Private Sectors In India : Role, Growth And Problems

INTRODUCTION

The private sector refers to the part of an economy that is owned and operated by private individuals or companies, as opposed to the public sector which is owned and operated by the government. Private sector entities are typically driven by the profit motive, seeking to maximize profits and grow their businesses.

In the private sector, businesses are free to make their own decisions about what products or services to offer, how to produce and deliver them, and how much to charge. Private sector companies also typically compete with one another to attract customers and improve their bottom line.

The private sector plays a critical role in most modern economies, as it is responsible for creating jobs, generating tax revenues, and driving economic growth and development. Private sector entities can operate in a wide range of industries, including manufacturing, finance, retail, healthcare, and technology, among others.

While the private sector is often associated with capitalism and free markets, it can coexist with a mixed economy, where the government also plays a significant role in regulating and shaping economic activity.

ROLE

The private sector plays a significant role in India's economy and development. Here are some of the ways in which the private sector contributes to India:

1. JOB CREATION : Private sector companies in India are significant job creators, particularly in industries such as information technology, manufacturing, and services. The private sector has been instrumental in absorbing the country's large workforce and reducing unemployment rates.
2. ECONOMIC GROWTH AND DEVELOPMENT : The private sector in India is a vital contributor to the country's Gross Domestic Product (GDP). It drives economic growth and development by investing in new businesses and industries, increasing productivity, and generating tax revenues.
3. INNOVATION AND TECHNOLOGY : The private sector in India is often at the forefront of innovation and technology. Many private companies invest in research and development to develop new products, services, and processes that can drive economic growth and productivity.
4. INFRASTRUCTURE DEVELOPMENT : The private sector plays a critical role in infrastructure development in India, particularly in sectors such as power, telecommunications, and transportation. Private companies invest in building and operating infrastructure projects, helping to bridge the infrastructure gap in the country.
5. FOREIGN INVESTMENT AND TRADE : The private sector in India is a significant recipient of foreign investment and also plays a critical role in driving exports. Private companies invest in establishing business relationships with foreign companies, thereby facilitating trade and investment.

GROWTH

The growth of the private sector in India has been significant in recent years. Here are some of the factors that have contributed to the growth of the private sector in India:

1. ECONOMIC LIBERALIZATION : In the early 1990s, India embarked on a path of economic liberalization, which reduced government control over the economy and opened up several sectors to private investment. This reform led to a surge in private sector growth, particularly in industries such as information technology, finance, and services.
2. DEMOGRAPHIC DIVIDEND : India has a large and young workforce, which has helped to fuel the growth of the private sector. The country's demographic dividend has led to a large pool of human capital, which has been a crucial factor in attracting private sector investment.
3. INCREASED FOREIGN INVESTMENT : India has become an increasingly attractive destination for foreign investment, particularly in the technology and manufacturing sectors. The Indian government has implemented policies to attract foreign investment, such as simplifying regulations and reducing red tape.
4. ENTREPRENEURSHIP : The rise of entrepreneurship in India has been a key driver of the growth of the private sector. India has a vibrant startup ecosystem, with many young entrepreneurs launching innovative new businesses in sectors such as e-commerce, healthcare, and fintech.
5. INFRASTRUCTURE DEVELOPMENT : The Indian government has invested in infrastructure development, such as building highways, ports, and airports, which has created opportunities for private sector investment. Private companies have been able to invest in these projects through public-private partnerships, which have helped to drive economic growth.

PROBELM

Problems Faced by Private Sector in India

REGULATORY PROCEDURE AND RELATED DELAYS :

Too many regulatory measures imposed by the Government on the private sector has resulted in lengthy procedure and delays in getting final clearance of a new industrial project. On the Government level, decision making system is so poor that it normally takes 7 to 8 years for large investment project to complete its gestation period.

Delegation of decision making in the Government bureaucracy is so poor that even the simple decisions are rolled back to the top level leading avoidable procedural delays, huge cost escalation, increasing interest burden and higher burden on consumers.

UNNECESSARY CONTROL :

From the beginning, the private sector of the country is subjected to unnecessary Government control. Price controls imposed by the Government on certain goods has resulted in disincentive to increase production. Rather competition among the rival producers can enlarge the production base and thereby can reduce the prices automatically.

But in India, under the conditions of shortage, price controls,.dual pricing etc. Has resulted in black marketing and hoarding of such commodities. Moreover, the system of licensing of capacity as a capacity restraint has also resulted in undesirable effects on the investors instead of preventing monopolistic tendencies. It is only since 1980, unnecessary controls on the utilisation of excess capacity and on the creation of new capacities have been either abolished or liberalized.

INADEQUATE DIVERSIFICATION :

The private sector has been suffering from inadequate diversification as the Government did not allow them to participate in those basic, heavy and infrastructural sectors which were earlier reserved for the public sector. It is only in post-1991 period, some of these areas are now opened for the private sector participation.

RESERVATION FOR THE SMALL SECTOR :

From the initial stage of development, the Government is providing necessary support to the small industrial sector in the form of reservation of certain products exclusively for the small sector so as to save it from unfair competition of large units and also by providing excise exemption or lower excise duties on the goods produced by the small sector. But for the proper development of the small sector, modernization of their production techniques, proper product-mix, updating of designs must be given adequate priority.

LACK OF FINANCE AND CREDIT :

Although the large scale industrial corporate units of the private sector are mobilizing their fund from banks, development financial institutions and from the market through sale of their equities or debentures but the small scale units are facing acute problem in raising fund for their expansion.

LOW RATIO OF PROFIT :

Another important problem of the private sector enterprises is the declining trend in its net profit ratio. Accordingly, the net profit to turnover ratio of these total Indian private sector enterprises has been declining from 6.1 per cent in 1994-95 to 3.2 per cent in 1996-97 and then to 2.3 per cent in 1997-98. Moreover, the net profit to net worth (NP/NW) reflecting on return on investment, of the total private sector enterprises also declined considerably from 15.2 per cent in 1994-95 to 6.5 per cent in 1996-97 and then to 4.7 per cent in 1997-98 as compared to that of 5.4 per cent of the Central Public Sector Enterprises (CPSEs).

The Indian economy is still on the list of developing economies of the world, owing to extremely high levels of illiteracy, unemployment, poverty, and so on. Despite so many problems around the nation to be solved and encountered on a daily basis, the Indian economy has a low GDP, compounded by the following issues:

• POOR INFRASTRUCTURAL DEVELOPMENT :- As per a recent report, India needs almost $100 million in infrastructure, to ensure the entire population benefits from electricity, gets safe drinking water, and proper sanitation services.
• IMPERFECT MARKET :- The Indian markets have a lot of easily exploitable loopholes. With an improper supply chain, the prices in the market vary significantly at different locations.
• LOW PER CAPITA INCOME :- The revenue of a country is highly dependent on the purchasing power of the population; the more they spend or purchase products, the more is the increment in the revenues of the nation. However, to spend, the population must earn more and must be able to fulfil their basic needs. Only then can they manage to purchase other facilities and comfort. Therefore, per capita income is one of the key factors.
• HIGH RATE OF POPULATION GROWTH :- With a vast population comes the requirement of resources. India is the world’s second-largest country in terms of population. This population needs education, food, transportation, water resources, employment, and other basic necessities to contribute to the development of the nation. As these resources are not available in sufficient quantities in India, it is highly challenging for the nation to develop. And if this continues, the nation will be in a perpetual developing stage.
• POVERTY :- It has been said, “A nation will be poor if it’s poor”, and this is an endless loop. Such loops of poverty always hinder the progress of a country and are a major issue for a country to be reckoned as a developed nation.
• UNADVANCED TECHNOLOGY :- Most of the work done in India is labour-intensive work. Thus, there is a huge gap between the technology required in the industries and what is in use in the country.
• INCOME DISPARITY :- The concentration of wealth in the country is highly focused and is possessed by 1% of the population of the nation. This 1% of the population owns 53% of the wealth within the country. Therefore, poverty is one of the important points that the government needs to highly focus on.
• AGRO-BASED ECONOMY :- The Indian economy is highly dependent on the agriculture sector. This sector adds up to almost 14% of the total GDP of the country, and more than half of the population of the country is dependent on this sector.
• CAPITAL FORMATION :- The average income of a person in India is very low and the GDP of the country is dependent on this. Therefore, there is a significant need for improvement in the rate of capital development.
• SOCIAL ISSUES :- Indian society is referred to as a backward society. This is due to communalism, a highly male-dominated social structure, a regressive caste system, and other such malice.
• INTERSTATE DISPARITIES :- Economic development reflects in the improvement of physical and social infrastructures which ease the quality of life in a society. But the pace and level of development are generally not uniform across the regions, and subsequently create regional disparities. The induced (man-made) disparities need to be quantified to analyse the cause and consequence of unequal development and the future course of action.

Region-wise, southern states are ahead in many indices followed by north-western states, while eastern and central parts of India are lagging behind the overall development. The north-east India still remains in isolation with some exemption of higher ranked (developed) districts of Sikkim and Tripura. Disparities also exist within the districts of a state and have been presented as intra-state disparities on some selected parameters. Districts have been ranked on the basis of development indices and mapped across the states/districts using Geographic Information System (GIS) tools.  

The existing disparities are total (among states), sectoral and also between rural and urban inhabitants within each state. The aim of development is to equalise the disparities and make it equitable among states and also within a state, as only resource richness is not adequate to be a developed state

CONCLUSION

In conclusion, the private sector plays a vital role in driving economic growth and development in India. Private sector companies are significant job creators, contribute to the country's GDP, drive innovation and technology, and help to bridge the infrastructure gap in the country.

However, the private sector in India also faces several challenges and problems, including inadequate infrastructure, limited access to credit, regulatory hurdles, corruption, and a shortage of skilled labor. These issues can hinder the growth and productivity of private businesses, particularly for small and medium-sized enterprises.

To address these challenges, the Indian government has implemented policies to encourage private sector growth, such as simplifying regulations, reducing red tape, and investing in infrastructure. These efforts are expected to continue in the future as India continues to pursue economic reforms and attract foreign investment.

Despite the challenges, the private sector in India is expected to play an even greater role in the future, driving economic growth and development, creating jobs, and contributing to the country's overall prosperity.