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Question:

Why was the public sector given a leading role in industrial development during the planning period?

Answer:

At the time of independence, Indian economic conditions were very poor and weak. There were neither sufficient foreign reserves nor did India have international investment credibility. In the face of such poor economic conditions it was only the public sectors that needed to take the initiative. The following are the reason that explains the driving role of the public sector in the industrial development:
1. Need of Heavy Investment: There was a need for heavy investment for industrial development. It was very difficult for the private sector to invest such a big amount. Further, the risks involved in these projects were also very high and also these projects had a long gestation period. Thus, the government played the leading role to provide the basic framework of heavy industries.
2. Low Level of Demand: At the time of independence, the majority of the population was poor and had low levels of income. Consequently, there was low level of demand and so there was no impetus for any private sector to undertake investment in order to fulfill these demands. Thus, India was trapped into a vicious circle of low demand. The only way to encourage demand was by public sector investments.


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