ASSIGNMENT :

ROLE OF BUSINESS IN ECONOMIC DEVELOPMENT

(PUBLIC AND PRIVATE SECTOR)
Submitted to :

Submitted by :

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 ROLE OF BUSINESS IN ECONOMIC DEVELOPMENT
(PUBLIC AND PRIVATE SECTOR)

In any market economy, business plays a vital role in the economic

development and wealth of a country. Business is the engine of an
economy. Business provides jobs that allow people to make money
and goods and services that people can buy with the money they
make. Without business, the economy would be very inefficient
and/or very primitive.

In any economy, people need jobs. In any but the most primitive
economies, people need to be able to buy goods and services.
Businesses provide for both of these needs. Most businesses provide
people with jobs. If I open a restaurant, I will need to hire cooks, wait
staff, dishwashers, and other people. My business is providing jobs for
many people. Now imagine how many people get their jobs from large
companies. A large company can provide thousands of jobs. This is
incredibly important to an economy.

These businesses also provide the things that people need to buy. If
you need a cell phone, you have to buy it from a business because you
certainly cannot make your own. Most people cannot make their own
clothes and must buy them from a business. Most people do not cut
their own hair and must pay a business for their haircuts. Without
businesses, people would not have goods and services that they could
buy.

Economies can exist without businesses, but they are not nearly as
strong. Imagine an economy where every person works only for
themselves. No one starts a business and hires other people. This
economy would be very primitive as people would only buy and sell
things they could make themselves. Alternatively, imagine an
economy where there are no businesses because the government is in
charge of the economy. The government will provide jobs and goods
and services, but it will not do so efficiently. The government might
not provide the things that people want. It might run its factories and
other operations poorly because they could not go broke if they failed
to satisfy their customers. This would be an inefficient economy.

Business, then, plays a central role in any market economy. It is the

engine that allows an economy to run because it provides jobs as well
as goods and services. Success in business translates to the economic
well-being of a company and its residents through job creation and
offering improved quality of life for the country's citizens. The success
of business as a whole directly affects the world’s economy.
 INTRODUCTION

India is a mixed economy, where there is coexistence of private and

public sectors. Public sector and private sector plays significant role in
achieving economic growth of a nation. An effect of their function is
noticed on the achievement of country’s socio-economic development.

Privatization was declared during the 6th Five Year Plan with the
objective that the private sector should play an increasingly important
role in fostering economic growth and as a source of employment. Both
the sectors are still under developed in terms of financial, human
resources, efficiency and management. Furthermore there are many
difficulties in the path of developing both public and private sector.

Thus, this assignment will discuss roles of public and private sector,
their development history, indicators for economic development,
contribution made in employment and difficulties for their
development.
DEFINITION OF PRIVATE SECTOR AND PUBLIC SECTOR

Private sector can be define as the part of economy in which the

factors of production is owned by an individual or the group of people,
with profit maximization as their main objective.

Private goods – produced by the private sector- are produced only for
profit motive and its rival in consumption. Benefits are enjoyed by only
a person who pays, with no benefit to society and therefore it’s
exclusive in nature. Private entrepreneur go for self-benefit rather than
social welfare. Competition is the one thing that occurs between each
and every private entrepreneur and this leads to efficient use of
resources.

According to Wilson & Clark, public sector refers to the part of

national economy that is owned by whole society and operated for
social welfare. Public sector includes all sorts of government (central,
state and local). It provides basic goods or services that are either not,
or cannot be, provided by the private sector, for example schools,
roads, etc.

Public goods are non-rival in consumption that anyone can derive

utility by consuming. For example road, no one can object any one
from using and there is equal right for the consumption. But level of
satisfaction derived depends upon individual to individual. Public
sector carries those activities that cannot be finance by private and
those related to social welfare. Public sector does not do activities for
sole benefit rather it is concerned with the society as a whole.

The presence of public sector has improved the economic strength of

India. Just after independence, the activities of public sector are
rapidly increasing. To reduce the power of private sector, two
important policies introduced in 1948 and 1956 respectively. The main
intension was to overcome from the vicious circle of poverty and
accelerate the pace of economic development with the strong hands of
public sector.

Public sector plays a key role to bring industrialisation in the country

and side by side to bring the country to the path of self- sustained
economic growth. In India, from the beginning of plan period, most of
the consumer goods production was under the preview of private
sector, where as public sector got the huge task to rebuild the nation
by production of all the basic and heavy engineering goods like iron
and steel, cement, electricity etc.

According to, John Maynard Keynes, the importance of public sector is

not only to arrange the proper environment for smooth functioning of
the state and give proper financial help to the private sector to achieve
a balanced economic growth.

ROLE OF PUBLIC SECTOR IN INDIAN ECONOMY

The modern concept of a welfare state throws heavy responsibility on

the shoulders of the democratic government for neither boosting up
nor only the trade within the country but also our export potential.
India has been wedded to the policy of democratic socialism. So we
have been discouraging, to a great extent private enterprise though it
is not completely eliminated from Indian economy. Before the
attainment of independence, public sector was limited to Railways,
Post and Telegraph, Ordnance and Aircraft factories, etc. After
independence, as a matter of policy public sector is given greater
importance. Industrial policy resolution states “the State will
progressively assume predominant and direct responsibility for setting
up new industrial undertakings…..”. The need for the public sector
arose because of various reasons immediately after independence. One
of the most important reasons is to ensure rapid growth of the
economy. It is only through the public enterprises that economic uplift
of the country is possible.

In fact economically India had been a backward country and in this

world of fast development it is not possible to waste a lot of time in
becoming economically strong. Consequently, the pace of economic
development was to be increased if we were to compete with the more
industrialized societies of the world. The target for increasing the
national income of India can be achieved with the help of the public
sector.

Another reason for expanding the public sector is to remove the

regional disparities. As the public sectors are to be set up in the
different regions of the country, that will help the growth of economy in
all the regions. For the performance of economic development public
sector can also provide funds. The profit of the Government
enterprises can be again invested either in development plans or in
some other domains. For example HMT has been able to set up so
many industries by reinvesting its profits. As has already been pointed
out the most important reason of encouraging the establishment of
public sectors is to conform to the professed socialistic pattern of the
society. This pattern of society has been kept as one of the objectives
in the Directive Principles of State Policy. So the Five Year Plans have
taken up this as the major objective of planning. Moreover, in the
public sectors the expansion lies in the pattern of resource allocation.
In the First Plan agriculture was given greater importance whereas in
the Second Plan industries were given more prominence. As a result of
it, it was necessary that public sector will definitely increase and
utilize the resource allocation in a proper manner.
Organisationally there are four types of public sector enterprises, i.e.,
those which are departmentally managed, managed by independent
boards, which are organized as public enterprises and lastly those
which run as banks.

In India the non-departmental industrial and commercial enterprises

were divided into: (1) under construction; (2) running concerns; (3)
promotional and developmental concerns; and (4) financial
institutions. All of them play an important role in the development of
our economy. We find that the share of the Government enterprises is
steadily increasing though, as compared to the private sector, it is still
low. In some important sector like agriculture, State enterprise has no
role to play but the Government is taking industries of national
importance under its ownership. The banks have been nationalized
and the General Insurance companies have also been brought under
social control.

Public sector has an important role to play in capital formation. It also

helps in the flow of goods and services in the economy. The increase in
the production of the goods is going to have salutary effect upon our
economy. Apart from it public sector has also been able to create an
infrastructure like transportation, communications, and power
development. The production of these types of capital goods involves
heavy investment and gives low yield. These types of enterprises can
be taken up only by the public sector thereby making the industrial
base quite strong. During the three plans, it was quite clear to the
Government that the private sector is suffering from certain handicaps
and quicker industrial development was not possible. For making the
Indian economy self-generating, the development of industries was to
be diversified. The Government had to enter this field in order to
prepare a proper type of industrial base and the public sector played
an important role in this respect. Another important contribution of
the public sector is the export promotion. The State Trading
Corporation, and the Minerals and Metals Trading Corporation have
been able to promote exports specially in the East European
Countries. Similarly Indian handicrafts, and light engineering goods
have become popular in many countries. In other words, it would
never have been possible had the industries been in the hands of the
private sector. Lastly public sector has also made important
substitutions possible. Hindustan Antibiotics Limited and the Indian
Drugs and Pharmaceuticals Limited have started producing drugs
which were previously monopolized by the foreign concerns. Similarly,
ONGC and Indian Oil Corporation have tried to make India self-reliant
in oil production. It will not be incorrect if we are to say that it is
because of the failure of the public enterprises that imports have been
on the increase. In the case of the public sector even the pricing policy
can be favourable to the people in general. In the Private Sector the
prices are determined by investment and expenditure but in public
sector some of the goods may be sold at subsidised rates.

Most of the Public Sector undertakings yielded profit. This enabled the
Government to take policy decision against rendering any budgetary
support to the working capital requirement of such units, which are to
fend for themselves on a strictly commercial basis through the
financial institutions. This will induce a measure of responsibility in
the financial management.

It has been pointed out by some of the economics like Dr. K.N. Raj that
the performance of the public enterprises has not been very
encouraging. He says that the financial structure of some of the public
sector organizations in India is such as to make these public sectors
losing concerns. In fact because of the lack of ethical values among the
labourers and workers it has not been possible to raise the standard of
the public sector up to the expectations. Nationalised industries
generally degenerate because the workers have security of service and
develop indifference towards their work. In other words public sector is
inefficient but that is not an inherent defect of public enterprises.
Private sector will never be able to rise up to the demands of the
welfare states because the moment it becomes a losing concern the
industry owners lose interest. So the future of the public sector in
India cannot be under-estimated. If we are to become Democratic
Socialist Republic we will have to give greater importance to public
sector and we will have to rely upon public sector for a number of
years to come, for the development of economy.

Main Mottos of Public Sector

The following are the important mottos of public sector:

(i) To increase job opportunities for reducing the problems of

unemployment and poverty;
(ii) To accelerate the economic growth by increasing saving
potentiality and capital formation within the country;
(iii) To build up strong industrial base through proper
industrialisation and commercialisation of agriculture; (iv) To
generate more income for the Government by increasing the
surpluses from the public enterprises;
(iv) To curb down the problem of inequality in the distribution of
income and wealth;
(v) To check and control the monopoly activities of the private
sector;
(vi) To reduce regional imbalances from the view point of
industrialisation. In India the states like Bihar, Rajasthan, J
& K, Manipur, Nagaland etc. are comparatively backward in
compare to West Bengal, Punjab, Maharashtra, Kerala etc.
 (vii) To make the country more power and strong, the sole
responsibility of public sector is to improve the defence
industries;
(viii) To ensure self-sufficiency in the area of technology and
capital goods;
(ix) To build the economy in the concept of ‘Welfare state’ by
increasing the welfare activities among the citizens.

Progress of Public Sector

In India, public sector plays an important role for the economic

development. Indian Planning Commission always put special
emphasized on the growth of public sector units. All the important
areas like minerals, power-generations, iron and steel, defence,
railways etc. are mainly controlled by the government units. The
Industrial Policy Resolution of 1956 was made to increase the power
and prestige of public sector units in India. At this current situation,
public sectors get huge responsibility to increase employment
opportunities and technological development. Thus, the Central
Government has allotted a huge amount for the development of the
country.

Contribution of Public Sector in the India Economy

“The public sector is expected to provide specially for the further

development of industries of basic and strategic importance or in the
nature of public utility services.” -Indian Planning Commission.

From the pre-independence period, public sector plays an important

role for the foundation of the country. A huge amount of tasks have
been allotted to PSUs regarding this context.
 The following are some effective contribute of Public Sector
Undertakings in the India economy:

(i) Creation of Job Opportunities:

Public sector is the targets employed organisation sector. Nearly 70
present of labourers are working in public sector.
(ii) Strong Industrial base:
The contribution of industrial sector i.e., manufacturing,
construction, electricity in GDP at Factor Cost has raised slowly
and steadily during the plan periods. Hence, industrial base is
better now, when compared to what was in 1950-51. During the
plan period, most of the industries like iron-steel, heavy
engineering, coal, heavy electrical machinery, petroleum and
natural gas chemicals and drugs, fertilizers and defence have
increased remarkably.
(iii) Economic Growth:
Public sector plays a key role to achieve a sustainable economic
development. It makes the country strong and self reliance, with
the policy of export promotion and import subsIt also takes huge
endeavour to remove regional imbalances with the country.
(iv) Positive Check on Monopoly Control:
Public sector has the potentiality to reduce inequalities of income
and wealth and concentration of monopoly power in different ways,
like; (a) Channelise the profits on the social welfare programmes;
(b) Supply the important raw materials at low prices to the small
and tiny scale industries; (c) Increase the minimum wages to the
labourers; (d) Production of socially required necessary goods etc.
(v) Add Revenues to the Government Treasury:
Public sector units add huge revenue to the Government treasury
through excise duty, customs duty, dividend, profits and other
direct taxes. Thus, it will help to increase a bulk amount of
resources for a sustainable planned economic growth.
Roles Played by Public Sector in Indian Economy

The following nine important roles played by public sector in Indian

economy, i.e., (1) Generation of Income, (2) Capital Formation, (3)
Employment, (4) Infrastructure, (5) Strong Industrial Base, (6) Export
Promotion and Import Substitution, (7) Contribution to Central
Exchequer, (8) Checking Concentration of Income and Wealth, and (9)
Removal of Regional Disparities.

1. Generation of Income:
Public sector in India has been playing a definite positive role in
generating income in the economy.
2. Capital Formation:
Public sector has been playing an important role in the gross
domestic capital formation of the country. The share of public
sector in gross domestic capital formation has increased from 3.5
per cent during the First Plan to 9.2 per cent during the Eighth
Plan. During 1980s, the share of public sector in gross domestic
savings declined from 16.2 per cent in 1980-81 to 7.7 per cent in
1988-89.
3. Employment:
Public sector is playing an important role in generating
employment in the country.Public sector employments are of two
categories, i.e: (a) Public sector employment in government
administration, defence and other government services and (b)
Employment in public sector economic enterprises of both Centre,
State and Local bodies. The public sector manufacturing is the
next industry which generated employment to the extent of 11.1
lakh persons.
4. Infrastructure:
Without the development of infrastructural facilities, economic
development is impossible. Public sector investment on
infrastructure sector like power, transportation, communication,
basic and heavy industries, irrigation, education and technical
training etc. has paved the way for agricultural and industrial
development of the country leading to the overall development of
the economy as a whole. Private sector investments are also
depending on these infrastructural facilities developed by the
public sector of the country.

5. Strong Industrial base:

Another important role of the public sector is that it has
successfully built the strong industrial base in the country. The
industrial base of the economy is now considerably strengthened
with the development of public sector industries in various fields
like—iron and steel, coal, heavy engineering, heavy electrical
machinery, petroleum and natural gas, fertilizers, chemicals, drugs
etc.

6. Export Promotion and Import Substitution:

Public sector enterprises have been contributing a lot for the
promotion of India’s exports. The export performance of the public
sector enterprises in India is quite satisfactory.

The public sector enterprises which played an important role in

this regard include—Hindustan Steel Limited, Hindustan Machine
Tools (HMT) Limited, Bharat Electronics Ltd., State Trading
Corporation (STC) and Metals and Minerals Trading Corporation.
7. Contribution to Central Exchequer:
The public sector enterprises are contributing a good amount of
resources to the central exchequer regularly in the form of
dividend, excise duty, custom duty, corporate taxes etc.

8. Checking Concentration of Income and Wealth:

Expansion of public sector enterprises in India has been
successfully checking the concentration of economic power into the
hands of a few and thus is redressing the problem of inequalities of
income and-wealth of the economy. Thus, the public sector can
reduce this problem of inequalities through diversion of profits for
the welfare of the poor people, undertaking measures for labour
welfare and also by producing commodities for mass consumption.

9. Removal of Regional Disparities:

From the very beginning industrial development in India was very
much skewed towards certain big port cities like Mumbai, Kolkata
and Chennai. In order to remove regional disparities, the public
sector tried to disperse various units towards the backward states
like Bihar, Orissa, and Madhya Pradesh. Thus, considering all
these foregoing aspects it can be observed that in-spite of showing
poor performance, the public sector is playing dominant role in all-
round development of the economy of the country.

ROLES OF PRIVATE SECTOR IN INDIAN ECONOMY

Private sector plays a very crucial role for the development of the
country. About 60% of GNP (Gross National Product) in India comes
from private sector. It generally works under the supervision of the
Government. In India, private sector is very vast.
It mainly consists of agriculture, trade, hotel, tourism, transport,
communication, storage, large, cottage and small scale industries,
education, medical and drug industries and etc. It also includes
several professional services like lawyer, charted accountant, doctor
and other consultancy services. Among all these agriculture is the
largest occupation comes under private sector.

Considering the importance of the private sector, the Government has

been undertaking various supporting measures for promotion and
development of this sector. But as this sector is mostly guided by the
profit motive and have little consideration about the national and
social goals, thus the Government has enacted various legislative
measures for the control and regulations of the private sector during
the last four decades. But too much control and regulations imposed
on the private sector has resulted in a lot of hurdles on the path of
their development leading to a slow rate of growth of the economy.

Realizing this problem, the Government has introduced the policy of

economic liberalization for the uninterrupted growth of the private
sector through the announcement of new and liberal industrial policy
in 1991 and also introduced some other industrial policy reforms in
the subsequent years.

The private sector is also an important provider of education. Over the

past two decades, private participation in education has increased
dramatically throughout the world, serving all types of communities—
from high-income to low-income families. The Private sectors are
already playing a significant and increasingly diverse role in health
sector.
The following are the seven important roles of private sector in
India:

1. Industrial Development:
During the pre-independence period, the private sector has played
a responsible role in Indian economy where it set up and expanded
cotton and jute textiles, sugar, paper, edible oil, tea etc. After
independence, the national government gave sufficient stress on
industrialization.

The private sector also made a serious attempt to invest on

industries producing wide range of intermediate products which
include machine tools, chemicals, paints, plastic, ferrous and non-
ferrous metals, automobiles, electronics and electrical goods etc. In
this way, the private sector has developed the consumer goods
industry, producing both durables and non-durables and became
self- sufficient in the production of different types of consumer
goods.

2. Agriculture:
In order to control such illegal activities, the Government has
introduced various control and regulatory measures in the form of
controls on price, movement of goods and on storage etc. Moreover,
the Government has been procuring food grains through its
premier organisation Food Corporation of India (FCI) and has
introduced a huge network of the public distribution system (PDS)
to participate in the trading of essential commodities for the
interest of the consumer.
 In order to control such illegal activities, the Government has
introduced various control and regulatory measures in the form of
controls on price, movement of goods and on storage etc. Moreover,
the Government has been procuring food grains through its
premier organisation Food Corporation of India (FCI) and has
introduced a huge network of the public distribution system (PDS)
to participate in the trading of essential commodities for the
interest of the consumer.

Moreover, in respect of international trade, the private sector is

playing an important role in its promotion through active
government support. The State Trading Corporation (STC) and
Minerals and Metals Trading Corporation (MMTC) of the
Government arc playing a dominant role in this regard. However,
in a country like India, the private sector is dominating over the
entire trading sector of the country.

4. Infrastructure:

Private sector is also providing an active support to the

infrastructural sector of the country. Although, the major areas of
the infrastructural sector lies in the hands of public sector but still
the private sector is participating in those areas which remain open
for it. Private sector has been playing dominant role in respect of
road transport, water transport etc. from the very beginning.

But after the introduction of New Industrial Policy, 1991, the

Government has opened some areas like power generation, air
transport etc. for the participation of the private sector.
Accordingly, in the post- 1991 period, the private sector has been
actively participating in those new areas like power generation, air
transport, building highways and bridges on Build, Operate and
Transfer (BOT) basis etc.
5. Services Sector:
The services sector of the country is almost totally under the
control of the private sector. The entire community and personal
services, which contributed nearly 11.1 per cent of GDP in 1994-
95, is entirely managed by the private sector. The entire
professional services, repairing services, domestic services,
entertainment services etc. are solely rendered by the private sector
throughout the country.

6. Role in the Indian Economy:

The private sector is playing an important role in Indian economy.
The importance of this sector in the economy of the country can be
visualized from the fact that it contributes to the major portion of
national income and employment.

As per the latest available statistics for the year 1998-99, the
private sector contributed about 76.7 per cent of the net domestic-
product and the remaining 23.3 per cent was contributed by the
public sector. The role of private sector is quite dominant in
agriculture and allied activities, small scale industry, retail trade
etc.

Again, as per 1991 census, the percentage of population working in

the government sector, including public enterprises and
government administration was only 7 per cent and the remaining
93 per cent of the working population are engaged in the private
sector. Thus, even after making a huge volume of investments in
the public sector and completing more than 50 years of planning,
Indian economy is still broadly based on the private sector.
7. Small Scale and Cottage Industry:

In India, small scale and cottage industries are playing an

important role in the industrial development of the country. The
entire small scale and cottage industry is owned and managed by
the private sector. As these industries are mostly labour-intensive
in nature, thus they can utilize the local employment opportunities
suitably. The importance of these industries can be visualized from
the fact that in 2001-02 the small scale and cottage industries,
numbering 34.42 lakh units, have generated employment to the
extent of 192.23 lakh, produced output worth Rs. 6,90,316 crore
and contributed nearly 29 per cent of the total exports of the
country.

Considering the importance and the various problems faced by

these industries, the Government has taken various steps for the
promotion and development of these industries. These measures
include both credit and non-credit measures. In India, there is vast
potentiality for the expansion of the small sector.

The Government has also announced a small-scale Industrial

Policy, 1991 for the promotion and development of the sector. The
most important peculiarity of this sector is that the small scale and
cottage units of the country, producing variety of products would
continue to remain within the control and management of the
private sector.
Main Mottos of Private Sector :

The important mottos of private sector are as follows:

i. Private sector has some clear cut objectives. The main
objective is to maximise profit.
ii. Private sector plays an important role to reduce budgetary
deficit of India. It helps the government to curtail the public
expenditure.
iii. Private companies are free from political’ interferences.
Hence, their main agenda to improve work culture.
iv. It helps to increase capital formation within the country.
Thus, gross domestic production will increase and hence
national income will also rise.
v. The increase in ‘private sector investment’ creates more job
and employment opportunities and generates higher level of
income for the’ country.
vi. All the profit making private sector units earned huge
surpluses to raise additional resources to enhance economic
growth. This will eventually increase the net national product
at factor cost and real per capita income of the country. The
additional rise in gross national product helps the economy
to overcome the problem of vicious circle of poverty.
vii. Growth of private sector units help to reduce the absolute
monopoly power of several public sector units. Thus, it will
create a friendly competitive environment within the country
and simultaneously improve the productivity of industrial
units.
viii. The main motto of the private sector is better work at higher
pace. Hence, it improves both quality and quantity of goods
and services.
ix. Private sector helps to raise the quality of life and hence
standard of living of common people will increase definitely.
Problems faced by private sector in India

1. Regulatory Procedure and Related Delays:

Too many regulatory measures imposed by the Government on the
private sector has resulted in lengthy procedure and delays in
getting final clearance of a new industrial project. On the
Government level, decision making system is so poor that it
normally takes 7 to 8 years for large investment project to complete
its gestation period.

Delegation of decision making in the Government bureaucracy is

so poor that even the simple decisions are rolled back to the top
level leading avoidable procedural delays, huge cost escalation,
increasing interest burden and higher burden on consumers.

2. Unnecessary Control:
From the beginning, the private sector of the country is subjected
to unnecessary Government control. Price controls imposed by the
Government on certain goods has resulted in disincentive to
increase production. Rather competition among the rival producers
can enlarge the production base and thereby can reduce the prices
automatically.

But in India, under the conditions of shortage, price controls,.dual

pricing etc. has resulted in black marketing and hoarding of such
commodities. Moreover, the system of licensing of capacity as a
capacity restraint has also resulted in undesirable effects on the
investors instead of preventing monopolistic tendencies. It is only
since 1980, unnecessary controls on the utilisation of excess
capacity and on the creation of new capacities have been either
abolished or liberalized.
3. Inadequate Diversification:
The private sector has been suffering from inadequate
diversification as the Government did not allow them to participate
in those basic, heavy and infrastructural sectors which were earlier
reserved for the public sector. It is only in post-1991 period, some
of these areas are now opened for the private sector participation.

4. Reservation for the Small Sector:

From the initial stage of development, the Government is providing
necessary support to the small industrial sector in the form of
reservation of certain products exclusively for the small sector so
as to save it from unfair competition of large units and also by
providing excise exemption or lower excise duties on the goods
produced by the small sector. But for the proper development of
the small sector, modernization of their production techniques,
proper product-mix, updating of designs must be given adequate
priority.

5. Lack of Finance and Credit:

Although the large scale industrial corporate units of the private
sector are mobilizing their fund from banks, development financial
institutions and from the market through sale of their equities or
debentures but the small scale units are facing acute problem in
raising fund for their expansion.

6. Low Ratio of Profit:

Another important problem of the private sector enterprises is the
declining trend in its net profit ratio. Accordingly, the net profit to
turnover ratio of these total Indian private sector enterprises has
been declining from 6.1 per cent in 1994-95 to 3.2 per cent in
1996-97 and then to 2.3 per cent in 1997-98.
Disputes of Private Sector:
There are several disputes of Private sector units.

1. Maximization of Profit:
The main aim of all the private sector units to maximise profit.
They feel interested to invest only those areas where the returns
are more fast. Therefore they are willing to invest more consumer
goods industries rather than capital goods industries. Private
sector usually concentrates on low investment and high profit
industries. This sector does not give attention for infrastructural
development of the country.

2. Concentrate on Consumer Goods

The main attention of the private sector is to manufacture
consumer goods for rich section of the society. This sector pays
huge attention for producing packets foods, electronic goods and
gadgets, automobiles, cosmetics etc. for elite section of the
community. Thus private companies focusing on the non-essential
high profit making good-items. Hence, this sector ignores the
production of mass consumption essential items.

3. Monopolistic Tendency
During the time of post-independence era, most of the private
sector units took the undue advantages of India’s capitalistic mixed
economy pattern and try to develop monopolistic tendency within
the country. Few private companies become so vast and powerful
that they started to control the government plans and policies also.
These tendencies also increased further after the liberalisation of
industrial licensing and introduction of free trade policy.
4. Rise in Balance of Trade (BOT) Deficit
To increase the productivity and efficiency, private companies
frequently imports technologies from the international markets.
These high-cost machineries and tools lead to huge deficit in
India’s balance of trade (BOT).

5. Internal Problems:
Most of the private sector units are suffering with varieties of
internal conflicts. These companies always try to exploit the
workers by giving low wages and less benefit. The results is the
yearlong conflicts between employees and employers. This will end
with the shutdown of the factories. Dunlop, Metal Box are the
burning examples of this problem.

6. Scarcity of Finance:
In India the rate of capital formation is relatively low in compare to
develop nations. Hence it becomes a difficult task to arrange proper
finance by the private companies. The common people are
interested to buy real estates and gold’s rather than the shares and
bonds of the private sector units which are very volatile. Moreover,
huge inflationary pressure in India also enhanced the scarcity in
the financial market.

7. Indulge Mal-Practices:
Private companies always try to earn more profits. Thus, never
hesitate to adopt malpractices in their business policies. They
usually cheated the innocent and ignorant consumers by giving
eye-wash and faulty explanation. Extracting the maximum
consumer surpluses became the sole policy of large number of
business firms.
8. Low productivity:
According to RBI report from commercial banks, up to end of
March 2003, there were 1.71 lakhs of private companies suffering
with low productivity and weakness. These low productivity are
mainly due to deficit demand, frequent power cuts, economic
recession, lack of raw materials, biased government policies
towards public sector units, inefficient management, labour
problems etc.

9. Fear of Multinational Corporations:

India adopted the policies of free trade and globalization after
1991. This paved the path for giant multinational companies
(MNCs) with huge capital stocks to enter the India market. It
become practically impossible for infant, domestic private
industries to compete with them. Due to these unfair competitions
so many private sector units have already been gobbled by the
MNCs.

In most countries, the private sector is the major component of

national income and the major employer and creator of jobs. Over 90%
of jobs in developing countries are in the private sector. Private sector
is the engine for sustainable job creation and the dominant source of
jobs worldwide.
 CONCLUSION

The Government always plays a very important role in the development

of the economy. Economic role is basically concerned with the
economic development of the nation by framing rules and regulations.

In capitalist countries, Government participation was increased after

the Great Economic Depression in 1930’s. The most important roles of
any Government are Stability and Growth.

The factors determining the nature of role of Government are i. Nature

and Stage development of the economy, ii. Behaviour of Private Sector
iii. Political Philosophy iv. Social Attitudes v. Administrative systems
etc.

Government’s role as Regulator of Business

 Ensure the private investment and production in the industry

meets the socio-economic objectives of the Government
 Ensure the efficient use of resources and prevent exploitation
 Restrains on private activities
 Control of monopoly and big business
 Development of public enterprises as an alternative to private
enterprises to ensure competitive dualism
 Maintenance of a proper socio-economic infrastructure
Government’s Role as Promoter of Business

 Providing finance to the industry (through developmental banks

etc.)
 Granting incentives
 Creating infrastructural facilities for industrial growth and
investment
 Promoting development in No Industry Districts
 Establishing District Industrial Centres for assisting the
development of small industries

Government’s Role as an Entrepreneur in Business

 Mainly concerned with growth and development of public

industries
 Has earned the name of a “SOCIAL ENTREPRENEUR”
 BSNL can be a best example for the above stated term

Government’s Role as a PLANNER in Business

 Indicating priorities through the Five Year Plans for the sectoral
allocation of resources
 Ensuing equal distribution of scare resources to all the sectors
in order to avoid clashes

The main role which should be played by the Government is to do

things which are not presently done by any other bodies and develop
the country with efficient private participation. The Government
should protect investors and take up efficient taxation policy. The most
important thing is the implementation of reforms.
DIFFERENCE BETWEEN PUBLIC AND PRIVATE SECTOR

Basis for Public Sector Private Sector

Comparison
Meaning The section of a The section of nation’s
nation’s economy, economy, which owned
which is under the and controlled by
control of Government, private individuals or
whether it is central, companies is known
state or local, is known as Private Sector
as the Public Sector

Basic Objective To serve the citizens of Profit earning

the country

Raises money from Public Revenue like Issuing shares and

tax, duty, penalty etc. debentures or by
taking loan

Areas Police, Army, Finance, Information

Agriculture, Banking, Technology, Transport,
Insurance, Health, Education,
Education, Telecommunication,
Manufacturing, Manufacturing,
Electricity, Transprt, Baning, Construction,
Telecommunication, Pharmaceuticals,
Mining Mining etc.

Benefits of working Job Security, Good Salary package,

Retirement benefits, competitive
Allowances, etc.. environment,
incentives etc.

Basis of promotion Seniority Merit

Job Stability Yes No

ROLE OF GOVERNMENT