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India's growth? Private sector to the fore

By Business Standard
Last updated on: July 07, 2010 16:28 IST
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India needs a balanced growth of both the private and public sectors, says Business Standard.

Some called it the 'mixed economy', some called it the 'mixed-up economy', some others termed it state capitalism and some even dubbed it a 'bureaucratic socialist' economy.

For the first 50 years after Independence, the Indian economy has been described by many epithets. The bottom line was, of course, the fact that a large part of India's modern industrial and services economy was in the public, or state, sector.

While the agricultural economy was largely characterised by private ownership, manufacturing was predominantly in the public sector till the 1980s, and following the nationalisation of banks, the financial sector too was dominated by state-owned institutions.

All that began to change in the 1980s. The 1990s witnessed dramatic changes in policy and the unleashing of Indian enterprise.

However, it is only since 2000 that private Indian enterprise has come into its own.

As a recent report in this newspaper (June 26, 2010) showed, in the decade 2000-2010, the private corporate sector overtook the public sector both in terms of net sales and net profits. The private sector's share in the net sales of manufacturing and services sector output increased from 48.83 per cent in 2000-01 to 68.55 per cent in 2009-10, with the public sector's share consequently falling from 51.17 per cent to 31.45 per cent.

Similarly, the private sector's share of net profit in the non-agricultural economy increased from 39.17 per cent to 63.86 per cent for the same period, with a decline in public sector share from 60.83 per cent to 36.14 per cent.

In short, the past decade has seen India's "mixed economy" become an essentially private enterprise economy. Thousands of entrepreneurs, led by some inspiring leaders who have acquired a global footprint, are driving the growth process in India.

Several factors, both positive and negative, explain this phenomenon. On the positive side is the rise of Indian enterprise, especially in the energy, telecommunications, civil aviation, manufacturing, finance and banking and information technology sectors.

The sharp increase in foreign direct investment during this decade has also contributed to the increase in the share of the private sector in national income, sales and profits.

On the negative side, the inability of the public sector to generate internal resources for growth and the fiscal constraints on government that have contributed to a decline in public investment have contributed to a decline in the share of the public sector.

While the dynamism and the growth of private enterprise are cause for celebration, the sluggishness of public investment is a matter of concern. India needs more public investment, especially in social and economic infrastructure, to sustain upwards of 9 per cent national income growth and also to fuel private sector dynamism.

Most developed market economies also have a substantial public sector, especially in infrastructure, public services and defence. As a developing economy striving to industrialise and generate employment, India needs a balanced growth of both the private and public sectors.

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