India were nationalised in 1969 with a view to providing better, supply of credit to the priority sectors of the economy such as small scale, industries, exports, agriculture etc. in the country., ..-6. To Compensate Private Investment. The activities of the, public sector and •investments therein may be designed to compensate f~r, the gap of inadequate private sector investment in the economy. In the, advanced countries, public sector investment programmes are undertak~n, to· overcome cyclical .fluctuations. In an underdevelop~d country'. public, sector investment is meant to fill up the gap of capital formation and, adequate development investment caused by scarcity of cap~I-and la_ck ?f, boid entrepreneurship. In short, when private entrepreneurship 1~ lacking !n, the country, the government accepts the chall~nge and provides public, entrepreneurship for the planned development of its economy•, ,,;- 7 To Pursue Ecalitarlan Goals. When th ere is a da~ger of t~e, growth. of private monopoly and undue concentration of economic powe_r in, the hands of a few individuals a country like 1ndia aspiring fo~ soc,~hsm, kl th problem by replacing private, ', blic sector under·, may find an easy way out to tac e e ., to serve the, °~~t~ated, e~ens,on, nopoly by pu~lic monopoly th_rough, mo_, can, enterprises, ublic, are, takings. Unlike private firms, pubhc enterprises, huge prlofit~. 1:1e~!-~ting concentration of, People rather than to expropri~te _, 0, best serve to pursue the egahtana_n ~oa ~ P romoting the welfare of, wealth and inequaliti~s _of income distribution :i"d ~ices. Of course, these, the masses by providing goods at _reasona _e Pare run by efficient and, Ideals will be realised, provided public enterpns~~losophy advocates tha_t, honest officials. Anyway, current eco~omic ~t 'of socialism is comparat1successful, planned developme~t and achieve;e.sector rather than that. of, vely easy through the expansion of th e pu ~c Uy convinced on this point., the private sector. At least our planners ~re u test •The adoption of the, th, To Quote the Second Five Year Plan in '~ c~~ctiv~. as well as th~ need, all indus1ries of basic and, socialistic pattern of society as the nati~na ?n~t, I, i, for Planned and rapid development, requires

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Z78, , &:ononuc Systeins, , strategic importance, or in the nature of public utility se~ices, should b, in the public sector: 2, e, , . .,8. To Ensure Balanced Reclonal and Sectoral Growth Th, extension.of the public sector may remove regiona~ imbalances and pr~v ~, lopsided development of the country. The public sector may speci!I~, concentrate more on neglected, less profitable, rural and backward region;, of the country, and thereby seek a balanced regional growth. Similarly ·, the neglected or_ l~ss developed sectors, too, it should promote investm'e~~, · and create conditions for a balanced sectoral growth., -9. To Provide Sources of Funds for Financinc Development, Plans. When a country launches upon planning, it requires huge funds to, finance ~he planned activities. Along with other sources of government, fi~nce hke tax r~enue etc., prof-its earned by the ex:isting public enterpnses can ~e directly .used. for financing other projects in the public, sect~r. That 1s_ to say: the rapid growth of public enterprises can materially, co~ute to mcreasmg public saving for investment, which, in turn, will, help in _the. funb~r accumulation of capital and in the acceler.ation of, economic gr:GW:th m the c--ounay., . . In fine, we RlilY say t~!t extehsJQ.!'J of ~ public sector in India is, J\Jstified _for most. of the ati_Ollt-_menfionea a~_, ets of its role. Especially,, :~ pubhc se~tor in our counJ'Y,4}s -~estinedJ<l gain control of commanding, ghts of the eeon?"JY, ~o reduce income disparities, to· widen and deepen, ~~~ ~ources 0~:PUbhe savmgs_:as~-af~eans of.iinancing further development,, gro~t.-r.eate-the nec~ssary{L~gystnatibasef~nd to accelerate the tempo of, ., ....·.,. . ..., 0 S. C0-0RDINATION,BETWE£rt·THE·PU~IO AND PRIVATE, SECTORS IN A MIXED ECONOMY, The Public and pr' t, •, mixed ec, ·, iva e sectors are two rails of a railway track in a, 8, parallel tooanvoo~dy. .t~ have their distinct role to play but both should run, 1 co111s1on., The private: sector, h f, national inco"ine b, can._~~ke a valuable contribution to the growt 0d, cottage industrie: con~e~tratmg on consumer goods industries, small a~, private sector·.in ~ ag~icu ture etc. Real wage goods are provided by_ t e, economic liberty It m;~ed economy. Further, the private sector provide~, gives incentives t~ pea ows People to enjoy rights to private property., 1 to work hard. ., . ., ope, S1m1larly; the PUbli, us, responsibilities for dev:i sector has to shoulder eQual or more on~r~ is, shy, the public sector shop~~nt. In those fields where private capit: the, economy. The develo ou invest and ensure a balanced growth 0, industries, such as ste~lment ~f strategic sectors like basic and ~~i~i, 2. Second Five Ye Pia ' mac mery, cement etc. is the main respo~, , °, , •r, , n, p. 45., , t.U,Ged Economy, , 279, , of the public sector. A developing economy needs capital formation and, construction of social oyerhead capital such as bridges, roads,· canals etc., The public sector -can also undertake huge investments in these fields ., , ·In fact, investments in the public sector tend to stimulate investment, in the private ~ector, and thus, there is a supermultiplier effect generated., 1n mixed economic planning. Thus, public and private sectors do not compete, but rather complement each other. The public sector provides t~e, basic.capital. The private sector provides wage goods. Both are essential, for developme~t. Thus, in a mixed economy, both must co exist and develop, in tiarmony for the sake of the general welfare of the people at large., 6. THE PUBLIC ENTERPRISES, . Business units which are owned, controlled and managed by the, ~government -are . called" public enterprise· or "pu~lic un?ertakings· .. The, government usually provides public utilities for th?se 1~~~stnes and serv,c~s, -which fulfil the basic needs of society. Public ut1ht1es are monopoltes, created by law a_nd controlled by the state authority., ·, The dlstinguishing features of a public enterprise are a~ follows :, It :is owned by the state., ., It has a sep,arate legal entity and is aut~non:ous ind chartaclter f, However, -its' oper.ation is subject to the direction an con ro o, government., ., 3.. it has its separate and independent funds to carry on the bus1ne~s. h, 4. It is accountable to the public through the government an t e, parliament., . ., ., 5. It is expected to run on business prin~iples but dlt ISbl~ott'~~~ro, motivated. It has also a number of soctal ends an, iga t ., ·, 6. ·1t is more influenced by public policy than the private enterprise., Public enterprises are a necessary concomitant of a planned economy, aspiring for socialism., •, fall, . According to their managemen_t structu~e, public enterprises, under any one of the following four ma1or forms ·, , .1., 2., , °, , •, , !, •, •, , ~:~~;t, , Departmental Undertakings., Public Corporations., Government Companies., Joint Sector Enterprises., , Departmental Undertakings, R •iways Posts, ment department. ai, ', ., These are units run by a govern., . Chittaranjan Locomotive, and Teiegraph, Broadca~tin_g, Defence ,~ddus~:~~· etc. are examples of, Works Government Printing Press an, ', depart~ental undertakings in India., , -

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F.conomtc Syah!ina, , .,, 1., 2., 3., , The features of a departmental undertaking are as under :, , They are managed by a government department., The respective ministries have direct control over these enterprises., They are financed by annual appropriations. from the Treasury., 4 . They are subject to budget and public accountability., 5. The cadre of civil servants run these enterprises., Public Corporations, Public corporations are autonomous bodies established under a, special Act of the Par1iament., , The following are the main features of a public corporation :, I., 2., 3., , 4, , It is a legal entity created by a special Act of the legislature., Its power and functions are legally defined., , It i_s an autonomo~ body having internal as well as financial autonomy., It 1s ~ from ~arl1amentary control over its routine management and, fnancial operations., , Top management ~~sonnel of a public corporation are not recruited, from .~ cadre of CIVIi servants but are governed by separate service, ·, Conditions., b, ", 5 tt · fle, · str:isati XI le in its fooctioning, since bureaucracy is absent in admin~, on and management., ., f, There are a number of public, industrial activities · 1 d. F . corpora ions engaged in commercial and, the State Bank of 1~~ian ia. or ms~nce, the Reserve Bank of India (RBI),, Corporation of India (Ll~~B! ~Unit !rust of India (UTI), the life Insurance, ' e . USUial Development Bank of India (IDBI),, the General lnsuran, Insurance Corporatio~e ,~;rporation of l~dia (GIGI), the Employees' State, th, Industrial Finance Corpora~' ef ~eP?sit Insurance Corporation (DIC), the, n~ia 0FCI), the Agricultural Refinance, Corporation !ARC) the food on, Corporation (DVC), the Rural ~~rpt;,tio~ of India (FCI), the Damodar Valley, Warehousing Corporation (CW~~ r~cati~n Corporation (REC), the C_en!ral, ~ONGCJ, the Air India (Al) the Ind'' A~ _Oil and Natural Gas Comm1ss1on, ir1mes Corporation (IAC), etc. are the, important public corporations in 1, ia., G, overnment Companies, ., , °, , ::t, , . . ., A gove~nment company is a, u~hc hmit~d co~pany established under, the Companies Act, 1956_The, owing are its main characteristics :, 1. At least 51 pe, cent or the whol Of ., Central and/orr State, e its share capital is owned by the, G, overnment·, 2. It IS. a MA,, corporate estabr h, 3. It possesses all the featu is ed Under the Companies Act of 1956., 4. It Is not subject to an Pre~ of 8 Public limited company., Y arllamentary control., , toif, , "VU,, , .,, , .._P,conod'ly, , 211, , 5,, 6., , tts directors are nominated by the Government., Its executives are not civil servants., By December, 1982, there were 925 government companies with a, ., paid up capital of Rs . 13, 508 crores.Some important government, companies are the Bharat Aluminium Co, Ltd. (BACLJ, the Bharat Heav,, Electricals Limited (BHEL), the Hindustan Antibiotics Ltd., (HAL), the Indian, Oil Corporation Ltd., (LOCL), the Hindustan Steel Ltd., (HSU, the National, Mineral Development Corporation ltd. (NMDCL). the Steel Authority of, India Ltd. (SAIL), and the State Trading Corporation (STC). etc., Joint Sector Enterprises, The Government of India has accepted the concept of joint sector, form of undertakings- in its industrial policy resolutions of 1970 and 1973., A joint sector enterprise implies a form of partnership between the private, sector and the government. The government provides finance and, supervisory control to this form of enterprise while its routine working is, managed by the private sector. It involves a combination 'Jf the financial, resources of the government with the technical and managerial expertise, of the private enterprise. The joint sector enterprise is intended to serve, as a promotional instrument to create new and medium type enterprise to, fulfil the soci~conomic objectives of the Five Year Plans. Joint sector, suggests a midway between private enterprise and nationalisation. It, ensures optimal use of the productive resources with public control and, social accountability., . Hindustan Machine Tool (HMTI, Indian Telephone l11dustries Ltd. (TTl),, Gujarat State Fertiliser Co. (GSFC), Indian Rare Earths Ltd. UREU etc. are, the important joint sector enterprises in our country. ·, There are also many joint ventures between the state governments, and foreign multinational corporations., Merits of Public Enterprises, A numbtff of merits have been claimed for the public enterprises :, , 1:, 2·, , 3., 4·, 5·, 6, , ·, , Public enterprises are welfare oriented., Profits of Public enterprises can be used to promote development and, .., general welfare., Public enterprises can undertake risky ventures reQuirmg huge, capital Investment., Public ehterprises can fill up the lacuna of pr~a~ inveStrnent · It can, .., ., be started in those sectors where private capital is shy., for pu bl'c, ., . enterprises are suited, 1 monopoly in publtc ut11tty, Pubhc, bl, services like transport, electricity, water supply etc., th supply of &oods at reasona e, ., p ·, mer exploitation, ., ubhc enterprises can ensure e, ·, Prices. Further, there can be no adulteration or consu

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Econo mic Systellls, , 282, , nal growth by choosing, 7. Public e_nterprise~ c~n lead to balanced regio, approp·nate location m backward areas ., of planning and socia l, 8. Public enterprise sustain the egalitarian goals, welfare., k the growth of private, 9. Growth of public sector enterprises can chec, r in the hands of a, powe, omic, monopolies and concentration of econ, few., D1m1rlts of Public Enterprises, c enterprises :, However, there arEl the following demerits of publi, are commonly found in, 1. Red~tapism, corruptio_n, bur~aucr~cy e!c., and position., public sector undertakings which rum their prestige, necessary business skill, 2. All pu~lic sector offi_cials do not possess the, ', ., rience, expertise and expe, of the . public sector, 3. Owing t_o lack of incen~ives, ~anagers, business of such, undertak!ngs hav~ no real interest ,n promoting the, r., secto, te, undertakings, as 1s found in the priva, 4 · Undu~ interferenc~ from. the Government or Parliament also does not, g the, c~t1ves to take their own decisions for developin, permit !he exe_, bling, stum, me a, ~~te~pnses . Rigid rules and regulations also beco, s., r enterprise The, th, ·r oc m e s_mooth !unctioning of the public secto, nomy· of public undertakings is very, ~~ bedtwheen control and ·auto, '"~n as not been properly defined., run at a loss are a, 5. :ub_li~ enterprises which are inefficient and which, goal of socialism., st, Focia wa e. They .take the country away from the, ., ., tt·, t, rnm, gove, of, requent transfers, 6., en ~ 1c1als disturb the continuity of, their working wh· h, IC may namper their growth., But most of the evils . 0 f th e publi•c se_ctor are surmountable with, proper checks and pro, ~utono~y in their internal affairs. In a, developing economy like~ti~n of, 1nd1, a: public sector occupies a unique and, strategic position Unde ~ of, planning it can take the country, nearer to the goal ·of soci~r emocratic, s, public sector has made _a, poor show, it is not wise t~s~.O Thu , th?ug_h _the, country. Now, there 1s, our, in, it, with, the need for all efforts wh· h away, st, ve the working of the, impro, to, made, be, public sector enterpr's IC mu th, at economic development may ~e, accelerated with their h~I es ~o, that the public sector _in, our country has gone a ~~ It is un?oubte~ly true, g way m creating an infrastructure and social, overhead capital like, 0, tr~nsport and communications, and, developing the basic and~::n s ., ., steel., Publi_c ente~prises have "YI m ustne~ like iron and, role in the achievement, of our national objective of P aye~ an importantsocial justice., economic growth with, , 1, , J, , 283, , \U)lldF.conomy, , problem of public, The Gove~n'!1ent ?f India is_fully aware of the, essful working;, succ, their, enterprise ~nd .1t 1s seriously making efforts for, es are made ,, chang, l, radica, yet som~thrn~ 1s ~rong some~here and unless, ., much, the existing situation may not improve, 7. GROWTH OF PUBLIC SECTOR IN INDIA, on of high commanding, . Today, the public sector has assumed a positi, mic spheres, the share, econo, of, er, power in the Indian economy. In a numb, 100 per cent in some, even, and, cent, per, of public enterprises is over 50, growth of the public, and, origin, the, for, ns, cases . There are several reaso, sector in India . They are as follows:, Growth, 1. Public Enterprises for Accelerated Economic, on the fact the rate, Justification for public enterprise in India is based, would be faster than can, of economic growth planned by the government, nalisation of industrial,, be fulfilled by the private enterprises alone. Natio, units of economic, new, banking and insurance units and starting of, rate of economic, the, ng, lerati, overheads and basic industries help in acce, ntial part of the, esse, an, me, beco, growth. Therefore, public enterprises, development, omic, econ, of, rate, the, ntly,, economic programmes of India. Evide, in national, ase, incre, ld, ten-fo, a, t, (abou, r, faste, during the 35 years rose much, ipating in them . In the, income) when the public sector started partic, nt when the private sector, previous 35 years, the rise was hardly 10 perce, had an exclusive role to play in the economy., 2. Pattern of Investment, sector lies in the, The .main reason for the expansion of the public, in spheres of, certa, In, ., Pattern of investment decided upon under the plans, rd to make, forwa, come, to, industry it becomes essential for the state, risks., inv!;!stments and take over entrepreneurial, r investment in, Table 19.1 below shows the trend of public secto, ds :, large scale industries during the various plan perio, , Table 19. 1, triel In the plan P"'f1oda, Publlc Hcto r lnvHtment In lal'I• ecale lnclua, (In Rupees Crores/, lnvaatment, erlod, , I~, II Plan, II Plan, Three Annual Plans, IV Plan, V Plan, VI Plan, , Outla, , H, , 900, , 1,726, 1,510, 2,864, 9,666, 13.237, , in the public sector, In 1984-85 the gross fixed capital formation, 27 crores for the, 52,2, Rs., st, 26,772 crores as again, amounted to, , R;.

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EconomJ c Sys"nu, , 2S4, , sect, economy as a whole. In other words, the contribution of the public, or, total., was exceeding 50 per cent of the, 3. Even Distribution of Economic Power, Puboc enter prises may reduce the inequalities in income and br, ou~?, about ~ more equitable distribution of income. . As the profits of, inic, promot, for, the~ may be_utilised, enterprises wil l ~o to the govemmen!, _, and ;~, genera l e~mK : welfa~e. the.re.by ehmmating exploitation of labour, ., country, genera l reducrig meQuality of income and wealth in the, Removal of Re&ionaJ Disparities throue~ Public Enterprises, .Another ~ portant reason for the extension of the public sector is the, coocem for ttie bala~ ~ devek>?ment _of th_e_economy in different parts of, may fill, the country_and to elinmte regional disparities. Public enterprises, ., regions, d, up the gap 11 the underdevelope, 5. Socia6stic Pattern of Society, 4., , of, , ~ ftnd~n taJ objective. _of our state policy is the socialistic pattern, the, , ~ t y. ObVJOusly, ~ansit,on towards socialism necessitates, , of state enterprises or extension of the public sector., is, k'I co:us o,, we may ~te that the extension of the public sector, growth, ic, ~ed to the Question of attaining accelerated economeconom, y., uoder the plans for the development of India's mixed, irldeed, Pli:>lic enterprises in India have been successfully exercising, control, °:'po ~is~mrna:i<1ing. heights of the . econo~y in recent years ., Pli>ic mc,, instance, wi the pr ep~cng DOVate ~po ly m many strategic fields. For, has a monopoly. ~ of lead, bgnrte and_ ~~e oil, the public sector, ~r cent of electricity 1s generated by public, sector oodertaki!lg. The, fields like machine maki public sector has also entered a variety of new, strie~nufa.cture of electrical equipment, mining,, fertasers., and chem;,..,,.1·nc1ng,, I u, s as well., "'-V, ., The main weakness of the blic, sector in India i~ found to be its, pu, ~Jcient wonting. Recen, enterPrtSes nas improved. Mantty,O,however, the man~gement of public, heavy, g, incurrin, were, which, ns_, Y the co~er, losses in the past have, st, for, financing the other Plannow . arted making profits which provide funds, of, pol~y, a, past,, For a l?~g time. in the, ·l'lOi>rofrt-no-loss· was, th, ,s~s., enterpr, public, of, In recent years, however th or e pr~cing ~licy, policy, a~ocates setting an eco:iom~ ec?nom,c Philosophy on pricing, under·, public, of, ts, ~e produc, takings. The concept of econom~c P~e ~or, P~ice 1m~hes that the price should cover, al~ances for replacement, 1 enance and capital formation, be5'des prOVicfi ng for the c~;6tan~ion, ~a nt_, has, been, however, wamed that Pub~ oduction, •~c!uding normal profit. It, the, reflect, not, should, Pricing, sector, c, monopoly position. As A H H, · · anson has suggested, a public sector, , setmg, , l_.:>, , ,a!~o/:~o/·, , MbledEconomY, , 285, , of, underta~ing should set price and earn profrt from the efficient working, ., position, ly, the business rather than by exploiting its monopo, (7 8. THE PRICING ~UCY OF PUBLIC ENTERPRISES, The public sector is charac terised by state entrepreneurs hip.An, economic undertaki_ng which is owned and operated by the government or, itS appointed body Is called a public enterprise or a state enterprise. When, a~ industry is ~ationa lise~, i.e., it is taken over by the government, it, becomes a pubhc enterpnse. Thus., the public sector covers an under·, d, takings that are under state ownership and their activities are designe, body, a, by, or, itself,, ent, governm, the, of, and directed _either by a department, is the, set up by the government, in the common interest of ·the nation. It, is to, object, main, its, that, ise, fundamental feature of the public enterpr, r~, p, to, ed, motivat, is, ise, enterpr, public, the, pursue public interest In fact,, what, is, this, and, profit,, make, to, than, rather, the necessary public service, distinguishes it from private enterprise., In a mixed economy, the pricing policy of public enterprises has, the, strategic importance. Hence, the main question is what should be, public, by, principle of price fixation for the goods or services supplied, enterp rise~o nomjsts indulge in heated controversies over the issue., While f1Xing pr ices·, it should be borne in mind that the !?rices must at, g a, least yield a total revenue which covers the total cost of supplyin, deteris, r,, howeve, particular service. The maximum price for any service,, public, mined by the importance of the service to consumers. Indeed, a, pubic, the, by, good price or the price of any commodity or service supplied, the, stop, to, forced, ...enterprise cannot be fixed so high that consumers are, price, of, range, a, is, use of that particurar service or facility. Thus, there, price, determination. Wrthin these minimum and maximum limits, a suitable, hand., at, should be fixed, which meets with the objectives, Usually, a welfare oriented public enterprise cannot exploit consu~ers,, at, nor can it permit inefficient use of resources, It has, therefore , to amve, a rational pricing policy., :, In this regard, economists have suggested two alternative norms, ., product, the, of, cost, l, margina, at, price., (i) price at a average cost. and (ii), , Averaee Cost Pricin&, It is argued that to avoid abnormal profita~ ility of a public _utili~, is, enterprise, average cost pricing is the best solution . When the prrce, reven~e, total, Its, profit., excess, earn, not, will, firm, fixed at average cost, the, as is, Will be just equal to the total cost; so it will get on~ normal profit,, co~t, ge, avera_, 19.1, Fig., In, run., long, the, in, firm, titive, the case with a compe, I~tere, D, cu~e, deman~, the, P2,, point, At, Q, P, be, to, d, Pricing is depicte, 2 2, the, the average cost curve (AcC). When price is determ ined 1n this fashion,

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Econom ic Systems, , 286, , equal to its costs., enterprise is self-sufficient because it earn~ r~venue, consume'rs , too., the, of, Silce Pfice = AC, there is no monopoly explortatron, y, , D, , .,u c., J:, .;, , ::,, Ii 81, , .,, >, , a:, , g, , AC, , G, , 0, , Qi, , Q2 Q,, , X, , 0UlpUI, , flc. 19.1 : ~ and MC Prtcln1 In• Public Enterprise, favoured by ~, The principle of average c~~t pricing is, however, not, not satisfy, does, it, large n~mber o~ _welfare economists on t~e ground that, ality and, optim, the ~asrc co~drtrons of we~are maximisation required for, rces, resou, of, tion, in the alloca, ~icien cy. . An important conditron of efficiency, etitive, comp, a, In, rs., 1s that pric~ .must equal marginal cost in all secto, But in a monopolistic, ~ark~t condition, when_~ = AC, it is also equal to MC., polistic situation, !:e~t~ n_when ~ ~ AC, it 1s also equal to MC. But in a mono, verified from, 1, be, statement can, w~ AC'. rt .s ireater than MC. ~his cost, t is, 19 1, OQ, cing, produ, of, nal, 2 outpu, · wh.n P_nce rs 0 = AC the margi, nal, margi, the, to, equal, not, is, price, when, "202 rch rs _less than PQ. Thus,, st th, ent goods and the, co - ~ marginal rates of substitution between differ, 0, be equal. Consenot, will, :u~: a ;:te~1 .f ,transformation of resources, op~ima/ity i~ violated. ~s such, t~e avera_ge, ~es, cost pr~ing, rdeal po Irey for publrc enterprises whrch, is concerned with thegwelfead asf ahen masse, s., t, o, re, , f; :f ~::areto, , Mar&Jnal Cost Prlcin&, A host of economists op· th, um allocation of, resources, prices of all comm ~~~ at to ensure optim, tunity costs ., oppor, to, ~qual, be, shoul~, This can materialise, in pract~ res, nal cost~ margi, cover, J~st, Prices, Therefore, an ideal policy for : • whe~, utilities rs, public, and, rises, enterp, that their prices and production be ~ublrc, This rule, MC., =, Price, rule, the, on, ased, erf, is automatically pursued under, my. In, econo, free, a, In, ,, etition, comp, the case of public utilities how:V!r e~:, , . ey are natural monopolies . So there, ', , Mixed F.conomy, , 2JJ'l, , laid down that in order, ls no such thing as competition . Hence, it has been, of public utilities,, case, the, to pursue an ideal of perfect competition, in, the government, prices, g, settin, however, they are natural monopolies, while, nal cost, so, margi, the, with, price, e, · for the pricing commission should equat, ied., satisf, fully, is, that at that level the existing demand, nal cost pricing, Hotelling and Montgomery firmly advocate that margi, prises in order to, principle while devising the price policy of public enter, revenue considerat ion, obtain the maximum social advantage. To Hotelling,, enterprise. What is, is only of secondary importance in the case of public, enterprises should be, more significant is that the resources used in public, must be satisfied, used as efficiently as possible and the consumer's wants, Thus , economic, d., in such a way that maximum social benefit is yielde, s. Professor, utilitie, public, in, efficiency requires that price = marginal c9st, public enterfor, ple, princi, g, .Hotelling disapproves of the average cost pricin, total cost., entire, the, cover, to, ed, prises by which total revenue is destin, norma l, term, long, when, try,, indus, etitive, including overhead costs . In a comp, = MC, Price, that, e, idenc, coinc, happy, a, be, equilibrium is reached, there may, g coinc ide But,, = AC. Hence, average cost pricing and marginal cost pricin, = MC, it cannot be, in a monopoly condition of public enterprise when Price, tion of constant costs,, also equal to average cost unless there is the condi, s·ing or decreasing, so that MC and AC are the same. Thus, if there is increa, ding to the princip le, cost condition, then Price= AC= AC. In Fig. 19.1 accor, demand curve D, the, which, · of marginal cost pricing P3Q3 price is fixed, at, ced corresprodu, t,, outpu, intersects the MC curve. It can be seen that OQ3, fixation., price, of, rules, pondingly, is the largest as compared to other, OQ, is, t, outpu, of, level, 3 FG., OQ, 3, However, the average cost of producing, OQ3, is, ed, obtain, ue, reven, total, price., While, Price = MC, therefore, at P3 Q3, by, ered, uncov, ns, remai, cost, of, FGHP, 3, P3H3, which is obviously less. Thus,, is, there, when, that, s, follow, It, t., the revenue receipts. There is, thus, a defici, a, be, will, there, MC,, =, Price, if, decreasing cost condition, MC < AC. Hence,, MC,, =, Price, when, so, AC;, >, deficit. If there is increasing cost condition, MC, ver be the situation,, there will be a surplus. Hotelling asserts that whate, to the marginal, eQual, be, should, t, the prices of public enterprises outpu, of demand, ticity, inelas, to, Due, t., defici, c~st, whether there is a surplus or a, may be, rn, conce, utility, public, a, y, and economies of large scale, usuall, than a, likely, more, is, t, defici, so, tion;, condi, operating under decreasing cost, es or, servic, road, rail, of, rates, the, when, surplus. Hotelling maintains that, must be set at the, such other public utility industries are to be fixed, they, it does not matter if, Point of marginal cost of operation, and in doing so,, st charges, and even, overhead costs such as depreciation charges, intere, by the sales receipts, ed, cover, not, are, ors,, the normal returns to the invest, do not come into, as such. Indeed, overheads costs and fixed normal profits, Then, obviously, there, the Picture when prices are set at marginal cost., service. Tne public, emerges ~ deficit to the firm running a public utility

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-, , Economic Sysletna, , f re be subsidised to the extent of deficit or, utility concern s~u~d, th ere ~ be met with by tax revenues in general., the losses. Subsidies are l~sses or deficits of the public enterprises are, Hotelling argues th at "'."hentheir consumption is not restricted which would, covered through taxat,?n, . the event of charging a high price-a Price ==, have hap_, pene_, d.0the~,s~s;"on a public enterprise to be self sufficient is not, A~. In his opinion t~ '"~, 10 because then pricing will be at the average, akin to the ~e~a~e ;d~n i~lies unrestricted arbitrariness of discretion on, l~e~f~~~ 'a~mi~istratory. He also argued that the s~verity _of trade, P, ·st economv~ will be checked when there 1s marginal cost, cycles .in a cap,·t a11, ., price control on government mtervent10~. ., Nevertheless, some economists hke Little _a~gue that average cost, ·, ·, pricing may be preferred to marginal, . . cost pricing because the latter, , t, criterion, which involves losses or def1c1t, cannot serve as an ex pos t ,ac, o, evaluation of the investment., The Two 'Part Tariff, As a solution, to minimise the deficit involved in . t~e ma~gin~I cost, pricing, Montgomery suggested a scheme of ~o part tariff, w~1ch_implies, a general form of charging of overhead and ·direct costs._ In his vie"'.", the, public enterprises must price their products at the marginal c_ost, 1~ th_e, short run, in which overhead charges also should be covered. This device 1s, commonly adopted in fixing tariff for electricity, in which the consumer has, to pay a fixed annual charge or a stand by charge, besides which he ha~ to, pay for the units of current consumed which is priced in terms of _, marginal, cost involved. The device of the two part tariff scheme, however , ,s not an, easy solution. Especially its main problem is how to fix a reasonable stand, by charge. Since it is meant for the recovery of overhead costs, the, question arises as to which costs, whether historical costs or replacement, costs, should be taken into consideration, and how to estimate them., Secondly, how is one to distribute overhead costs among the different, buyers? This will imply a kind of price discrimination which is not only, unjustifiable but may also involve considerable administrative problem. 3, -~rofessors Phelps Brown and Wiserman4 specify the two essential, conditions for the practicability of a two part tariff. These are :, 1. The co~sumer must be buying fairly continuously from the given, enterprise., , ~t, , 2., , 4, •, , The enterprise should be in a position to confine its sales at unit prices, of the two-part tariff only to those buyers who have coAtributed for, Beckw th · ·• •r1 na, 01t r ce Output Contra , pp. 80 90. Also ..,,, , Survey G.C., An Introduction to Modem Economlc ·An•l)'III, p.125., , :t~PI Brown, E.H. and Wiseman, J., A Coune In Applled Economic•, PP· 200-, , Mi,red F.conomy, , 2JJ9, , the stand by charges. This reauires non transferability of publi~, services between buyers., ., . In the absence of either of these two conditions, the twOi)art of muftipart tariff cannot operate effectively ., A Critical Appraisal of the Mareinal Cost Pricin& Principle, , The theory of marginal cost pricing has been criticised on s_everal, counts. Some of the criticisms have already been_~iscusse~ ~long wrth the, explanation of alternative principles. A few addrtronal -c nt1c1sms may be, cited as under :, l. In reality there is no perfect competition anywhere. UnddeAr Cimtpefrfe, t cht, competition, price is greater than MC and even excee s, o ec, some abnormal profits. Thus, when all other sectors do not f_ollow, Price = MC, why should public enterprise be dictated to set Pt,ce =, MC?, 1, 2. Again, when price is to be set equal to the marginal cost. it also, involved a lot of arbitrariness of administrators because exact, measurement of MC is not possible in a public utility service rendered, by a state enterprise ., 1, 3. This principle provides no criterion for determining the optimal scale, and evaluation of the investment in the ex post facto sense., 4 . According to Beckwith 5 , the MC theory of public enterprise is an, empty box. It suggest that under decreasing costs· condition, the, optimally criterion requires that price should be ·equal to marginal, cost. But, in the short run only, Then, in the long run, the MC > AC., The n, in the long run, the better course is to set price at c1verage, cost. Thus the theory is a short run theory and ignores the long run, problems, which are very important for a public enterprise operating, as it does in a large scale economy. Again, the short run is defined, arbitrarily. Moreover, the theory advocates taxation, price discri,:nination etc., measures to overcome the deficit involved in marginal cost, pricing. These measures, in turn, may adversely affect the general, economic welfare of the tax prayers. In fact, the marginal cost pricing, will pose a diiemma before the policy makers as to whether to impose, general taxes, which may distort economic activity to some extent, and subsidise public utility, by fixing Price = MC, or to let it charge, any price different from MC and let is be self sufficient., 5. The principle ignores the time factor, as the time factor is a very, important element in pricing. Thus, pricing in public enterprise s should, cover current price cost as well as capital cost., S: · Beckwith, Op, cit., p. 88, , i, , l0/Eco.Sys.-8.Com.

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Economic Systcrni, , 290, , s s-, , possibility, . of . . Khera, since there is every, t . . of unutilised, . I, In the vrew, capacity in a public ent~~ri~e, when margma cos pricing p~licy fails, to achieve maximum ut1[1sat10n of out~ut, the conc~pt of Price == AC, s. more app~o~riate as a price theory for a, may be regarded a_, developing economy hke that of India., 7. The optimality of the tw<>i>art tah~h dtehvicet, nadndbprice fidiscdrimination, Y _or 1xe charges, e sa, depends upon the extent to w 1c, approximate to the consumer surplus. A tw~ ~art tariff scheme cannot, 7, be regarded as superior to average cost pncmg., f,,bove all, the marginal cost pricing process becomes more intricate, on account of the peak load problem in certain public enterprises. The peak, load problem relates to variations of demand and marginal costs over time, on account of which it becomes difficult to decide the optimal prices and, the optimal scale of operation of the concem.8 For instance, in the case of, a raiM'ay, during offpeak hours, the cost of carrying an additional passenger, by a suburban train is almost zero. But during the peak hours, to provide, facmty to an additional passenger, if an extra train is run, the direct marg~, nal cost increases very much. Thus, peak demands cause an unwarranted, divergence of the social marginal costs fr9m private marginal costs. Some, economists, therefore, suggest that the best course in such a case would, be to charge hig~er transit fares during peak commuter .hours, and the, revenues so obtained can be used to meet the losses suffered during the, non-peak h~urs. But_. here there is the problem of equity involved. It may, lead to social_u,:iciesirable distributional effect, especially when during peak, hours the maJQrity of passengers are from the working class., , 6., , Though the marginal cost pricing policy has its own shortcomings, n, concern, does stress at least one important point that a public utilr+u, ,.,, ·, should never et it, s pnce below marginal cost, because any price less, . s, ~ :~rgmal cost is evidently non optimal. M.J. Farrell,9 therefore,, recom!flen.ded that when a public utility service is supplied at, a~, raised tin •rtCNt margmal ~ost, for that value of optimality it is better if it 15, ', equa1s marginal cost., f, In reality however h'I d, public enterprise's out ' w I e eterf!lining the price of the outpu_t o a, 01, _consideration is given to the principle, marginal cost pricing But,, t, es are charged above the marginal coS, and some abnormal prof~u~ ' pnc_, and discretion is involved is also yielded. A high degree of value judgement, of public utilities It is ap on t~e Part of administrators in fixing the prices, propnate to Quote Graaff in this context "The on~, ,a s s ~, ., • · · nai•ment •n, , ~:ly, , ::ast, , 7., I., , 9., , -1, nterp ••• pp., n u I, on, Due and Frledlaender' Go, ~rnment Flnar,ce, p. 104., Ibid' p. 103., ., Farrell, M J "In 0 _,, /, •nee of p, · ·•, Paper,, February 1958, pp. 109u~~ Utility Price Theory," Oxford Econoffl', , Mixed &:onomy, , price a public enterprise can be expected to set is what we may as well, call a just price a price which is set with some regard fo~ rts effect on the, distribution ·of wealth as well as its effects on t he allocation of re~ou~ces., det_erminat,on-a, Definite value judgements are naturally required fo r its _, good deal of positive knowledge ... The task of the economist 1s t~ provide, the positive knowledge and not to recommended the level at which pnc e, should be set. ■ 10, · To summarise, for a developing country like India which is in great, need of investable funds, the ·cost principle" is lea~ appropriate: Under ~ e, present economic condi~ions of ou: country, there 1s hardly any Justification, for the policy that public enterprises run by state authorities shoul~ _be, managed on a no-profit-no-loss principle.Thus, neit~er average cost p ncrng, nor marginal cost pricing is suitable to our public sector. ~he pnces of, some of the public sector undertakings should be set wrth a view to e_arn _a, surplus of revenue which can be used as a source for capital formation 1n, the country. Since the inception of the Fourth Pl~n, our planners ~ave, adopted the view that it is quite legitimate for public sector undertdktngs, to charge higher prices with the specific objective of raising resources. In, fact in the memorandum of the Fourth plan , it has been specified that , ·a, retu~n of 12% on the invested capital could be an appropriate criterion for, 1, determining the price polfcy of most undertakings." ~, 9. RETHINKING ON THE ROLE OF THE STATE IN, A MIXED ECONOMY, , Welfare state is an ideal of mixed economy like India., In India and other developing economies the government intervention, in to the market economy with· the encroachment of public sector has, gone to an extremity in the persuit of egalitarian goal and establishment of, socialism. There has been a misguided policy based on wrong strategies of, undue socialistic ideals which made the life of common people more, mfserable with the growth and prosperity of all powerful, but irresponsible,, inefficient and corrupt bureaucracy in the Licence-permit Raj., Before independence Indians were slaves of 'British Raj', after independence they were made slaves of 'Licence-Permit Raj' wh ich has grossly, failed in reducing unemployment, poverty, inequality and social injustice and, protected only vested interests., With wrong approaches and wrong strategies elected rulers in India, went on making and multiplying false promises which are never to be, fulfilled nor could be fulfilled, except satisfying vested interests of some, sectional- pockets of the society who have direct or indirect shares in, political powers in a so-called democratic country., f'h.ondcal w.11.,.. Economic,, p. 155., 10. GrHff, ),, , a. v.., , 11 ., , Govemment of India, 11N Memorandum ot the Fourth Pl.In, p. 21