It is proper to discuss the role and future of the private sector against the background of socialist pattern of society which is the declared objective of the Government policy in India.
The pattern of socialism that we have envisaged is different from that pursued by many western countries.
Unlike China, India has chosen an economic system that is basically capitalist in character, but it combines this system with a significant degree of state influence, the latter implemented through various types of controls and a state planning system.
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Jawaharlal Nehru, who shaped the destiny of the country for nearly two decades, was not in favour of socialism for its own sake.
He was not in favour of nationalisation of private undertakings until it could be proved that some definite social purpose would be achieved by such nationalisation, a purpose which cannot be secured under private management.
The acceptance of the philosophy of socialist pattern of society by the government has led to a feeling that private sector in the country has a dark future.
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The third Five Year Plan has, however, clearly stated that the socialist pattern of society envisaged in India’s Plans does not imply that all economic initiative must rest with the state.
Indeed it assigns to private enterprise an important role in national development provided it attunes itself to the new philosophy of democratic socialism and operates in unison with the public sector.
In the private sector the enterprise is owned by private persons. In the sphere of private sector, there is the corporate sector with such organisations as public limited companies and private limited companies.
Outside the corporate sector, there are many forms of ownership like single entrepreneur and partnership and trade as also cottage industries. Private sector can be divided into two parts: (i) the organised sector and (ii) the unorganised sector. In the unorganised private sector it is difficult to enforce policy interventions.
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In the mixed economy of India private sector plays a complementary role to the public sector. The government policy was in favour of public sector but the private sector was not pushed aside.
The private sector was assigned valuable status in the mixed economy. The concept of mixed economy adopted by India implied the rejection of the idea of immediate nationalisation of the private sector.
It further implied a regulated private sector and the fast expanding public sector. The 1948 Policy Resolution had stated that private enterprise, properly directed and regulated, has a valuable role to play.
The Industrial Policy of 1956 also reiterated this position by saying that the state will facilitate and encourage the development of the private sector through the provision of various infrastructural facilities.
It was also declared that institutions for financial aid would also be set-up. The aim was to encourage and assist the private sector but at the sometime also control its working in the social interest.
Entrepreneurial talent is the biggest asset of the private sector. In western countries private entrepreneurs have played such an important role in economic development that Schumpeter has characterised them as the initiator and moving force behind the industrialisation process. The private entrepreneur is guided by the profit motive.
He is responsible for the introduction of new products, new techniques of production and new markets. The private entrepreneur acts as an innovator who revolutionizes the entire method of production.
The role played by the private sector in Indian Economy would be clear from the simple fact that even after four decades of planning, the share of this sector in net national product continues to be around 75 per cent. The output in private sector is about four times the output in the public sector.
The private sector is a vast sector. Agriculture is the most important activity in the country and it is completely in private hands. It provides employment to 66.5 per cent of the working population and contributes around 30 per cent of the net domestic product.
But it should be remembered that agriculture is the means of subsistence for the vast majority of small and marginal farmers and it is not conducted on commercial basis.
Secondly, trading activities are mostly concentrated in private hands. This is because of the general belief that the trading community renders useful services and its returns are justifiable.
Private sector in industry can be conveniently classified in three groups: (i) Unorganised industrial units (ii) Small scale industrial units and (iii) Large scale industrial units.
In 1988-89, large units having capital investment of more than Rs. 35 lakh formed only 6.3 per cent of the total industrial units in the country. But these units accounted for 60 per cent of the gross output and 80.1 per cent of the total value added in the factory sector. Thus these large scale industrial units form the backbone of the private sector in India.
Most of the consumer goods industries are generally left to private enterprise. The consumer goods industries are left to private enterprise as this sector has already established itself in some major consumer goods industries like cotton textiles, jute, edible oils etc.
These industries require small capital and yield quick returns. As such these are fit for the private sector. These industries are also regulated with a view to control investment in different industries.
While the large scale private industries are restricted and regulated, the small sector is encouraged to expand in the old field and enter into new spheres.
Quite a large number of products, more than 800, are reserved for this sector. These industries are encouraged for being labour-absorbing industries as also those that can be easily dispersed over space.
The general pattern of development of the corporate form in India is similar to that in the western countries. The methods of growth have been through diversification, integration, acquisition and merger.
Crossing international borders in joint ventures to other countries is also in progress. Most of the growth in the corporate sector has been through foreign collaboration in technology and sometimes capital also and rarely through innovation by means of internal research and developing technology.
The hereditary succession is still very powerful, though a professional managerial class is slowly evolving. Some authorities even equate private sector to the ‘family sector’ in view of the widespread prevalence of family management in large companies.