In the initial years of independence, public sector had a large presence in the Indian industry and banking. This presence was further enlarged during the Prime Ministership of late Mrs. Indira Gandhi. Several private banks were nationalized. The managements of several companies were taken over by the Government. Several other companies were nationalized. This is how National Textile Corporation came into being. State and Central governments also set up many new factories. Now the situation is changing. Several government companies are being sold to private sector. Governments’ stake in many commercial and industrial establishments is being diluted. Thus the control of the governments over the economy has diminished.
Governments’ intentions should not only be to promote industries but also to have visible presence for obvious reasons. In stead of inviting foreign equity participation in Indian companies, the governments (state and central) should set up investment companies which should take up equity in new companies as also in existing companies to induce Indian entrepreneurs to set up factories and commercial establishments and to expand existing ones. Indian companies should normally be allowed to seek technical collaborations only with foreign companies.
Governments should borrow from Reserve Bank of India for setting up investment companies. Later on the loan amount could be monetized. This will lead to only as much inflation as bringing in equity from foreign countries.
Investment by Foreign Institutional Investors should also be restricted as ultimately, they would take away more foreign exchange than they bring in. As of now, the foreign exchange reserves of the country are more than adequate and there is no need to worry about this.