Wednesday, May 18, 2011

Analyze the Growth and Structure of the Private Sector in India with special reference to the informal sector.

Analyze the Growth and Structure of the Private Sector in India with special reference to the informal sector.


At the time of independence, almost the entire production and trade was in the domain of private sector. The public sector was insignificant, being confined to irrigation, power, railways, ports, posts and telegraphs and ordinance establishments. After 1951, the public sector was expanded fast both by Central and State Governments. It has become significant in many fields in terms of investments, total turnover, capital stock, contribution to foreign exchange earnings and so on as we noted in the previous unit. Now we turn to the growth of private sector. The importance of the private sector in the Indian economy can be assessed in terms of its contribution to national income and employment. According to the latest available statistics for the year 1999-2000 the public sector, including Government administration, contributed 25 per cent domestic product while the private sector contributed 75 per cent, private sector is dominant in agriculture, forestry, fishing, small-scale industry, retail trade, construction, transport other than railways, etc. major segment of the organised private sector is the corporate sector. Let us now look at the private corporate sector. As the organised private sector is generally equated with the private sector in a narrow sense, it is convenient and useful to study the growth of private corporate sector and compare it with the growth of public sector. The public sector companies in the early 1990's occupied a major position in terms of the amount of paid up capital, even though the number of government companies was small. In terms of number of companies the rate of growth of public sector companies has been faster than those of the private sector companies. Between 1967 to 2000, the number of government companies had increased from 74 to l,257. On the other hand, during the same period, the number of non-government companies had increased from 29,283 to 541,051. The paid-up capital of government companies increased from Rs. 70 crores in 1957 to Rs. 95,842 crores by March 2000. During the same period, the paid-up capital of private sector companies increased from Rs. 1,050 crores to 172,056 crores. The share of Government companies in total paid-up capital of all companies rose from 6.8% in 1957 to 35.8% in 2000. This indicates the growing importance of government companies.
In the organised sector public sector accounted for more than 70 per cent of total employment. The share of the private sector in the organised sector employment registered a slight increase from 28.7 per cent in 1989 to 31.3 per cent in 2001. As per the growth rate of employment in private sector during the recent period, it was higher than the growth rate in public sector. Structure of Private Sector Agriculture and allied activities which accounted for nearly 40 per cent of the domestic GNP and nearly 65% of employment in early 1990s are completely in the private sector. Small scale and cottage industries, trading, consumer goods industries, construction etc. are some of the other areas in which the private sector has been playing a major part. As noted in the previous unit the public sector in contrast to the private sector predominates in basic, heavy and infrastructure industries one important structural dimension of the private sector is the predominance of the informal or unorganised sector within the private sector. Informal or Unorganised Sector The private sector in India has three components : 1. Corporate sector, 2. enterprises other than corporate sector enterprises belonging to the .organised sector, 3. Informal or unorganised sector enterprises. Within the .organised private sector, the corporate sector predominates. We have already explained the structure and growth of private corporate sector, Now we briefly deal with the unorganised sector which is a large component of the private sector. T.S, Papola ("Informal Sector: Concept and Policy," The Giri Institute of Development Studies, Lucknow, December 1979 (mimeo) listed some prominent characteristics of the informal sector units after explaining how difficult it is to precisely define informal sector. Small size of operations, informal structure and family ownership, use of non-modern technology, lack of access to Government favours (subsidies etc.), competitive and unprotected product and labour markets are the prominent characteristics of the informal sector indentified and elaborated by Papola. A study of the informal sector in India has come up with the following conclusions:
Informal sector both in terms of employment and income has been a predominant sector of the Indian economy. In 1981 the sector accounted for 91.l% of total national employment and 65.66 per cent of income generated in the economy. During the period 1960-61 to 1981-82, while the organised sector grew at an average annual rate of 12.57 per cent (income growth rate), the unorganised sector recorded a growth rate of 9.37 percent. The economy as a whole recorded a higher growth rate of 11.36 percent indicating slight declining trend of the unorganised sector. While in the aggregate the above trend is clear, the urban informal sector has been growing during the period. The share of the urban informa1 sector in the total income of the unorganised sector increased from 29.35 per cent to 43.56 per cent during the period 1960-61 to 198 1-82.The average earnings per employee in the rural informal sector and urban informal sector were both less than those of the organised sector employee. The organised sector earnings per capita were several times higher than unorganised sector earnings per capita. While the share of wage/salary income in the case of organised sector was more than two-thirds, in the case of the unorganised sector it was less than a quarter. From the above, it is clear that within the private sector the unorganised sector was predominant both by income and employment criteria. In 1994-95 the share was around 63 per cent. By 2000-01 it has declined to 59 per cent. With steps for economic liberalisation initiated in 1991, it is expected that the organised private sector' will further expand resulting in the reduction of the sizeof the unorganised sector.

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