Understanding Public and Private Sectors in the Economy
The public sector, private sector, and joint sector play crucial roles in the economy. Public sector includes government services and enterprises, while private sector focuses on profit-making activities. Private sector contributes significantly to national income, generates employment, and ensures efficient capital flow.
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Public Sector, Private Sector, Joint Sector DR PRAMOD KUMAR
Public Sector The public sector (also called the state sector) is the part of the economy composed of both public services and public enterprises. Public governmental services such as the military, law enforcement, infrastructure, public transit, public education, along with health care and those working for the government itself, such as elected officials. The public sector might provide services that a non-payer cannot be excluded from (such as street lighting), services which benefit all of society rather than just the individual who uses the service. sectors include public goods and
Public Sector Public enterprises, or state-owned enterprises, are self- financing commercial enterprises that are under public ownership which provide various private goods and services for sale and usually operate on a commercial basis. Organizations that are not part of the public sector are either part of the private sector or voluntary sector. The private sector is composed sectors that are intended to earn a profit for the owners of the enterprise. of the economic The voluntary, civic or social sector concerns a diverse array of non-profit organizations emphasizing civil society.
Public Sector Examples-Public sectors include public goods and governmental services such as the military, law enforcement, infrastructure, public transit, public education, along with working for the government itself, such as elected officials. health care and those
Private Sector The private sector is the part of the economy, sometimes referred to as the citizen sector, which is owned by private groups, usually as a means of establishment for profit or non profit, rather than being owned by the government. The private sector is part of the economy.
What is the role of the private sector? The role of the private sector is integral to the development of an economy. Here are some specific roles of the private sector: Significant stakeholders of the economy: The private sector is an important player in the economy due to the input it makes to the national income. Particularly, it delivers vital goods and services, contributes to tax revenues and ensures the efficient flow of capital. Generate employment: The private sector plays the pivotal role of generating employment opportunities within its community. A significant number of businesses are under the control of the private sector, which suggests that these firms provide more jobs than the public sector.
Assist in development: The private sector plays a dominant role in different types of developments. Specifically, it enhances the process of industrialization and community improvement. By introducing equipment, machinery and technology, companies in the private sector produce innovative ideas that modify methods of production and lead to better economic development. Alternatively, the private sector contributes to community development community businesses, cooperatives and informal credit. It also attracts potential investors who promote and expand existing companies. new commodities, through exchange promoting systems, local Provision of goods and services: The private sector is the main provider of goods and services. It promotes human capital development, which gives it the ability to produce more goods and services and therefore satisfy market demand.
Promote diversification of business: The private sector is full of firms conducting varied businesses. Essentially, this sector provides new companies with the opportunity to develop no matter the type of business. With this freedom, private companies are able to diversify their operations.
Examples of companies in the private sector There are numerous types of undertakings in the private sector. Some of the examples of the private sector include: Privately owned small- and medium-size businesses These businesses constitute the bulk of the private sector. Small and medium businesses are responsible for most of the jobs in the economy and range from firms with a single employee to companies with up to 500 corporations, like doctors' and lawyers' offices, also fall under this category. Examples : Sole proprietorships: Plumbers, technicians, contractors, developers and designers Partnerships: Legal, accounting, tax and dentistry Privately owned corporations: Hospitality, leisure, retail and food employees. Small professional
Large multinational corporations Corporations that employ 500 or more people are considered large. Firms under this classification are the most prominent members of the private sector. Their importance results from exerting considerable political Government agencies exercise regulations on them but do not control them. Nonprofits Nonprofit organizations participate in activities perceived as publicly desirable, such as social services, education and natural resource conservation. Their main aim is delivering services for the general good and benefit of the community. While some nonprofits are self-sustainable, others depend on donations for financing. Nonprofits considerations from the government. and economic influence. receive special tax
Joint Sector Meaning: The joint sector represents a new ideology of economic management geared to sub serve a new economic system. The term is applied to an undertaking only when both its ownership and control are effectively shared between public sector agencies on the one hand and a private group on the other.
Definition of Joint Sector: The Committee) has defined the concept of the joint sector in the following terms: Dutt Committee (Industrial Licensing Policy Inquiry The joint sector would include units in which both public and private investments have taken place and where the state takes an active part in direction and control. According to JRD Tata a joint sector enterprise is intended to form a partnership between the private sector and the Govt. in which the govt. participation of the capital will not be less than 26 p.c., the routine management will be normally in the hands of the private sector partner and control and supervision will be duly exercised by a governing board on which Government is adequately represented. The Tata concept of joint sector is heavily private sector oriented, whereas the Dutt Committee concept of the joint sector was public sector oriented and aimed at curbing concentration of industries in the private sector.
Features of Joint Sector Joint sector enterprises may be brought into being by any of the following ways: (i) The Central Govt. and private entrepreneurs may jointly set up new enterprises. Sometimes the Central Govt. and one or more State Govts, together may set up enterprises in partnership with the private sector. (ii) The State Govt. or their industrial development corporations may set up new companies jointly with private partners, involving equity participation by both the partners.
(iii) Public financial institutions may, through equity participation or conversion of loans or debentures into equity, transform enterprises entrepreneurs into joint sector companies. promoted by private (iv) The existing private enterprises may be transformed into joint sector enterprises by the govt. or govt. companies acquiring a part of the equity or converting debt into equity or by contributing to an increase in the share capital. (v) The existing public sector companies may be transformed into joint sector enterprises through the sale of some equity shares to private entrepreneurs or the general public.
Rationale of Joint Sector The basic objective of the joint sector is that public funds should primarily be used to sub serve the public interest and that their deployment should not result in undue benefits to a few individuals or business houses. The joint sector has also acquired other objectives such as serving as an instrument of state initiative in the development of priority industries, in dispersal of ownership and control creating a new class of entrepreneurs. over industries and in
Problems of the Joint Sector Apart from other problems common to all industrial activity, three specific problems to the joint sector have been identified: 1. While in principle the concept appears acceptable, guidelines in terms of the roles of the Govt. and private partners in managing enterprises still remain to be spelt out. From the point of view of private investors, uncertainty about their role in management and control has been a major inhibiting factor. 2. The rationale for setting up joint sector projects was mainly for developing concentration of economic power and to accelerate industrial development. But in reality, often the purpose for which the joint sector projects were set up was unrelated to these basic objectives. and controlling joint sector backward areas, reducing
3. The inter-facing between a purely Govt. agency whose commitment and accountability are vastly different and a private group whose main motivation is likely to be commercial profitability is not always smooth. There is always the dilemma between over control of a unit to satisfy the rigour of Govt. audit on the one hand which, over time, stifles initiative and makes it difficult to operate; on the other, there is a well- recognised accountability to the public and legislature where Govt. funds are expended wisely. One, therefore, has to steer clear of these two extremes and ensure that the right mix of freedom and interference which will make the unit grow and expand is achieved. invested that they are
Government Policy The Govt. accepted the concept of joint sector in its industrial policy decision in 1970 and 1973. The concept of joint sector became very popular after the Report of the Industrial Licensing Policy Inquiry Committee was submitted in 1969. However, this is not a new idea. The industrial policy pronouncements even before the Dutt Committee Report had conceived the idea of joint sector. In- deed, the joint sector as a form of business existed in India even before Independence.
Government Policy The idea of the joint sector was implicit in the Industrial Policy Resolutions of 1948 and 1956. The Industrial Policy Resolution of 1948 indicated the possibility of the state securing the cooperation of private enterprise for the establishment of new units even in the 6 industries where only the state was to have the right to set up new units, subject to such control and regulation as the Central Govt. might prescribe.
