Role of private sector

1. IN GROWTH AND DEVELOPMENT
ROLE OF PRIVATE SECTOR

2. PRIVATE SECTOR
MEANING:- The private sector constitutes the segment of the economy owned,
managed and controlled by individuals and organizations seeking to generate profit.
Companies in the private sector are usually free from state ownership or control.
Different types of businesses under private sector are partnership, sole proprietorship,
cooperative and company.

3. Role of Private Sector
 DOMINANT SECTOR:- Despite the rapid progress of the public
sector in the period of planning, private sector is the dominant sector in the
Indian Economy . For instance,
2009-10
87% companies were in the private sector.
Total companies Private sector companies
158877 138300
Share in fixed capital 25.3%
Gross output 37.3%
Value added 34.9%
Employment 60.4
Private sector employed 7.13 million workers out of a total of 11.79 million
workers while the public sector employed 4.30 million workers.

4.  IMPORTANCE FOR DEVELOPMENT :- In western
countries private entrepreneurs have played an important
role in economic development so much. The private
entrepreneur is guided by the profit motive.
Responsible
 Introduction of new commodities
 New techniques of production
 Assembling the necessary plant and equipment
 Labour force management and organising them into going concern.
Such activities help in the process of industrialisation and economic development. It
was because of this reason that the industrial policy resolutions of 1948 and 1956 of
the government gave immense opportunities to the private sector to expand its
activities.
In the new liberalised scenario, 1991, private sector has been assigned the dominant
role in industrial development.

5.  EXTENSIVE MODERN INDUSTRIAL SECTOR:-
A number of modern industries have been set up in the private
sector. Important consumer goods industries were set up in the
pre- independence period itself , like
Cotton textile
industry
Sugar
industry
Paper
industry
Edible oil
industry
They were highly suitable for private sector since they ensured easily
returns and require less capital.
Engineering industries :- Tata iron and steel , Jamshedpur only.
According to 1956 resolution , industries producing intermediate goods can
be set up In the private sector . As a consequence , chemical industries like
paints, plastics, ferrous and non- ferrous metals , rubber, paper etc have
been set up in the private sector.

6.  POTENTIALITIES DUE TO PERSONAL INCENTIVE
IN THE SMALL SECTOR :-
Small and cottage industries have an important role to play in the industrial
field. These industries employ labour – intensive techniques and are important
from the point of view of providing employment opportunities .
In INDIA, all small and cottage industries are in the private sector. With the
help of small capital, the small entrepreneur, uses his resources efficiently to
earn maximum profit .
The government has received a large number of items for production in the
small scale sector . This sector is granted loans at concessional rates of
interest and marketing outlets are also provided. In addition , industrial
estates have been established at various places where all facilities are
provided under one roof to the small scale –industries.

7. IN POST
LIBERALISATION
PHASE
PRIVATE
SECTOR

8. 1991
The new industrial policy enunciated in 1991 abolished industrial licensing and
opened up the economy considerably. As a result, the private sector registered a fast
growth in the post liberalisation phase.
 Performance of the Corporate sector
Performance of the corporate sector for most of the post liberalisation period
(since 1991) has been fairly good.
For example:-

9. Period Growth rate
1990-91 to 1999-2000 14%
2000-01 to 2006-07 14.2%
Average rate of growth of sales
Growth in Gross Profit
Period Growth Rate
1990 12.5%
2006-07 20.4%
After Tax
Period Growth Rate
1990 11.8%
2000-01 to 2006-07 36.5%

10. Deterioration (2007-08)
Period Sales Gross profit Net profit
2006-07 26.2% 41.9% 45.2%
2007-08 18.3% 22.8% 26.2%
There was a precipitous decline in the mobilisation of resources through the
capital market .
The shrinkage in export demand that started from September 2008further
effected the export intensive industries.
Profitability ratio
11.4% in 2007-08 3.6% in 2008-09
There was a sharp dip in growth of sales from 18.7% to 6.3% in third quarter.

11. Growth In sales.
Period (2009-10) Growth rate
Third quarter 28.7%
Fourth quarter 34.9%
PROFIT AFTER TAX
Period Rate
2008-09 to 2009-10 3.6% to 8.0%
2009-10 (4th quarter) 8.6%
Profitability ratio in 2009-10 touched to 8.2%

12. Growth Sustained
The growth was sustained in all quarters of 2010-2011 and first three quarters of
2011-12 as well.
In all these quarters the sales growth was almost 20% or more.
Substantial rise in expenditure
Substantial rise in expenditure , leads to negative rate of growth in net profit
in last three quarters of 2011-12 and the first quarter of 2012-13.
Net profits of 1910 companies fell by as much as 43.9% in the third quarter of
2011-12 while net profits of 2003 companies fell by 18.1% in the first quarter of
2012-13.

13. Private Sector- Ranking in terms of income and
assets
Status as per the fiscal year 2019-2020
S.No. Company Assets worth
1. Reliance industries Rs.719829.00 cr.
2. Indian oil corporation Rs.215,539.11 cr.
3. ONGC Rs.373,902.10 cr.
4. State bank of India Rs.3,734,917.00 cr.
5. Tata motors Rs.195,447.73 cr.
6. Bharat petroleum corporation Rs.87,552.17 cr.
7. Rajesh export limited Rs.15,172.75 Cr.
8. Tata steel Rs.180,561.86 cr.
9. Coal India Rs.87,644.32 Cr.
10. Tata Consultancy Service Rs.91,835.00 cr.

14. Private sector- Ranking in terms of Market
Capitalisation
S. NO.
1. Reliance Industries Rs.14,72,850 Cr.
2. Tata consultancy service Rs.10,55,527 Cr.
3. HDFC Bank Rs.6,78,909 Cr.
4. HUL Rs.5,02,722 Cr.
5. Infosys Rs.47,143.168Cr.
6. HDFC Rs.3,51,555.95 Cr.
7. ICICI Bank Rs.2,76,902.79 Cr.
8. Kotak Mahindra Bank Rs.2,61,250.38 Cr.
9. HCL Technologies Rs.2,32,221.89 Cr.
10. Bharat Airtel Rs.2,31,970.3Cr.

15. OF PRIVATE
SECTOR
PROBLEMS

16.  PROFIT GENERATION IS THE MAIN MOTIVE:-
Industrialists in the private sector operate with the sole motive of maximising profits.
Consequently , they are interested in investing only in those industrial sector where
quick profit generation is possible.
TEND TO INVEST :- Consumer goods industries
IGNORE :- Investments
Since lack of infrastructure and capital goods plaughed the Indian economy after
independence , while private sector was reluctant to invest in these areas, the public
sector had to step in.
Thus, a number of economists allege that in the initial phase of industrial
development lasting for about three decades, the private sector was not willing to
shoulder the responsibility of a prime mover of economic development processes.

17.  FOCUS ON CONSUMER DURABLE CENTER :-
Even in the consumer goods sector, the focus of the private sector is on the elite
consumer groups , it is these group which have ample purchasing power. Thus,
the production pattern is skewed in favour of the relatively small richer sections
of the society .
Result :-
 Production of durable goods like consumer electronics and automobiles is
encouraged.
 Production of mass consumption good is neglected.
Some economists allege that this implies the wastage of the economic
surplus of the country on wastage of the economic surplus of the country
on unnecessary industrial activities while the ‘ core’ economic activities
suffer.

18.  INFRASTRUCTURE BOTTLENECKS:-
POWER TRANSPORTATION
Industry surveys have found that actual power shortfalls, unscheduled power cuts,
erratic power quality , delays and informal payments required to obtain new connections
and very high industrial energy costs, hurt industry performance and competitiveness.
Substantial power cuts have forced many units to operate their own generators. ,further
increasing the cost of power for industry and reducing firm competitiveness.
Secondconstraint:- In India, currently no inter state expressways linking the major
economic centres, and only 3000 km of four-lane highways . Poor riding quality and
congestion result in truck and bus speeds on Indian highways that average 30-40 km
an hour, about half the expected average.

19.  MONOPOLY AND
CONCENTRATION
It is the general pattern of capitalist
development that, as the economy progress,
the monopoly organisations strengthened and
concentration of wealth and economic power
in a few hands increases.
 DECLINING SHARE OF NET VALUE
ADDED IN TOTAL OUTPUT:-
Net value added is the amount generated over and
above the cost of raw materials which go to the
production system after allowing depreciation
charges. Many industries in private sector have
reported a fall in the share of net value added in
output in number of years. This fall means that the
same amount of raw material has generated less
output , it implies a decline in efficiency.

20.  Contribution to Trade Deficit:-
A large number of private sector companies have
been resorting to massive imports in the post-
liberalisation phase to upgrade their technology in a
bid to brace up to global competition . As a result,
the import expenditures have increased at a much
faster rate than export earnings. This has pushed up
the country’s trade deficit.
 Industrial Disputes :-
As compared to public sector , private sector suffer
form more industrial disputes. Differences and
conflicts between the owners and employees
regarding wages , bonus, retirement , and other
issues frequently emerged . Industrial disputes
often results in strikes, lockout etc. valuable man
days lost and productive activities suffers.

21.  Industrial sickness:-
This is serious problem , confronting the small , medium and large units in the
private sector . Substantial amount of loanable funds of the financial
institutions is locked up in sick industrial units causing not only wastage of
resources but also affecting the healthy growth in the industrial economy
adversely.
Period Sick units Credit amount
March 2008 89,641 35,366 cr.

22.  Problem relating to finance and credit :-
Since the rate of capital formation in the economy is low
and the capital market is an underdeveloped state, the
private sector have to encounter many difficulties in
arranging finances. Because of high inflationary
tendencies in the economy , people are attracted towards
purchasing land, gold and jewellery and are not willing to
invest in industries.
 Threat from foreign competition :-
The problem of liberalisation unleashed in 1991 has
opened up the gates to foreign investors . This
process of globalization and integration led to an
unequal competition – a competition between giant
MNC’s and a dwarf Indian Enterprises.

23. Conclusion
 Private sector is the base of our progress as it generates more
employment opportunities , increase in the standard of living, foreign
exchange earning etc.
References
Mishra and Puri, Indian Economy, Himalaya Publishing
House, Mumbai.
Tradebrains. In
www. Moneycontrol.com
www.walkthroughindia.com