Ans: Public sector: refers
to the part of the economy concerned with providing basic government services.
The composition of the public sector varies by country, but in most countries
the public sector includes such services as the police, military, public roads, public
transit, primary education and healthcare for the
poor.
Characteristics of Public Sector:
1.
State Ownership:
The enterprise ownership
has to be vested with the State. It could be in the nature of Central, State
or local government ownership or any instrumentality of the state too can have
the ownership of public enterprise.
2.
State Control:
Public Enterprise is
controlled by the Government both in its management and functioning. The Government has the direct responsibility
to manage the affairs of the enterprise through various devices and exercises
control over it by means of a number of agencies and techniques.
3.
Public Accountability:
Public Enterprises owe
accountability to people as they are funded through public money. This
accountability is realised through legislature and its committees, ministers,
audit institutions and other specialised agencies.
4. Autonomy:
Public Enterprises
function with utmost autonomy under given situations. They are free from day to
day interference in their affairs and management.
5. C overage:
The public enterprise
traverses all areas and activities. There is hardly any field of activity, which is not covered by the
operations of public enterprises.
Private Sector: The part of the economy that is not state
controlled, and is run by individuals and companies for profit. The private
sector encompasses all for-profit businesses that are not owned or operated by
the government.
Characteristics
of Private Sector:
(a)
Private Ownership and Control:
A private sector
undertaking is fully owned and controlled by the private entrepreneurs. It may
be owned by one individual or by a group of individuals jointly. When owned by
one person, it is called Sole Proprietorship. A group of persons may jointly
own the firm in the form of joint Hindu family business, partnership, Joint
Stock Company or cooperative society.
(b) Profit Motive:
The main objective of
private sector undertakings is earning profits. Profits provide the reward for
the risk assumed and the required return on capital.
(c) No State Participation:
There is no
participation by the Central or State Governments in the ownership and control
of a private sector undertaking.
(d) Private Finance:
The capital of a
private sector undertaking is arranged by its owners. The sole trader
contributes the capital of a sole proprietorship. In case of partnership,
capital is invested by the partners. A joint stock company raises capital by
the issue of shares and debentures. A private sector undertaking can also raise
loans to meet its long-term and short-term needs for funds.
(e) Independent Management:
A private sector
undertaking is managed by its owners. In case of sole proprietorship and
partnership, the owners directly manage the firm. The management of a joint
stock company lies in the hands of directors who are the elected
representatives of the shareholders.
Relative Size and Growth of Public and
Private Sectors:
1.
Comparison on the basis of Gross Domestic
Savings:
Public Sector Savings: The public sector comprises the central government, State
government, Central public sector undertakings and state level public
enterprises. The public sector savings comprise of central and state govt.
Savings and savings generated by the public sector undertakings in the form of
internal resources. The annual average combined fiscal deficit during the first
four years of the eleventh is estimated at 7.3 percent of the GDP; of this, the
GDP of the centre is placed at 5 percent of GDP and that of the states at 2.4
percent of GDP.
The year on year
inflation rate as measured by the consumer price index(CPI) for all urban areas
was 5.5 percent in June 2012, down from 5.7 percent in May.
Private Sector Savings:
The private
sector comprises non-government non-financial companies; non-banking financial
companies in the private sector; commercial banks and insurance companies
working in private sector; cooperative banks, credit societies and non-credit
societies and non-profit corporate institutions.
Among the constituents of the private corporate
sector, joint stock companies accounted for more than 90 percent of the private
corporate sector saving in the current decade and their share reached about 95
percent in the latter half of the decade. Share of the cooperative banks and
societies including a few non-profit corporate institutions decreased from 7.8
percent in 2004-05 to 6.3 percent in 2006-07 to 5.0 percent in 2009-10.
2.
Comparison on the basis of Gross Fixed
Capital Formation: Gross capital formation refers
to the aggregate of gross addition to fixed assets and change in stocks during
the accounting period.
Public Sector
and Capital Formation: The
role of public sector in collecting savings and investing them during the
planning era has been very important. During the first and second plans of the
total investment,54 percent was in the public sector and the remaining in the
private sector. The share of the public sector rose to 60 percent in the third
plan but fell thereafter. However, even then it was as high as 45.7 percent in
the seventh plan.
Private Sector
and Capital Formation: The
gross capital formation; private sector in India was last reported at 1,63,69,17,62,19,772.60
in 2010, according to a World Bank report released in 2011. The gross fixed
capital formation; private sector in India was reported at
1,31,00,95,78,40,285.90 in 2008 according to the World Bank.
3.
Comparison on the basis of Overall Growth:
Growth of Public Sector: Demand across most sectors remained healthy during FY-11, which
helped the aggregate overall income of top PSUs increase 15.04% to Rs. 21,381.7
billion. Oil and gas, mining and banking sector contributed to the overall
total income, registered healthy top-line growth of 21.8%, 19.5% and 18.1% respectively.
Share of total income of 69 PSUs with Maharatna, Navratna and Miniratna status
in the non-bank segment increased from 94.8% in FY-10 to 96.1% during FY-11.
Factors
responsible for the growth of public sector in India:
1.
Indian Constitution
2.
Establishment of a Socialist
Society
3.
Policy of Economic Planning
4.
Industrial Policy Resolution
5.
Development of the
Infrastructure
6.
Long Gestation Period
7.
Risky enterprises
8.
Foreign Collaboration
9.
Removal of Regional disparities
10. Reduction of Economic Inequalities
Growth of Private Sector: As
of the last decade, the growth and investment in the private sector has well
surpassed the growth in the public sector. The share of the private sector in
the net sales of manufacturing and services industry augmented from 48.83% in
2000-01 to 68.55% in 2009-10. Subsequently the share of the public sector
reached to 31.45% from a higher percentage of 51.17%. The share of private
sector in the net profit in the non-agricultural economy rose to 63.86% from
39.17%. The share of public sector declined to 36.14% from 60.83%.
Factors responsible for the growth of private
sector in India:
1.
Government Plan Policies
2.
Availability of Finance
3.
Remove Competition from Local
Industry
4.
Direct Incentives.
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