BY:BY:Ashutosh GuptaAshutosh GuptaKrishan KumarKrishan Kumar

TRENDS IN PUBLIC & PRIVATE SECTOR IN INDIA.

TECNIA INSTITUTE OF ADVANCE STUDIES

ROHINI, NEW DELHI 

Presentation On

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 We’re Thankful to our classmates for the cooperation they’ve extended to us in completion of this presentation.

CONTENTS:CONTENTS: IntroductionPublic sector: Objectives, Growth &

PerformancePrivate Sector: Objectives & GrowthComparisons: Public v/s Private Sectors

Share in Gross Domestic Savings.

Share in Gross Domestic Capital Formation.

Share In Employment Source.Defects: Public Sector & Private SectorPositive Aspect of Private SectorConclusionReferences

Private SectorA 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.

Public SectorA 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

Objectives of Public Sector Objectives of Public Sector Enterprise: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 economyActs as a countervailing force and put up an effective competition

to undertakings in private sector andTo gain control over the commanding heights of the economy.

Growth of Public Sector UndertakingsGrowth of Public Sector UndertakingsPeriod Total Investment (Rs. Cr.) No. of Enterprises

(Owned By Central Gov.)1st Plan (1951-1956) 29 5

2nd Plan (1956-1961) 81 21

3rd Plan (1961-1966) 953 48

Three Annual Plans (1966-69)

2410 73

4th Plan (1969-1974) 3902 85

5th Plan (1974-1979) 6237 122

6th plan (1980-1985) 18225 186

7th plan (1985-1990) 42811 221

8th plan (1992-1997) 118492 237

9th Plan (1997-2002) 201500 238

10th Plan (2002-2007) 324632 240

11th plan (2007-2012) 4,21,089 244Source: Business Environment by Francis Cherunilam (2008)

Reasons of growth of Public Reasons of growth of Public SectorSector

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 SectorShare of Public SectorAt 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 Ranking (Out of 500)

Indian Oil Corporation 144

Oil & Natural Gas Corporation 278

Steel Authority of India Ltd. 332

Hindustan Petroleum Corp. Ltd 371

Coal India Ltd. 371

Bharat Petroleum Corp. Ltd 474

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

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

Sl.No.

Industry GDP Nominal Growth

During April-September

2005 2006 Rate

1. Agriculture, forestry and fishing

253839 277668 9.39

2. Mining and quarrying 37935 43487 14.65

3. Manufacturing 242452 278986 15.07

4. Electricity, gas and water supply

32933 35608 8.12

5. Construction 101494 116667 14.95

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

Performance of CPSEs, during April-September, 2006

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

Objectives of private sector Objectives of private sector enterprise:enterprise:

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

Growth of Private Corporate Sector

1957 1971 2000

No. of Companies 29,357 30,322 5,42,308

• Government 74 314 1,257

• Private 29,283 30,008 5,41,051

Paid Up capital (Rs. Cr.)

All Companies 1,080 4,500 2,67,898

(100.00) (100.00) (100.00)

Government Companies

70 2,060 95,842

(6.8) (45.8) (35.8)

Private 1,010 2,440 1,72,056

Companies (93.2) (54.2) (64.2)Note: Figures in brackets are percentage of total paid-up capitalSource: Tata Services Ltd, Statistical Outline of India (2001-2002)

Reasons for Growth of Private Reasons for Growth of Private SectorSector

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 SectorShare 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 Top 10 Private Sector Companies in 20082008

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

ComparisonsComparisonsShare In Gross Domestic SavingsShare In Gross Domestic Capital

FormationEmployment ProviderShare In National Domestic

Product 2002

SECTOR-WISE DOMESTIC SAVINGS (As a %age of GDP)

YearsHousehold Sector

Private Sector

Public Sector

Gross Domestic Savings

1 2 3 4 5New Series (Base: 1999-2000)

1950 5.7 0.9 2.0 8.61955 9.0 1.2 2.1 12.31960 6.5 1.6 3.1 11.21965 8.6 1.4 3.6 13.71970 9.5 1.5 3.3 14.21975 10.9 1.3 4.7 16.91980 12.9 1.6 4.0 18.51985 13.1 1.9 3.9 19.01990 18.4 2.7 1.8 22.81995 16.9 5.0 2.6 24.42000 21.6 3.9 -1.8 23.72005 24.2 7.5 2.6 34.32007 23.8 7.8 3.2 34.8

SECTOR-WISE GROSS CAPITAL FORMATION

YearPublic Corporate Sector

Private Corporate Sector

Gross Capital Formation

1 2 3 4

(BASE : 1999-2000)

1950 2.6 6.1 8.71955 5.4 6.3 11.71960 6.7 5.8 12.51965 8.1 6.9 14.91970 5.8 7.9 13.81975 7.4 8.6 16.11980 8.9 9.5 18.41985 10.7 9.7 20.41990 9.6 13.4 23.01995 8.3 16.2 24.42000 6.5 16.3 22.72005 7.0 24.0 31.02007 7.4 25.0 32.5

(As a %age of GDP)

EMPLOYMENT IN PUBLIC AND ORGANISED PRIVATE SECTORS

Years Public Sector Private Sector

end march end march1981 154.8 74.01991 190.6 76.81995 194.7 80.62000 193.1 86.52002 187.7 84.32003 185.8 84.22004 181.9 82.52005 180.1 84.52006 181.9 87.7

In Lakhs

Share of Public & Private Sector in Net Domestic Product (Rs. Crores at 1993-94 prices)

At Current Price

S. No

Industry Public Sector

Private Sector

Total

1 Agriculture, Forestry & Fishing

4,549 2,70,309 2,74,858

(1.7) (98.3) (100.0)

2 Mining & Quarrying 16,785 3,863 20,645

(81.3) (18.7) (100.0)

3 Manufacturing 21,106 1,27,015 1,48,121

(14.2) (85.8) (100.0)

4 Electricity, Gas & Water 18,487 -3,878 14,609

(126.5) (-26.5) (100.0)

5 Construction 9,607 46,089 55,696

(17.2) (82.8) (100.0)

Continued:Continued:Sr. No

Industry Public Sector

Private sector

Total

6 Trade, Hotel & Restaurants

5,267 1,58,797 1,64,064

(3.2) (96.8) (100.0)7 Transport, Storage &

Communications36,044 30,066 66,110

(54.5) (45.5) (100.0)8 Finance, Insurance,

Real Estate & Business Services

47,074 84,453 1,31,527

(35.8) (64.2) (100.0)9 Community, Social &

Personal Services95,509 48,203 1,43,712

(66.5) (33.5) (100.0)Total 2,54,428 7,64,917 10,19,345

(25.0) (75.0) (100.0)

Defects in Public Sector Defects in Public Sector Enterprises: Enterprises: Leading to PrivatisationLeading 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:Defects of Privatisation:

Emphasis on Non-Priority Industries,Emergence of monopoly power and

concentration,Industrial Disputes,Industrial Sickness.

Positive effects of the growth of Positive effects of the growth of privateprivatesector in Indiasector in IndiaManufacturing 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 2007-2008 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.

ConclusionConclusionThe 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 it’s 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 the private sector.

Continued: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: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