During India’s pre-liberalisation era, particularly from the 1950s to the late 1980s, the public sector was deliberately assigned a dominant role in industrial development. This choice was rooted in a mix of economic, political, and ideological factors.

Firstly, a significant rationale was the lack of adequate private capital and entrepreneurial base. After independence, the private sector was nascent and lacked the financial strength and risk-taking capacity required for large-scale, long-gestation projects, especially in core industries like steel, power, and heavy engineering, crucial for foundational industrialisation.

Secondly, there was an emphasis on socialistic patterns of development and equity. Public sector enterprises (PSUs) were seen as instruments to reduce income inequalities, prevent concentration of economic power, and promote regional development by locating industries in backward areas. Profit maximisation was often secondary to social objectives.

Thirdly, the government pursued an import substitution industrialisation (ISI) strategy to reduce dependence on imports and build a self-reliant industrial base. This required massive investment in capital goods industries and strategic sectors where private players were unwilling or unable to venture due to high costs and long payback periods. PSUs filled these gaps.

Fourthly, the development of essential infrastructure – power, transport, and communication – was seen as a prerequisite for industrial growth. These sectors, often natural monopolies with large upfront costs and diffuse benefits, were less attractive to private players.

Finally, planning models, such as the Nehruvian model, and the perceived success of state-led development in other post-colonial nations reinforced the belief that the state should be the "engine of growth," with PSUs driving both economic growth and social justice.