In a backward country like India, industrial progress and the general economic growth cannot be speeded up without the positive assistance and participation of the state. It is the state which has to create a congenial climate for industrial investment and employment. The State has to provide opportunities for industrial growth, promotion of trade and building up of infrastructure essential for all- round economic development.

The State ownership of industries is justified on the following grounds:

1. Defence Requirements:

The State has to be assured of continuous supply of goods and services needed for defence forces of the country. Strategic supplies cannot be left to the whims of the private sector.


2. Basic Industries:

The State has the responsibility of starting basic and heavy industries requiring huge capital outlay and having longer gestation period. The private sector may not venture to establish such industries because they do not yield quick profits.

3. Public Utilities:

Since the private sector is motivated with earning profit, the public utility services like water supply, electricity, gas, public transportation where readymade profit opportunities do not exist, may not be touched by the private sector. The state has to assume the responsibility of providing such services in the interest of public convenience and welfare.


4. Preventing Concentration of Economic Power and Monopolies:

The State takeover will check the exploitation by the private sector in industries or services where it hold monopoly position. Consumers, workers and other weaker sections of the society would be protected against malpractices indulged in by big monopoly houses controlling bulk of the economic power in the country.

5. Infrastructure:

Infrastructure comprising transport, communications, irrigation, conservation of resources, power, etc. can be developed on large-scale only by the State.


6. Curbing Wasteful Competition:

If any industry is not reaching optimum results because of wasteful competition, the State may nationalise it and make it a viable entity. It would be possible to realise economies of large-scale operation.

7. Development of Backward Regions:

Government is justified in locating new enterprises in the backward areas rather than allowing the private sector to multiply its units in the already advanced areas. The balanced development of all regions is one of the worthy aims of state ownership of industry and trade.


8. Financing Economic Development and Full Employment:

The ideals of economic growth and full employment can be fulfilled only by massive investment by the State. The State can mobilise resources to finance developmental efforts and employment programmes out of surpluses generated in the working of its enterprises.

9. Socialism:

The philosophy of socialism implies that the state will have full control over the “commanding heights” of the economy with private sector playing only complementary role.


However, nationalisation does not automatically solve the problems of profiteering, exploitation, efficiency etc. It only gives superior hand to the Government to eliminate the hurdles that block the implementation of ideals of balanced growth, economic equality and social justice.

Public enterprises to be able to justify their existence have to guard themselves against the following inhibiting factors:

(1) Red tape and bureaucracy common in Government departments.

(2) Political pressures influencing the policies and working of the enterprises resulting in their stunted growth.


(3) Lack of initiative and efficiency arising out of too much governmental interference in and parliamentary criticism of the affairs of the enterprises.

(4) Dependence of the enterprises on Government assistance leading to extra burden on the society in the form of taxes, interest on public debt etc.