TRENDS IN PUBLIC & PRIVATE SECTOR IN INDIA.

Acknowledgement
We hereby acknowledge the fact that making of this presentation has given us knowledge about the topic Trends in Public & Private Sector in India. We are grateful to our Business Environment teacher who is also our Dean Academics Mr. Ajay K Rathore Sir for giving us an opportunity to prepare a presentation over this topic and the help he provided to us to complete this presentation successfully.

And last but not the least Were Thankful to our classmates for the cooperation theyve extended to us in completion of this presentation.

CONTENTS:

Introduction Public sector: Objectives, Growth & Performance Private Sector: Objectives & Growth Comparisons: Public v/s Private Sectors
Share in Gross Domestic Savings.

Share in Gross Domestic Capital Formation. Share In Employment Source.

Defects: Public Sector & Private Sector Positive Aspect of Private Sector Conclusion References

Introduction
Public Sector A public sector enterprise is an organisation which is Owned by public authorities including Central, State or Local authorities, to the extent of 50% or more; Is under the top managerial control of owning public authorities Is established for the achievement of a definite set of public purpose Is consequently placed under a system of public accountability Is engaged in an activity of business character

Private Sector A private sector enterprise is an organisation which is owned, managed & controlled by private individuals or a group of individuals or both. It is also engaged in business activity but with the motive of profit maximisation rather than public service like in case of public sector enterprise.

Objectives of Public Sector Enterprise:

Helps in rapid economic growth & industrialisation of the country & creation of necessary infrastructure for economic development, To earn return on investment & thus generate resources for development, To promote redistribution of income and wealth, To create employment opportunities, To promote balanced regional development, To promote import substitution, save and earn foreign exchange for the economy Acts as a countervailing force and put up an effective competition to undertakings in private sector and To gain control over the commanding heights of the economy.

Growth of Public Sector Undertakings

Period 1st Plan (1951-1956) 2nd Plan (1956-1961) 3rd Plan (1961-1966) Three Annual Plans (1966-69) 4th Plan (1969-1974) 5th Plan (1974-1979) 6th plan (1980-1985) 7th plan (1985-1990) 8th plan (1992-1997) 9th Plan (1997-2002) 10th Plan (2002-2007) Total Investment (Rs. Cr.) 29 81 953 2410 3902 6237 18225 42811 118492 201500 324632 No. of Enterprises (Owned By Central Gov.) 5 21 48 73 85 122 186 221 237 238 240

11th plan (2007-2012)

4,21,089

244

Source: Business Environment by Francis Cherunilam (2008)

Reasons of growth of Public Sector

The Industrial Policy Resolution of 1956 enlarged the role of the public sector.

Schedule A to the Resolution enumerated 17 industries, the future development of which would be the exclusive right of the state. Schedule B to the Resolution contained a list of 12 industries which would be progressively state owned & in which the state would, therefore, generally take the initiative in establishing new units.

The Industrial Policy of 1956 is the basic policy of India. It was more of a restrictive in nature for setup of new private industries. The Public Sector flourished in the time being before the introduction of new Industrial Policy of 1991 which was more liberal in nature.

Share of Public Sector

At Current Prices it accounted for: 7.5% of Net Domestic Product in 1950-1951, 25% of Net Domestic Product in 2007-2008.

It also accounts for: One-fourth of Gross Domestic Product (GDP), One-third of the Exports.

Six Indian Public Sector companies figure in the latest list of the 500 biggest industrial corporations, released by Fortune International. They are:
Name of Company Indian Oil Corporation Ranking (Out of 500) 144

Oil & Natural Gas Corporation 278

Steel Authority of India Ltd. 332

Hindustan Petroleum Corp. Ltd 371 Coal India Ltd. Bharat Petroleum Corp. Ltd 371 474

Source: Essentials Of Business Environment by K. Ashwathappa (10th edition 2008)

Performance of Central Public Sector Enterprises, during April-September, 2006

Sl. No. Industry GDP During April-September
2005
1.

Nominal Growth
Rate 9.39 14.65 15.07 8.12 14.95

2006 277668 43487 278986 35608 116667

Agriculture, forestry and fishing Mining and quarrying Manufacturing Electricity, gas and water supply Construction

253839 37935 242452 32933 101494

2. 3. 4.

5.

Performance of CPSEs, during April-September, 2006

6.

Trade, hotels, transport and communication

366780

426935

16.40

7.

Financing, insurance, real estate and business Services

222882

254923

14.38

8.

Community, social and personal services

211655

239039

12.94

GDP at factor cost

1469970

1673313

13.83

Private Sector Objectives of private sector enterprise:

The government resorts to privatisation with the multiple objectives which are as follows:

To reduce political interference in the management of enterprise, leading to improved efficiency & productivity, To provide adequate competition to the public sector, To generate cash in order to fund the ever-increasing expenses, To reduce the concentration of economic power in the country.

Growth of Private Corporate Sector

1957 No. of Companies Government Private 29,357 74 29,283 1971 30,322 314 30,008 2000 5,42,308 1,257 5,41,051

Paid Up capital (Rs. Cr.) All Companies Government Companies 1,080 (100.00) 70 (6.8) Private Companies 1,010 (93.2) 4,500 (100.00) 2,060 (45.8) 2,440 (54.2) 2,67,898 (100.00) 95,842 (35.8) 1,72,056 (64.2)

Note: Figures in brackets are percentage of total paid-up capital Source: Tata Services Ltd, Statistical Outline of India (2001-2002)

Reasons for Growth of Private Sector

Political will towards privatisation. Financial Reforms, Usage of more advanced technology, Young & large English Speaking class. Opening up of Indian Economy has led to free flow of FDIs along with modern cutting edge technology.

Share of Private Sector

Accounts for 75% of National Domestic Product in 2007-2008 It is estimated that out of the total US $ 15 Billion KPO service business around US $ 12 Billion of business would be outsourced to India by the end of 2010

Top 10 Private Sector Companies in 2008

Reliance Industries Limited Tata Consultancy Services (TCS) Infosys Technologies Ltd Wipro Limited Bharti Tele-Ventures Limited ITC Limited Hindustan Lever Limited ICICI Bank Limited Housing Development Finance Corp. Ltd. TATA Steel Limited

Comparisons
Share In Gross Domestic Savings Share In Gross Domestic Capital Formation Employment Provider Share In National Domestic Product 2002

SECTOR-WISE DOMESTIC SAVINGS

(As a %age of GDP)

Years 1

Household Sector 2
New Series

Private Sector 3 0.9 1.2 1.6 1.4 1.5 1.3 1.6 1.9 2.7 5.0 3.9 7.5 7.8

Public Sector 4

Gross Domestic Savings 5 8.6 12.3 11.2 13.7 14.2 16.9 18.5 19.0 22.8 24.4 23.7 34.3 34.8

(Base: 1999-2000)

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2007

5.7 9.0 6.5 8.6 9.5 10.9 12.9 13.1 18.4 16.9 21.6 24.2 23.8

2.0 2.1 3.1 3.6 3.3 4.7 4.0 3.9 1.8 2.6 -1.8 2.6 3.2

SECTOR-WISE GROSS CAPITAL FORMATION

(As a %age of GDP)

Year
1

Public Corporate Sector

2
(BASE : 1999-2000)

Private Corporate Sector

3

Gross Capital Formation

4

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2007

2.6 5.4 6.7 8.1 5.8 7.4 8.9 10.7 9.6 8.3 6.5 7.0 7.4

6.1 6.3 5.8 6.9 7.9 8.6 9.5 9.7 13.4 16.2 16.3 24.0 25.0

8.7 11.7 12.5 14.9 13.8 16.1 18.4 20.4 23.0 24.4 22.7 31.0 32.5

EMPLOYMENT IN PUBLIC AND ORGANISED In Lakhs PRIVATE SECTORS

Years 1981 1991 1995 2000 2002 2003 2004 2005 2006

Public Sector end march 154.8 190.6 194.7 193.1 187.7 185.8 181.9 180.1 181.9

Private Sector end march 74.0 76.8 80.6 86.5 84.3 84.2 82.5 84.5 87.7

Share of Public & Private Sector in Net Domestic Product (Rs. Crores at 1993-94 prices)
S. No Industry

At Current Price

Public Sector Private Sector Total 2,70,309 (98.3) 3,863 (18.7) 1,27,015 (85.8) -3,878 2,74,858 (100.0) 20,645 (100.0) 1,48,121 (100.0) 14,609

Agriculture, Forestry & 4,549 Fishing

(1.7)

2 3 4

Mining & Quarrying Manufacturing

16,785 (81.3) 21,106 (14.2)

Electricity, Gas & Water 18,487

(126.5)

(-26.5) 46,089
(82.8)

(100.0) 55,696
(100.0)

Construction

9,607
(17.2)

Continued:
Sr. No Industry
6

Public Sector Private sector Total 5,267 (3.2) 36,044 1,58,797 (96.8) 30,066 1,64,064 (100.0) 66,110

Trade, Hotel & Restaurants Transport, Storage & Communications Finance, Insurance, Real Estate & Business Services

(54.5)
8

(45.5)
84,453

(100.0)
1,31,527

47,074

(35.8) Community, Social & 95,509 Personal Services (66.5) Total 2,54,428 (25.0)

(64.2) 48,203 (33.5) 7,64,917 (75.0)

(100.0) 1,43,712 (100.0) 10,19,345 (100.0)

Defects in Public Sector Enterprises:

Leading to Privatisation

Economic Inefficiency- High C.O.P, Inability to Innovate, Cost Delays in delivery of goods produced, Ineffectiveness in provision of goods & services. E.g. Failure to meet objectives, diversion of benefits to elite group & too much political interference. Rapid expansion of bureaucracy- Inefficiency of government, problems in labour relations, straining public budget & adverse effects on the economy.

These problems have led many governments to undertake programs of public sector reform, and pushed by a need to curb public expenditure, to revaluate the possibilities for shifting publicly managed activities into the private sector.

Defects of Privatisation:

Emphasis on Non-Priority Industries, Emergence of monopoly power and concentration, Industrial Disputes, Industrial Sickness.

Positive effects of the growth of private sector in India

Manufacturing registered 11.9% growth. The passenger vehicles sector grew by 11.61% during April-May 2007. Electricity, gas & water supply performed well and recorded an impressive growth rate of 8.3%. Construction growth rate rose to 10.7%. Trade, hotels, transport and communication registered a growth rate of 12%.

Exports grew by 18.11% during the 1st quarter of 20072008 and the imports shoot up by 34.30% during the same period. The food sector is estimated to be of US$ 200 billion now and it is expected to grow to $310 billion by 2015. Financing, insurance, real estate and business services recorded an impressive growth rate of at 11% during the 1st quarter of this fiscal.

Conclusion
The debate about the costs and benefits of private or public sector is infinite. It hinges on the economic and political merits of the role of government in society as well as the economics of ownership, and has found supporters on both sides of the policy divide. Interestingly, privatization programmes were started in the 1980s purely "on faith" and not because the policy makers had found conclusive evidence for the superiority of the private sector. Though the sponsors of private ownership are in ascendance now, the state ownership was considered the most successful economic policy only a few decades ago. However, the studies do show that only those mismanaged public enterprises could generate favourable budgetary impact, which were sold at competitive prices to buyers who could improve their performance and fully realise their market potential. The public sector inspite of its defects is a driving force for private sector in India because its the public sector that takes initiatives to develop infrastructure. There have been declines in performance of public sector companies but we should never forget that they provide the foundations to

Continued:
The acceleration in growth in the past five years or so is largely driven by the private sector. We are not only reaching the South-East Asian levels of saving (32.4 per cent) and investment (33.8 per cent) rates but the private sector has played a major role in generating these savings and investment
Though privatization alone may not be the sole reason for improved efficiency, there is no denying the fact that competition and regulation would have remained elusive and of academic value in developing countries economies without the emergence of a potent and assertive private sector. The fact is that the private sector is superior in terms of efficiency and cost effectiveness only where the regulators have ensured a competitive market. Higher the degree of competition, greater the resilience and efficiency level of the private sector. However, we must not forget that due to the inherent trade off between equity and efficiency, the private sector, compared with the public sector, would opt for efficiency that can be translated into profit - its primary motive for survival.

References:

Datt & Sundaram (2005): Indian Economy Dhingra I.C. (2005): Indian Economy Sheikh Saleem (2006): Introduction to Business Environment Ashwatthapa. K (2006): Essentials of Business Environment Cherunilam Francis (2008): Business Environment Websites of: Reserve Bank Of India Ministry of Commerce Ministry of Information & Broadcasting Central Statistical Organisation