Analyze the Growth and Structure of the Private Sector in India with special reference to the informal sector.
Solution:
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.
Showing posts with label growth of private sector. Show all posts
Showing posts with label growth of private sector. Show all posts
Wednesday, May 18, 2011
Explain the reasons for the growth of private sector.
Explain the reasons for the growth of private sector.
Ans. In the mixed economy of India, private sector plays a complementary role to the public sector. Undoubtedly the dice was loaded heavily in favor of the public sector in the strategy of development adopted in our plans, but at no stage the private sector was pushed back to the graveyard . on the contrary, it was explicitly recognized that the private sector possess unparalleled advantage in terms of entrepreneurial talent, skill and initiative. Its basic limitation may be that it may not be in a position to garner large resources required for building up key and basic industries and other industries that require large capital investment. The industrial policy Resolution, 1956, set the mood and tore for future. While reserving the key and basic industries for the public sector it made it clear that the private enterprise and initiative were to be provided all possible opportunities and incentives for growth with in the parameters by planned economic development.
More recently, the new economic policy and the accompanying economic reforms have opened up unlimited opportunities for growth in the private sector.
Entrepreneurial talent is the biggest asset of the private sector . as such all those functions that are expected to be performed by Schumpeterian dynamic entrepreneur during the process of economic growth come to be associated with the private sector.
We can briefly sum up these functions follows:-
(a) To promote new industrial units.
(b) To mobilize financial resources for meeting diverse heads of economy.
(c) To provide managerial skill.
(d) To carry out and intensify industrial research and development programmes so as to promote appropriate technology and help in the modernization of the economy and rationalization of industries.
(e) To facilitate global integration.
Privatization is a term that is employed to convey a variety of ideas such as part or full transfer of public assets to the private sector, providing autonomy in management with respect to investment decisions or liberalization administrative pricing or other controls without change in ownership of assets, dismantling and regulating monopolies owned by the public sector hitherto, the variety of ideas reflects diversity in perceptions regarding privatization. They have resulted partly from political circumstances; partly from country specific attitudes to growth and equity and partly from ethnic preference for foreign capital.
The reasons for growth of private sectors are:-
1. The private enterprise has gained immensely from governments
plan policies. The plans have provided the necessary infrastructure for the development of private business as well as very big market.
2. The Indian domestic market has been completely sheltered since the policy of developing indigenous resources led to almost total banning of such imports as might compete, with the products of local industry. This is the further reason why the private enterprise has been able to make good profits even when some of their products were sub standard.
3. Various developmental and financial institutions have been set up by the Government to see that industries are not standard of legitimate financial needs. These institutions provide long-term loans, underwrite their share and debenture issues, provide feasibility studies and other services relating to their projects. A study of the balance sheet of a large number of companies shows that the finance provided by these institutions has enabled the private sector to grow and prosper.
4. Private sector has received various direct incentives from the government. The finance set has often contained various tax concessions such as tax holiday as regards new undertakings, developmental rebate, etc. income tax Act also provides fiscal incentives to the individual and corporate sectors. State finance Acts have provided facilities to industry regarding land, factory, building, power, etc.
(b) Discuss the problems faced by the private sector.
Ans. Problems faced by the Private sector:-
1. Private sector in India has been operating in an environment heavy taxation before the recent scaling down of tax rates in 1997-98. heavy taxation acted as a disincentive to increased production and immobilized funds which might have focused industrial undertakings.
2. corporate sector, not with sanding all the recent reforms, continues to be subject to a number of restrictions. In a recent study conducted to gauge the extent of economic freedom, India has been ranked a lowly 118th in a list of 150- countries, the world over, India is also way down at the 20th position in the list of 25 countries in the Asia Pacific region.
3. there is heavy dependence of the corporate sector on the financial institutions and other government agencies. A recent study of 400 large companies that account for over 50 per cent of private corporate turnover revealed that the public sector has a significant presence in moist of these owning over 50 percent equity in a large number of these companies.
In the new economic policy environment dice is heavily loaded against private enterprise viz a viz foreign capital and enterprise. This is so on the following counts:
Foreign companies have the advantage of business friendly environment in their countries, while Indian private enterprise has still to cope with many controls and regulations.
ii) Indian business companies of high interest rates. High interest rates bring down profits and returns on equity employed. This again hampers its ability to make fresh investments and grow.
iii) Indian business complains of outmoded company law. This makes it difficult for Indian companies to become multinationals in the sense of the term.
iv) Indian business complains of unduly large delays in approvals for land, pollution, etc.
v) The Indian business is captive of its old ways. It is so set in its ways that it cannot get its act together under liberalization. Overawed by threat perception, business only talks of buying back shares of companies under its control. This is its one point programme. Indian business must realize that oligopolistic enterprise with no exportable surplus may be large in a self-sufficient economy but are puny. Unviable, in an economy going global.
vi) Large majority of industrial sectors with high growth potential are faced with legal barriers to growth. Food processing has attracted the highest share of investment but has to cope with a potently outdated food adulteration Act, software industry’s growth is threatened by VSNL’s monopoly over the Internet.In every sector of the infrastructure , the need for governing legislative reform has grown steeply. Consequently, growth in almost all sectors of interest to the private enterprises is paralyzed by the slow development of laws.
7. the issue of disinvestment has raised wider questions such as the need for restructuring PSUs, the extent of disinvestment of government shareholding in operating sectors and the partial / total withdrawal of government from certain industries.
The main dimensions of the disinvestment process are: preparation of the PSU; valuation and finally choosing appropriate disinvestment and sale modalities so as to meet overall goals.
The studies of global experiences indicate that it may often be useful to restructure the PSU before privatization as it can maximize sale proceeds. In particular, restructuring with a clear view to disinvest in a time fashion has been found to enhance share value. On the other hand; if restructuring requires considerable effort, or is laced with uncertainties it has been found prudent to disinvest on an as is where is basis.
Ans. In the mixed economy of India, private sector plays a complementary role to the public sector. Undoubtedly the dice was loaded heavily in favor of the public sector in the strategy of development adopted in our plans, but at no stage the private sector was pushed back to the graveyard . on the contrary, it was explicitly recognized that the private sector possess unparalleled advantage in terms of entrepreneurial talent, skill and initiative. Its basic limitation may be that it may not be in a position to garner large resources required for building up key and basic industries and other industries that require large capital investment. The industrial policy Resolution, 1956, set the mood and tore for future. While reserving the key and basic industries for the public sector it made it clear that the private enterprise and initiative were to be provided all possible opportunities and incentives for growth with in the parameters by planned economic development.
More recently, the new economic policy and the accompanying economic reforms have opened up unlimited opportunities for growth in the private sector.
Entrepreneurial talent is the biggest asset of the private sector . as such all those functions that are expected to be performed by Schumpeterian dynamic entrepreneur during the process of economic growth come to be associated with the private sector.
We can briefly sum up these functions follows:-
(a) To promote new industrial units.
(b) To mobilize financial resources for meeting diverse heads of economy.
(c) To provide managerial skill.
(d) To carry out and intensify industrial research and development programmes so as to promote appropriate technology and help in the modernization of the economy and rationalization of industries.
(e) To facilitate global integration.
Privatization is a term that is employed to convey a variety of ideas such as part or full transfer of public assets to the private sector, providing autonomy in management with respect to investment decisions or liberalization administrative pricing or other controls without change in ownership of assets, dismantling and regulating monopolies owned by the public sector hitherto, the variety of ideas reflects diversity in perceptions regarding privatization. They have resulted partly from political circumstances; partly from country specific attitudes to growth and equity and partly from ethnic preference for foreign capital.
The reasons for growth of private sectors are:-
1. The private enterprise has gained immensely from governments
plan policies. The plans have provided the necessary infrastructure for the development of private business as well as very big market.
2. The Indian domestic market has been completely sheltered since the policy of developing indigenous resources led to almost total banning of such imports as might compete, with the products of local industry. This is the further reason why the private enterprise has been able to make good profits even when some of their products were sub standard.
3. Various developmental and financial institutions have been set up by the Government to see that industries are not standard of legitimate financial needs. These institutions provide long-term loans, underwrite their share and debenture issues, provide feasibility studies and other services relating to their projects. A study of the balance sheet of a large number of companies shows that the finance provided by these institutions has enabled the private sector to grow and prosper.
4. Private sector has received various direct incentives from the government. The finance set has often contained various tax concessions such as tax holiday as regards new undertakings, developmental rebate, etc. income tax Act also provides fiscal incentives to the individual and corporate sectors. State finance Acts have provided facilities to industry regarding land, factory, building, power, etc.
(b) Discuss the problems faced by the private sector.
Ans. Problems faced by the Private sector:-
1. Private sector in India has been operating in an environment heavy taxation before the recent scaling down of tax rates in 1997-98. heavy taxation acted as a disincentive to increased production and immobilized funds which might have focused industrial undertakings.
2. corporate sector, not with sanding all the recent reforms, continues to be subject to a number of restrictions. In a recent study conducted to gauge the extent of economic freedom, India has been ranked a lowly 118th in a list of 150- countries, the world over, India is also way down at the 20th position in the list of 25 countries in the Asia Pacific region.
3. there is heavy dependence of the corporate sector on the financial institutions and other government agencies. A recent study of 400 large companies that account for over 50 per cent of private corporate turnover revealed that the public sector has a significant presence in moist of these owning over 50 percent equity in a large number of these companies.
In the new economic policy environment dice is heavily loaded against private enterprise viz a viz foreign capital and enterprise. This is so on the following counts:
Foreign companies have the advantage of business friendly environment in their countries, while Indian private enterprise has still to cope with many controls and regulations.
ii) Indian business companies of high interest rates. High interest rates bring down profits and returns on equity employed. This again hampers its ability to make fresh investments and grow.
iii) Indian business complains of outmoded company law. This makes it difficult for Indian companies to become multinationals in the sense of the term.
iv) Indian business complains of unduly large delays in approvals for land, pollution, etc.
v) The Indian business is captive of its old ways. It is so set in its ways that it cannot get its act together under liberalization. Overawed by threat perception, business only talks of buying back shares of companies under its control. This is its one point programme. Indian business must realize that oligopolistic enterprise with no exportable surplus may be large in a self-sufficient economy but are puny. Unviable, in an economy going global.
vi) Large majority of industrial sectors with high growth potential are faced with legal barriers to growth. Food processing has attracted the highest share of investment but has to cope with a potently outdated food adulteration Act, software industry’s growth is threatened by VSNL’s monopoly over the Internet.In every sector of the infrastructure , the need for governing legislative reform has grown steeply. Consequently, growth in almost all sectors of interest to the private enterprises is paralyzed by the slow development of laws.
7. the issue of disinvestment has raised wider questions such as the need for restructuring PSUs, the extent of disinvestment of government shareholding in operating sectors and the partial / total withdrawal of government from certain industries.
The main dimensions of the disinvestment process are: preparation of the PSU; valuation and finally choosing appropriate disinvestment and sale modalities so as to meet overall goals.
The studies of global experiences indicate that it may often be useful to restructure the PSU before privatization as it can maximize sale proceeds. In particular, restructuring with a clear view to disinvest in a time fashion has been found to enhance share value. On the other hand; if restructuring requires considerable effort, or is laced with uncertainties it has been found prudent to disinvest on an as is where is basis.
Briefly explain the growth of private sector in India.
Briefly explain the growth of private sector in India. Also mention the major differences between private and public sectors.
A major segment of the organized private sector is the corporate sector. Let us now look at the private corporate sector: As the organized private sector is generally equated with the private corporate 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. Table brings out clearly the growth of the corporate sector in India over the period 1957 to 1991. 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 the rate of growth of public sector companies has been faster than those of the private sector companies. Between 1957 and 1991 the number of government companies increased by nearly 16 times from 74 to 1779. During the same period, the number of non-government companies increased by about 7.5 times only, from 29283 to 219542. As can be seen from table the same is the trend in respect of paid-up capital.
The largest industrial activity among the private sector corporate units in terms of paid-up capital was processing and manufacture of foodstuffs, other processing and manufacture, commerce, agriculture and allied industries, construction, etc.
Selected Growth Rates
Table gives selected growth rates in respect of organized private and public sectors. Nominal sales (value of sales at current prices) in the case of corporate private sector recorded a growth rate of 17.93 per cent during the period 1985 – 1995, while the corresponding growth rate for public sector was 13.18 per cent. Gross fixed assets in the case of private corporate sector recorded an annual growth rate for public sector being 15.1 per cent. Profits before depreciation interest and tax (PBDIT) in the case of private sector grew at an annual average rate of 22.0 per 16.2 per cent. Thus during the recent decade all the growth rates mentioned above are higher in the case of private sector as compared with the public sector.
The public sector is relation to the private sector. Any activity owned, controlled, and managed by the government (Central, State and local) comes under public sector. After the attainment of independence and the advent of planning, there has been a rapid expansion of the scope of the public sector.
There are four types of public sector enterprises in India:
1. Those which are managing by the department (departmental enterprises such as the Indian Railways)
2. Those which are managing by the independent boards.
3. Those which are running as public corporations (which comes into the act of Parliament)
4. Those, which are organising as by the companies (registered under the Companies Act.)
The objectives of the public sector, can be briefly described as:
1. to accelerate the economic growth and industrialisation of the country by creating the necessary infrastructure for development;
2. to promoting the fair distribution of income and wealth, interpersonal as well as inter-regional;
3. to promoting the balanced regional development;
4. to promote the growth of strategic defence-oriented industries;
5. to assist the development of small and ancillary industries;
6. to create employment opportunities;
7. to getted socialist pattern of society;
8. to ignore and circumvent the limitations and abuses of the private sector; and
9. to generate forces of economic and technological self-reliance.
A major segment of the organized private sector is the corporate sector. Let us now look at the private corporate sector: As the organized private sector is generally equated with the private corporate 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. Table brings out clearly the growth of the corporate sector in India over the period 1957 to 1991. 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 the rate of growth of public sector companies has been faster than those of the private sector companies. Between 1957 and 1991 the number of government companies increased by nearly 16 times from 74 to 1779. During the same period, the number of non-government companies increased by about 7.5 times only, from 29283 to 219542. As can be seen from table the same is the trend in respect of paid-up capital.
The largest industrial activity among the private sector corporate units in terms of paid-up capital was processing and manufacture of foodstuffs, other processing and manufacture, commerce, agriculture and allied industries, construction, etc.
Selected Growth Rates
Table gives selected growth rates in respect of organized private and public sectors. Nominal sales (value of sales at current prices) in the case of corporate private sector recorded a growth rate of 17.93 per cent during the period 1985 – 1995, while the corresponding growth rate for public sector was 13.18 per cent. Gross fixed assets in the case of private corporate sector recorded an annual growth rate for public sector being 15.1 per cent. Profits before depreciation interest and tax (PBDIT) in the case of private sector grew at an annual average rate of 22.0 per 16.2 per cent. Thus during the recent decade all the growth rates mentioned above are higher in the case of private sector as compared with the public sector.
The public sector is relation to the private sector. Any activity owned, controlled, and managed by the government (Central, State and local) comes under public sector. After the attainment of independence and the advent of planning, there has been a rapid expansion of the scope of the public sector.
There are four types of public sector enterprises in India:
1. Those which are managing by the department (departmental enterprises such as the Indian Railways)
2. Those which are managing by the independent boards.
3. Those which are running as public corporations (which comes into the act of Parliament)
4. Those, which are organising as by the companies (registered under the Companies Act.)
The objectives of the public sector, can be briefly described as:
1. to accelerate the economic growth and industrialisation of the country by creating the necessary infrastructure for development;
2. to promoting the fair distribution of income and wealth, interpersonal as well as inter-regional;
3. to promoting the balanced regional development;
4. to promote the growth of strategic defence-oriented industries;
5. to assist the development of small and ancillary industries;
6. to create employment opportunities;
7. to getted socialist pattern of society;
8. to ignore and circumvent the limitations and abuses of the private sector; and
9. to generate forces of economic and technological self-reliance.
Tuesday, May 26, 2009
Explain the growth of private sector (using the latest available data).
Explain the growth of private sector (using the latest available data).
A major segment of the organized private sector is the corporate sector. Let us now look at the private corporate sector: As the organized private sector is generally equated with the private corporate 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. Table brings out clearly the growth of the corporate sector in India over the period 1957 to 1991. 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 the rate of growth of public sector companies has been faster than those of the private sector companies. Between 1957 and 1991 the number of government companies increased by nearly 16 times from 74 to 1779. During the same period, the number of non-government companies increased by about 7.5 times only, from 29283 to 219542. As can be seen from table the same is the trend in respect of paid-up capital.
The largest industrial activity among the private sector corporate units in terms of paid-up capital was processing and manufacture of foodstuffs, other processing and manufacture, commerce, agriculture and allied industries, construction, etc.
Selected Growth Rates
Table gives selected growth rates in respect of organized private and public sectors. Nominal sales (value of sales at current prices) in the case of corporate private sector recorded a growth rate of 17.93 per cent during the period 1985 – 1995, while the corresponding growth rate for public sector was 13.18 per cent. Gross fixed assets in the case of private corporate sector recorded an annual growth rate for public sector being 15.1 per cent. Profits before depreciation interest and tax (PBDIT) in the case of private sector grew at an annual average rate of 22.0 per 16.2 per cent. Thus during the recent decade all the growth rates mentioned above are higher in the case of private sector as compared with the public sector.
A major segment of the organized private sector is the corporate sector. Let us now look at the private corporate sector: As the organized private sector is generally equated with the private corporate 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. Table brings out clearly the growth of the corporate sector in India over the period 1957 to 1991. 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 the rate of growth of public sector companies has been faster than those of the private sector companies. Between 1957 and 1991 the number of government companies increased by nearly 16 times from 74 to 1779. During the same period, the number of non-government companies increased by about 7.5 times only, from 29283 to 219542. As can be seen from table the same is the trend in respect of paid-up capital.
The largest industrial activity among the private sector corporate units in terms of paid-up capital was processing and manufacture of foodstuffs, other processing and manufacture, commerce, agriculture and allied industries, construction, etc.
Selected Growth Rates
Table gives selected growth rates in respect of organized private and public sectors. Nominal sales (value of sales at current prices) in the case of corporate private sector recorded a growth rate of 17.93 per cent during the period 1985 – 1995, while the corresponding growth rate for public sector was 13.18 per cent. Gross fixed assets in the case of private corporate sector recorded an annual growth rate for public sector being 15.1 per cent. Profits before depreciation interest and tax (PBDIT) in the case of private sector grew at an annual average rate of 22.0 per 16.2 per cent. Thus during the recent decade all the growth rates mentioned above are higher in the case of private sector as compared with the public sector.
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