You are on page 1of 26

Role of Private Sector

Most Important Sector
• In-spite of huge progress of the public sector,
the importance of private sector is
tremendous in the India economy
• The number of private sector companies in
2001- 02 was 1, 10, 634 in compare to the
total number companies of 1,28,549. In other
way 86.1% of the total companies were under
the control of private sector in compare to
only 11.67% companies under public sector.

Employment Generation
• Private sector plays a dominant role for
generating employment opportunities inside the
• A huge number of large scale, small scale,
cottage scale units are under the control of
private sector. It proves that small scale and
cottage scale industries contribute four times
more employment in compare to large scale
• According to 2001-02 statistics, as far as
employment is concerned, the share of private
sector was 51.2% against 44.3% of the public
sector. This is shown in the table 2.

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
• 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
• 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.
Contribution to Industry
• A good number of ultra modern industries are
constructed under the control of private sector. This
includes several consumers’ good industries like sugar
industry, edible oil industry, textile industry, paper
industry, spice industry and fast food or semi-finished
food industries.
• Even in the sphere of capital goods, iron and steel
heavy engineering, chemical, motors etc. private sector
plays a dominant role for their development.
• In the post liberalisation phase (after introduction of
New Industrial Policy, 1991), the working of few private
industries became huge. Table 3, shows the net sales of
10 top giant private sector industries in India during
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. 9
• 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.
• 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.

• India is an agro based economy. The share of
agriculture and its allied activities like fishing, poultry,
cattle rearing, animal husbandry, dairy farming etc. to
the national income is nearly 22%. On the other hand,
about 60% of the total working population is engaged
in this area. Hence, this large agriculture sector is
controlled by the private sector.
• Thus, private sector is quite dominant in respect of
agriculture and other allied activities. In India,
agriculture is not conducted on commercial basis
rather it is managed by the households as much of
these activities are in the hands of small and marginal
farmers. In India, the new agricultural strategy adopted
by the Government has been implemented by the
private sector under the active support of the
• Both the wholesale and retail trade in India are in the
hands of private sector. In a big country like India, having a
huge size of population, the entire trading activities are
managed by the private sector in a best possible manner.
But in case of scarcity of any essential commodities, the
private businessmen have their natural tendency in
resorting to hoarding and black marketing of such
commodities leading to exploitation of the consumers.
• 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. 13
• Moreover, in respect of international trade,
the private sector is playing an important role
in its promotion through active government
• The State Trading Corporation (STC) and
Minerals and Metals Trading Corporation
(MMTC) of the Government are 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.
• 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.
Services Sector
• The services sector of the country is almost
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.

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 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.

Helpful for Development
• According to Schumpeter peter private sector plays a
dominant role in economic development. It enhances
the process of industrialization. All the private
entrepreneurs are worked for profit motive.
• They actually played a leading role for the introduction
of new commodities, new techniques of production,
new plants equipment’s and machineries.
• Private entrepreneur has innovative ideas and always
modifies the total method of production.
• After the introduction of new industrial policy in 1991,
private sector leads a vital role in country’s industrial

High Potentiality

• Most of the small scale and cottage scale

industries are using labour intensive
technologies, they create huge employment
opportunities. These industries are owned by
private sector. About 80% of the total working
forces are employed in either organized or
unorganized private sector units. Private
sector contributes about three-forth of the
country’s national income.
The role of the private sector in
poverty reduction
• The private sector is now recognized as a critical driver
of economic growth, which contributes significantly to
poverty reduction and higher living standards for poor
people. The private sector is responsible for around 90
percent of employment in the developing world—
including both formal and informal jobs—it provides
critical goods and services; is the source of most tax
revenues; and is key to ensuring the efficient flow of
capital. The public and private sectors can be most
effective when they work together, and the public
sector has a critical role to play in creating a healthy
environment for investment and business activity.

Private sector development affects populations,
including the informal sector and the poor, at
several levels:
As employees:
• Many poor people see getting a job – whether
through self-employment or from receiving a
salary – as their most promising path out of
poverty. Better employment opportunities also
increase incentives for people to invest in their
education and skills. Competitive, profitable and
growing businesses, including those in the
informal sector, can also pay better wages and
invest more in training.
As entrepreneurs:
• The innumerable businesses in the informal
economy, including its wide variety of small and
medium-sized enterprises, face many of the same
problems as officially established companies.
These challenges include insecure property
rights, corruption, policy unpredictability, and
limited access to finance and public services.
Tackling difficulties such as these increases
entrepreneurs’ incomes and enables them to
expand their activities. It also increases incentives
to join the formal economy.

As consumers:
• The private sector has a major role in providing
everybody with access to basic goods and
services, such as clean water and sanitation,
energy, financial services, communication
technologies, housing, medicines and many other
inclusive innovations. In doing so, they can help
improve poor peoples' lives not only by serving
them as consumers, but more importantly by
providing them with the factors they need to
develop their own productive activities.
As citizens:
• A growing private sector will ultimately enable
governments in developing countries to
generate the tax revenues contributing to
funding of wider development strategies and
also as a civil society actor that can contribute
to democracy and state-building.

• One of the main challenges for governments
in developing countries is to design
institutional, organisational and regulatory
frameworks that are conducive to private
sector development. Governments alone
cannot create a private sector with an
entrepreneurial mindset, but their actions can
encourage or indeed destroy it. Fostering a
thriving private sector often requires extensive
economic reforms.