Public sector is considered a powerful engine of economic development and an important instrument of self-reliance

Economic Growth and Economic Development

A country's economic health can usually be measured by looking at that country's economic growth and development. This lesson defines and explains economic growth and economic development, including the role of U.S. foreign aid.

Economic Growth

A country's general economic health can be measured by looking at that country's economic growth and development. Let's take a separate look at what indicators comprise economic growth versus economic development.

Let's first examineeconomic growth. A country's economic growth is usually indicated by an increase in that country'sgross domestic product, orGDP. Generally speaking, gross domestic product is an economic model that reflects the value of a country's output. In other words, a country's GDP is the total monetary value of the goods and services produced by that country over a specific period of time.

Economic Development

Now let's take a look ateconomic development. A country's economic development is usually indicated by an increase in citizens' quality of life. 'Quality of life' is often measured using theHuman Development Index, which is an economic model that considers intrinsic personal factors not considered in economic growth, such as literacy rates, life expectancy and poverty rates.

While economic growth often leads to economic development, it's important to note that a country's GDP doesn't include intrinsic development factors, such as leisure time, environmental quality or freedom from oppression. Using the Human Development Index, factors like literacy rates and life expectancy generally imply a higher per capita income and therefore indicate economic development.

economic development of India

The economic development of India was dominated by socialist-influenced policies, state-owned sectors, and red tape & extensive regulations, collectively known as "License Raj". It led the country and its economy isolated from the world economy. However the scenario started changing from the mid-1980s, when India began opening up its market slowly through economic liberalization. The policy played a huge impact on the economic development of India. The Indian economic development got a boost through its economic reform in 1991 and again through its renewal in the 2000s. Since then, the face of economic development of India has changed completely.

The economic reform of 1991 played a pivotal role in the economic development of India. Reaping its benefit, the growth of the country reached around 7.5% in the late 2000s. It is also expected to double the average income within a decade. According to the analysts, if India can push more fundamental market reforms, it will be able to sustain the rate and can even achieve the government's target of 10% by 2011.

India's Economic Development: Role of States

India is world's 12thlargest economy and also the 4th largest in terms of purchasing power parity adjusted exchange rates (PPP). It is the 128th largest in the world on per capita basis and 118th by PPP. However, states have a major role to play in the economic development of India. There are few states which have higher annualized 1999-2008 growth rates comparing to others. The growth rates for the states like Gujarat (8.8%), Haryana (8.7%) and Delhi (7.4%) are considerably higher than other states like Bihar (5.1%), Uttar Pradesh (4.4%) and Madhya Pradesh (3.5%).

Economic Development the Decisive Factors

The economic development of India largely depends upon a few factors, which prove to be decisive. According to the World Bank, for a better economic development, India needs to give due priorities in various issues like infrastructure, public sector reform, agricultural and rural development, reforms in lagging states, removal of labor regulations and HIV/AIDS.

Agriculture

Agriculture, along with other allied sectors like fishing, forestry, and logging play a major role in the economic development in India. In 2005, these sectors accounted for almost 18.6% of the GDP. India holds the second position worldwide in terms of farm output. It also generated works for 60% of the total workforce. Though, currently seeing a steady decline of its share in the GDP, it is still the largest economic sector of the country.

In India, a steady growth has been observed in the yields per unit area of all the crops since 1950. And the reason behind this is the fact that, special emphasis was given on agriculture in the five-year plans. In 1965, the country saw green revolution. Improvements came in the various areas like irrigation, technology, provision of agricultural credit, application of modern agricultural practices and subsidies.

India has done considerably well in agriculture and allied sectors. The country is the worlds largest producer of tea, coconut, cashew nuts, black pepper, turmeric, ginger and milk. India also has the largest cattle population in the world. It is worlds second largest producer of sugar, rice, wheat and inland fish. It is in the third position in the list of tobacco producers in the world. India also produces 10% of the overall fruit production in the world, holding the first position in banana and sapota production.

Industrial Output

India occupies 14th position in the world in industrial output. The manufacturing sector along with gas, electricity, quarrying and mining account for 27.5% of the countrys GDP. It also employs 17% of total workers. The economic reforms of 1991 brought a number of foreign companies to the Indian market. As a result, it saw the privatization of several pubic sector industries. Expansion in the production of FMCG (Fast-moving Consumer Goods) started taking place. Indian companies started facing foreign competitions, including the cheap Chinese imports. However, they managed to handle it by cutting down costs, refurbishing management, banking on technology and low labor costs and concentrating on new products designing.

Services

In services output, India occupies 15th spot in the world. Around 23% of the total workforce in India works in service industry. This is also the sector which provides quick growth with a growth rate of 7.5% during 1991-2000 from 4.5% in 1951-80. With a substantial growth in IT sector, a number of foreign consumers showing interests in Indias service exports as India has got low cost, educated, highly skilled workers in abundance. Besides this, ITES-BPO sector has also become a big source of employment for a number of youths.

Banking and Finance

Since liberalization, India has seen substantial banking reforms. On one hand, one could see the mergers of banks, competitiveness and reducing government interference, on the other hand one can also see the presence of several private and foreign players in the banking and insurance sectors. Currently the banking sector in India has got maturity in terms of supply, reach-even and product range. The Indian banks are also said to have clean, transparent and strong balance sheets comparing to their Asian counterparts.

Comparison chart

Economic DevelopmentEconomic Growth

ImplicationsEconomic development implies changes in income, savings and investment along with progressive changes in socio-economic structure of country (institutional and technological changes).Economic growth refers to an increase in the real output of goods and services in the country.

FactorsDevelopment relates to growth of human capital indexes, a decrease in inequality figures, and structural changes that improve the general population's quality of life.Growth relates to a gradual increase in one of the components of Gross Domestic Product: consumption, government spending, investment, net exports.

MeasurementQualitative.HDI (Human Development Index), gender- related index (GDI), Human poverty index (HPI), infant mortality, literacy rate etc.Quantitative. Increases inreal GDP.

EffectBringsqualitative and quantitativechanges in the economyBrings quantitative changes in the economy

RelevanceEconomic development is more relevant to measure progress and quality of life in developing nations.Economic growth is a more relevant metric for progress in developed countries. But it's widely used in all countries because growth is a necessary condition for development.

ScopeConcerned with structural changes in the economyGrowth is concerned with increase in the economy's output

Difference between Economic Growth and Development

Economic growth measures an increase in Real GDP. (real Output). GDP is a measure of the national income / national output and national expenditure. It basically measures the total volume of goods and services produced in an economy.

Economic Development

Development looks at a wider range of statistics than just GDP per capita. Development is concerned with how people are actually affected. It looks at their actual living standards

Measures of economic Development will look at:

Real income per head GDP per capita

Levels of literacy and education standards

Levels of health care e.g. number of doctors per 1000 population

Quality and availability of housing

Levels of environmental standards

Factors affecting Economics growth in developing countries

Levels of infrastructure e.g. transport and communication

Levels of corruption

Educational standards and labour productivity

Labour mobility

Flow of foreign aid and investment

Level of savings and investment

Economic Growth without Development

It is possible to have economic growth without development. i.e. an increase in GDP, but most people dont see any actual improvements in living standards.

1. Economic growth may only benefit a small % of the population. For example, if a country produces more oil, it will see an increase in GDP. However, it is possible, that this oil is only owned by one firm, and therefore, the average worker doesnt really benefit.

2. Corruption. A country may see higher GDP, but the benefits of growth may be siphoned into the bank accounts of politicians

3. Environmental problems. Producing toxic chemicals will lead to an increase in real GDP. However, without proper regulation it can also lead to environmental and health problems. This is an example of where growth leads to a decline in living standards for many.

4. Congestion. Economic growth can cause an increase in congestion. This means people will spend longer in traffic jams. GDP may increase but they have lower living standards because they spend more time in traffic jams.

5. Production not consumed. If a state owned industry increases output, this is reflected in an increase in GDP. However, if the output is not used by anyone then it causes no actual increase in living standards.

6. Military Spending. A country may increase GDP through spending more on military goods. However, if this is at the expense of health care and education it can lead to lower living standards.

National Income is the money value of all final goods and services produced in an economy during a financial year. At the level of an economy, value of fined goods and services is equal to the total income of all factors of production viz labour, capital, land and entrepreneurship.

This total income is equal to total expenditure on goods and services. Therefore, in an economy,

There are different measures of national income like Gross National Product (GNP), Net National Product (NNP), Gross Domestic Product (GDP), Net Domestic Product (NDP), etc.

These are often used interchangeably though conceptually there is some difference among them. Difference between GNP and NNP arises because of depreciation (consumption of fixed capital).

Reasons for Growing Importance of National Income

The growing importance of national income studies in recent years is due to the following reasons:National Income is generally believed to be the most important single index of the overall economic situation of a country and as such commands a great deal of public interest. An individual as well as the government, have to maintain the accounts of their incomes and expenditures in one form or another. They must have a clear idea as to the sources of income and the heads of expenditure.

Accounts maintained by private individuals are called Private Accounting, whereas the account of the entire economy is called Social Accounting. In order to have an accurate idea of the economic progress in different sectors and sub-sectors of an economy it is but essential to maintain social or national accounts. It is the foremost duty of a welfare government to know the changes in national income and per capita real income in order to have a proper assessment of the economic progress in the economy.

Since the publication of Keynes General Theory of Employment, Interest and Money in 1936, there has been a change over from micro-analysis to macro-economy considerations like the aggregate national income, national consumption, national saving and investment. There is a shift from the constituent parts of an economy to the economy as a whole.

The development of modern macro-economic analysis has assumed great importance after the publication of Keynes General Theory. Before its publication, the study of national income remained confined to a few academic scholars. The study of national income is basic to study of Keynesian theory of employments as the total performance of an economy is judged by an increase in income and employment.

The preparation of social accounts is by no means as easy task, as there is good deal of dependence on statistical data. Such bodies of data, treating different aspects of the nations economic activity are the national income and product accounts, the input output table, the flow of funds statements, the balance of payments and the national balance sheets.

1.Economic policy:National income figures are an important tool of macro-economic analysis and policy, national income estimates are the most comprehensive measures of aggregate economic activity in an economy. It is through such estimates that we know the aggregate yield of the economy and lay down future economic policy for development.

2.Economys structure:National income statistics enable us to have a correct idea about the structure of the economy. It enables us to know the relative importance of the various sectors of the economy and their contribution towards national income. From these studies we learn how income is produced and how it is distributed, how much is spent, solved or taxed.

3.Economic planning:National income statistics are the most important tools for long-term and short- term economic planning. A country cannot possibly frame a plan without having a prior knowledge of the trends in national income. The Planning Commission in India also kept in view the national income. The national income estimate before formulating the five year plans.

4.Inflationary and deflationary gaps:National income and national product figures enable us to have an idea of the inflationary and deflationary gaps. For accurate and timely anti-inflationary and deflationary policies, we need regular estimates of national income.

5.National expenditure:National income studies show as to how national expenditure is dividend between consumption expenditure and investment expenditure. It enables us to provide for reasonable depreciation to maintain the capital stock of a community. Too liberal allowance of depreciation may prove harmful as it may unnecessarily lead to a reduction in consumption.

6.Distribution of grants-in aid:National income estimates help a fair distribution of grants-in-aid by the federal governments to the state governments and other constituent units.

7.Standard of living:National income studies help us to compare the standards of living of people in different countries and of people living in the same country at different times.

8.International sphere:National Income studies are important even in the international sphere as these estimates not only help us to fix the burden of international payments equitably among different nations but also they enable us to determine the subscriptions of different countries to international organizations like U.N.O., I.M.F., I.B.R.D., etc.

9.Budgetary policies:Modern governments try to prepare their budgets within the framework of national income data and try to formulate anti- cyclical policies according to the facts revealed by the nation income estimates. Even the taxation and borrowing policies are so framed as to avoid fluctuations in national income.

10.Public sector:National income figures enable us to know the relative roles of public and private sectors in the economy. If most of the activities are performed by the state, we can easily conclude that public sector is playing a dominant role.

11.Defence and development:National income estimates help us to divide the national product between defense and development purposes. From such figures, we can easily know how much can be spread for war by the civilian population.

Today, national income statistics are collected by all the countries of the world for a number of years. Raising national income is the important goal of all economic activity. Economic welfare of a country depends upon what goods and services are available for the consumption of its individuals. The changes in national income statistics show how the economy is developing and enables the government to lay down the appropriate economic policy necessary under the circumstances. With the help of national income statistics it is possible to chart cyclical movements, find out the inflationary gap, measure economic growth and development, and evaluate the countrys material standard of living in comparison with other countries. The following are the main uses of national income.

1. Since income is a flow of wealth changes in the national income give some indication of economic welfare.

2. National income is used to compare standards of living in different countries.

3. National income figures are used to measure the rate of growth of a country.

4. The national income accounts make it possible for an analysis of the behaviour of the different sectors of the economy.

5. Inflationary and deflationary pressures can be estimated with the help of national income statistics.

6 National income statistics can be used to forecast the level of business activity at later date, and to find out trends in other annual data.

7. The national income figures are useful in providing a correct sense of proportion about the structure of the economy.

8. In war time, the study of components of national income is of great importance because they show the maximum possible production possibilities of the country.

9. National income statistics can be used to determine how an international financial burden should be an apportioned between different countries. The quantum of national income measures the ability of a country to pay contributions for international purposes, just as the income of a person measures his ability to pay for the upkeep of his country.

10. Above all the national income statistics are used for planned economic development of a country. In the absence of such data, planning will not be possible.

Methods of measuring national income:-

1.income method:-

In this method, we measure national income on the basis of factor incomes of people, business organization and the government of the country. The factor incomes mean rent, wage, interest and profit. These are the payments made to or received by land, labor, capital and organization respectively and is used in the country in a year. Moreover, we add net factor incomes earned from abroad. There are people self-employed too. Their income is in mixed form. Thats; why, it is added separately. Profit, interest and rent earned by government in a year is added as property and entrepreneurial income of government. The savings of non-departmental organizations too is added separately as factor income. The sum of factor incomes in the country gives NDP at FC. To NDP at FC we add net factor income from abroad and we get NNP at FC or NI as following.

2.expenditure method

in this method, national income is calculated summing up the expenditures of household sector, business sector, government sector and foreign trade sector. The expenditures of these sectors are called consumption expenditure, investment expenditure, government expenditure and net export. However, the expenditure may be on goods produced in previous years. Thats why; we adjust it subtracting opening inventory and adding closing inventory. If we sum op the expenditures we obtain GDP at MP .then from GDP at MP we subtract depreciation and net indirect tax as following to get NI

Consumption expenditure of household sectorXXXX

Government expenditure on final goodsXXXX

Investment expenditure ( private +public)XXXX

Foreign trade sector (export-import)XXXX

Change in inventory (closing-opening)XXXX

Gross domestic product at market priceXXXX

Less: depreciationXXXX

Net factor income from abroadXXXX

Less: net indirect taxXXXX

National incomeXXXX

3.Product method:

In this method, we measure NI on the basis of monetary values of final products or value added in each stage of production and distribution. The economy (country) is divided into 3 different sectors namely: primary, secondary, tertiary.Primary: agriculture, forestry, livestock rearing etc.secondary: health, sanitation, transportation, education etctertiary: tourism, sports, music etc.

Types of method

A. final product method

In this method, NI is measured on the basis of monetary values of final product. Firstly, we find monetary values of final product of primary, secondary and tertiary sectors. Sum of the final products gives GDP at MP. To GDP at MP we add net factor income from abroad and from it we subtract depreciation and net indirect tax to find NI.

Final product of primary sectorXXXX

Final product of secondary sectorXXXX

Final product of tertiary sectorXXXX

GDP at MPXXXX

DepreciationXXXX

Net indirect taxXXXX

Net factor income from abroadXXXX

NIXXXX

B. value added method:

In this method, NI is measured adding the values added in each stage of production and distribution. Firstly we add values added in primary, secondary and tertiary sectors. Sum gives GDP at FC. From that we subtract depreciation and to it we add net factor income from abroad to find NI.

Value added in primary sectorXXXX

Value added in secondary sectorXXXX

Value added in primary sectorXXXX

GDP at FCXXXX

DepreciationXXXX

Net factor income from abroadXXXX

NIXXXX

Thus, these are the methods of measuring national income

There are many non monetary income and output in developing countries like owner occupied house, self consumed agriculture products etc. due to non monetary nature they arent included in national income

2.Problems of double counting

Only final goods and services should be included in national income. But it is arduous to distinguish between final goods and intermediate goods. Intermediate goods also can be used for final consumption. There are possibilities of double counting

3.Underground economy

Under ground economy consists of illegal transactions like drugs, gambling, smuggling etc. they are not included in national income thus income become less than actual amount

4.Petty production

There are large numbers of petty producers and it is difficult to include their production in national income because they dont maintain any account.

5.Public services

Public services like general administration, police, and army services are difficult to evaluate and they become hard to include in national income accounting

6.Illiteracy and ignorance

If majority of people are illiterate and ignorant, they cant keep the records of production activities accurately. Hence, it is difficult to get correct information.

7.Capital gains or losses

When price of any assets alters then owner can make gains or losses. Such gains or losses are not included in national income.

8.Wages and salaries paid in kind

Payments made in kind maynt be included in national income. But facilities given in kind are calculates as supplements of wages and salaries on the income side

9.Conceptual problem

The major obstacles is whether to include the income generated within country or even generated abroad in national income and which method should be used in measuring national income

10.Transfer payments

Individual get pension, unemployment, allowance, windfall gains, subsidies on many measures , but they create difficulty in the measurement of national income.

difficulties in calculation of national income?

The measurement of national income is beset with difficulties. In under developed countries these difficulties are more prominent. The difficulties in calculation of national income can be discussed as follows:

Conceptual difficulties: there has been a difference of opinion regarding the term nation in the concept of national income. It has to define exactly, whether it is geographical entity of the country or the nationals including those residing abroad. Since national income constitutes a quantitative measure of economics activity rather than verbal description. Since everything has to be equated to the money value, services produced in economy for love of humanity, affection and philosophy could not be taken into consideration in calculating national income.

Overlapping of occupations: in backward economies there is an overlapping of occupation in rural sector which makes it difficult to know the income by origin. A worker in a peak season works in a farm, drives a country cart in off season. Takes up unskilled work, etc. similarly, the village money lender combines his profession with the cultivating of his farm.

Difficulty in value estimation:in backward areas, the cultivators, artisans and cottage industry workers do not have a fair idea of the expenses of their occupation. Hence the net value of their products cannot be estimated precisely.

Non- monetized sector:barter dealing and non-monetized sector creates the problem of inputting the value of their produce and services and by guess work and approximation.

Incomplete government records:due to ignorance and illiteracy in backward areas, the data may not be available and if available, may be unreliable. Also, the figures furnished by government officials may not be from reliable sources and data is not current.

Problems in agricultural sector:in agricultural activities there is a good deal of guess work in data relating to cropwise production and in figures relating to animals and forest products.

Problems in industrial sector:data relating to output, cost, etc. are available only in big units. The small units do not maintain these figures correctly. The village money lenders and indigenous bankers maintain absolute secret of their and they do not furnish correct information.

Non-applicability of a uniform formula: in a big country where wide disparities and regional differences, a uniform formula cannot be applied. The data of one region cannot be applied to another region with minor modification. Every region would be a separate entity requiring specialized approach suited only to that region.

Double-counting:the error of double-counting is another obstacle to be avoided in the calculation of national income.

Inefficient data collection:the machinery for collecting statistical data may not be efficient. The investigators, preparation of adhoc figures, making sample surveys, etc.uses of national income statistics?

National income figures help governments in planning, policy making, preparation of budgets and forecasting the level of economic activity.

Formulation of economic policies:national income statistics are valuable instruments of economic analysis and a guide to economic policies to be pursued. It is more useful in context of planning and formulation of realistic plans.

Studying economic structure: it gives an idea of the structure of the economy. It helps to make inter- sectoral comparisons and to study the rate of growth of the economy. The growth of national income is an index of the growth of the productive capacity of an economy.

Inter- sectoral comparisons:it helps to study inter-sectoral growth. Such comparisons are useful. Share of various sectors can be studied to find out structural defects and weaknesses of the economy.

Indicator of economic welfare:it enables us to study per capita income or per capita consumption which are general indicators of economic growth. But it is not helpful in revealing distribution of income in the society.

Making international comparisons: national income estimates enables us to make international comparisons and standard of living of people.

Contribution to international institutions:it shows the capacity of a country to bear some common burden of international institutions like the U.N.O.

Trends in National Income Growth in India since 1951

1950 to mid-1970s: Income poverty reduction shows no discernible trend. In 1951, 47% of India's rural population was below the poverty line. The proportion went up to 64% in 1954-55; it came down to 45% in 1960-61 but in 1977-78, it went up again to 51%.

Mid-1970s to 1990: Income poverty declined significantly between the mid-1970s and the end of the 1980s. The decline was more pronounced between 1977-78 and 1986-87, with rural income poverty declining from 51% to 39%. It went down further to 34% by 1989-90. Urban income poverty went down from 41% in 1977-78 to 34% in 1986-87, and further to 33% in 1989-90.After 1991: This post-economic reform period evidenced both setbacks and progress. Rural income poverty increased from 34% in 1989-90 to 43% in 1992 and then fell to 37% in 1993-94. Urban income poverty went up from 33.4% in 1989-90 to 33.7% in 1992 and declined to 32% in 1993-94 Also, NSS data for 1994-95 to 1998 show little or no poverty reduction, so that the evidence till 1999-2000 was that poverty, particularly rural poverty, had increased post-reform. However, the official estimate of poverty for 1999-2000 was 26.1%, a dramatic decline that led to much debate and analysis. This was because for this year the NSS had adopted a new survey methodology that led to both higher estimated mean consumption and also an estimated distribution that was more equal than in past NSS surveys. The latest NSS survey for 2004-05 is fully comparable to the surveys before 1999-2000 and shows poverty at 28.3% in rural areas, 25.7% in urban areas and 27.5% for the country as a whole, using Uniform Recall Period Consumption. The corresponding figures using the Mixed Recall Period Consumption method was 21.8%, 21.7% and 21.8% respectively. Thus, poverty has declined after 1998, although it is still being debated whether there was any significant poverty reduction between 1989-90 and 1999-00. The latest NSS survey was so designed as to also give estimates roughly, but not fully, comparable to the 1999-2000 survey. These suggest that most of the decline in rural poverty over the period during 1993-94 to 2004-05 actually occurred after 1999-2000.Role of agriculture in Indian economyAgriculture is the main sector of Indian economy which is amply powered by the following points:-

1. Share in National Income: The contribution from agriculture has been continuously falling from 55.1% in 1950-51 to 37.6% in 1981-82 & further to 18.5% in 2006-07. But agriculture still continues to be the main sector because it provides livelihood to a majority of the people.

2. Largest Employment Providing Sector: in 1951, 69.5% of the working population was engaged in agriculture. This percentage fell to 66.9% in 1991 & to 56.7% in 2001. However, with rapid increase in population the absolute number of people engaged in agriculture has become exceedingly large.

3. Provision of Food Surplus to the Expanding Population: Because of the heavy pressure of population in labor-surplus economies like India & its rapid increase the demand for food increases at a fast rate. Therefore, unless agriculture is able to continuously increase its surplus of food-grains, a crisis is likely to emerge. Experts foresee that by the end of 11th five year plan (i.e., 2011-2012), the demand for food-grains is expected to increase to 280.6 million tons. Meeting this demand would require 2% growth per annum. The challenge facing the country is clear as during the last 10 years the food-grains have been growing at a meager 0.48%.

4. Contribution to Capital formation: There is a general agreement on the importance of Capital Formation in economic development. Unless the rate of Capital Formation increases to a sufficient high degree, economic development cannot be achieved. Agriculture can play a big role in pushing the Capital Formation in India. Rural sector can transfer labor & capital to the industrial sector which can be effectively used to increase the productivity in the latter.

5. Providing Raw Material to industries: Agriculture provides raw materials to various industries of national importance. Sugar industry, Jute industry, Cotton textile industry, Vanaspati industry are examples of some such industries which depend on agriculture for their development.

6. Market for Industrial Products: Since more than two-thirds of the population of India lives in rural areas, increased rural purchasing power is a valuable stimulus to industrial development.

7. Importance in International Trade: Agriculture constitutes about 75% of the total exports of the country. Such is the importance of agriculture as far as earnings of foreign exchange are concerned.Industrialization in India from the late 1800s to 1947Introduction In 1750, India produced nearly 25 % of the world's manufacturing output and was only outdone by China, which constituted 32.8 %. By 1880 however, India only took up 2.8 % of world exports(1), and after its independence from British colonization in 1947, it was one of the most poverty-stricken regions in the world. India's economic deterioration is particularly ironic, considering the industrial boom that Britain experienced during the same era(2). Nevertheless, from 1750 to 1947 India experienced modernization of its economy in various areas including agriculture, factory production, finance, and even film production. Though India did lose its edge in the textile trade and did in fact experience de-industrialization(3), its thriving "Bollywood" cinema market and automobile production in Hindustan are some notable examples of economic modernization.

IndustrializationIndustrialisation is the process of manufacturing consumer goods and capital goods and of building infrastructure in order to provide goods and services to both individuals and businesses. As such Industrialisation plays a major role in the economic development of underdeveloped countries likeIndiawith vast manpower and varied resources.

phases of Industrialization

The process of industrialization, thoughcomplex,can be divided into three distinct phases.

The first phases consists in a division of labor. Doing so allows not only for the production of a diverse array of products but also for the development of specialization within the working population. The operational level of this phase remains rather small.

The second phase of industrialization, however, allows the process to increase in scale. During the second phase, workers who have developed specializations during the course of the first phase are gathered into a collective setting: factories. The presence of factories in the industrial process certainly increases the efficiency with which workers finish their products. In addition, factories allow for much greater productivity. This phase marks the beginnings of large scale - and even national - labor and industrial systems.

The third phase of industrialization capitalizes on the results of the first two. Where the second phase introduces the increased efficiency and productivity of the factory environment, the third phase introduces machinery into the mix. This further increases productivity and efficiency, and the design of machinery also contributes to the importance of specialization in industry. The presence of machines also marks the culmination of large scale industry.

Need for Industrialisation in India

Industrialization plays a significant role in the process of economic development. The examples of developed countries indicate that there is a direct relationship between high level of income and industrial development.

The less developed countries are generally primary producers and import industrial output. With industrialization of their own economy they need not import industrial product from outside and this helps in reducing the trade gap.

Industrialization also helps in satisfying a variety of demands of the consumer's. With modernization of the economy the demand for industrial product has increased considerably. Industrialization brings a change in the socio-cultural environment of the economy. It makes people dynamic, hard-working, mobile, skillful, efficient, and punctual. It brings a change in the way-of life of the people and makes people more commercial. It also provides security to the economy by making it self-dependent.

Thus industrialization in a nutshell acts as a catalyst in the smooth process of economic development.

ROLE OF INDUSTRIALISATION IN INDIA

1. Raising Income:The first important role is that industrial development provide a secure basis for a rapid growth of income. The empirical evidence suggests a close correspondence between the high level of income and industrial development. In the industrially developed countries, for example, the GNP per capita income is very high at around $ 28,000. Whereas for the industrially backward countries it is very low at around $ 400 only.2.Changing the Structure of the Economy:In order to develop the economy underdeveloped countries need structural change through industrialization. History shows that in the process of becoming developed economy the share of the industrial sector should rise and that of the agricultural sector decline. This is only possible through deliberate industrialization. As a result, the benefits of industrialization will trickle down to the other sectors of the economy in the form of the development of agricultural and service sectors leading to the rise in employment, output and income.3. Meeting High-Income Demands:Beyond certain limits, the demands of the people are usually for industrial products alone. After having met the needs of food, income of the people are spent mostly on manufactured goods. This means the income-elasticity of demand for the manufactured goods is high and that of agricultural products is low. To meet these demands and increase the economys output underdeveloped countries need industrialization.4. Overcoming Deterioration in the Terms of Trade:Underdeveloped countries likeIndianeed industrialization to free themselves from the adverse effects of fluctuations in the prices of primary products and deterioration in their terms of trade. Such countries mainly export primary products and import manufactured goods. The prices of primary products have been falling or are stable whereas the prices of manufactured products have been rising. This led to deterioration in the terms of trade of the LDCs. For economic development such countries must shake off their dependence on primary products. They should adopt import substituting and export oriented industrialization.5. Absorbing Surplus Labour (Employment Generation):Underdeveloped countries likeIndiaare characterized by surplus labour and rapidly growing population. To absorb all the surplus labour it is essential to industrialise the country rapidly. It is the establishment of industries alone that can generate employment opportunities on an accelerated rate.6. Bringing Technological Progress:Research and Development is associated with the process of industrialization. The development of industries producing capital goods i.e., machines, equipment etc., enables a country to produce a variety of goods in large quantities and at low costs, make for technological progress and change in the outlook of the people. This results in bringing about an industrial civilization or environment for rapid progress which is necessary for any healthy economy.7. Strengthening the Economy:Industrialisation of the country can provide the necessary elements for strengthening the economy. In this regard the following points may be noted.(a) Industrialisation makes possible the production of goods like railways, dams, etc. which cannot be imported. These economic infrastructures are essential for the future growth of the economy.(b) It is through the establishment of industries that one can impart elasticity to the system and overcome the historically given position of a primary producing country. Thus, with industrialization we can change the comparative advantage of the country to suit its resources and potentialities of manpower.(c) Through industrialization the requirements for the development of agriculture can be met. For example, improved farm-implements, chemical fertilizers, storage and transport facilities, etc., appropriate to our own conditions can be adequately provided only by our own industries.(d) The industrial development imparts to an economy dynamic element in the form of rapid growth and a diversified economic structure which make it a progressive economy.(e) Providing for Security: Industrialisation is needed to provide for the countrys security. This consideration becomes all the more critical when some international crisis develops. In such situation, dependence of foreign sources for defence materials is a risky affair. It is only through industrial development in a big way that the national objective of self-reliance in defence materials can be achieved.

Latest Trends Of Industrialization In India

India has seen a rapid rise inindustrialisationin the past few decades, due its expansion in markets such as pharmaceuticals, bio-engineering,nuclear technology,informaticsand technology-oriented higher education. These latest trends have made India more globally-minded as their desire to trade with the world increases.

It is said that India has deliberately targeted markets they know they can make instant in-roads into. Industries such as pharmaceuticals and bio-engineeringhave been seen as ideal in increasing thenational incomeusing the country's new-found expertise. Also, India now exports a whole variety of products and knowledge, including petroleum products, textile goods, jewellery, software,engineeringgoods, chemicals, and leather merchandise.

There are a lot of comparisons drawn between India'sindustrialisationmodel and that of China. Both countries have realised the importance of theexport marketand how to capitalise on their huge workforces - allowing them to become leading powers in the global market on several fronts. Western countries look favourably to countries such as India and China due to their lowproduction costsin comparison to European and US prices; again a favourable characteristic allowing the countries to build their economies.

Theindustrialisationof India looks set to continue for some time and the result could well be that India becomes a major player in manyglobal marketsin the future.

Impacts of Industrialization in IndiaIndia is a predominantly agricultural country. The well-being of Indian economy is directly connected with the welfare of her masses dwelling in the rural areas. With the scientific and industrial development, we had to adopt a vigorous industrial policy.The introduction of heavy industries have both positive and negative impact on Indian society and economy.

Government launched massive economic reforms:Our Government introduced New Economic Policy in 1991. Thevigorous economic Plansenshrined theindustrial schemes and projects.

Positive Impact of Industrialization

Low cost of production:The introduction of industries have led to the decrease in the cost of production of many essential items. The decrease in cost is the result of economy of Large scale production.Itallowsto savetimeandlabour.Industrial goods have become more affordable for common people.

Self-sufficient:Before independence, we used to spend hundreds of millions of rupees over import of cloth only, as we had no heavy industries in the real sense of the term. With the advancementof textile industry in our country, we are able to manufacture clothes at a much lower cost. In this way, we made ourselves self-sufficient in providing our basic needs.

Employment:Large industries need thousands of skilled and semi-skilled workers. It providesmassive employment opportunity for a large chunk of people.

Improved Agriculture:In the modern age efficient agricultural system is that, which is done with the help of machine and mechanical devices. For this purpose, we have to adopt the latest Industrial system.

Defenseand security:But we must keep pace with the march of time. We have to defend our country against foreign aggression. We must manufacture latestweapons, for it is most unwise to depend upon foreign aid for defense of ones country.

Negative Impact of IndustrializationMechanized, heavy and large-scale industries have negative impact which adversely affects the environment, society and economy of this country.

Decline of cottage industry:Throughout, India has been proud of her rural cottage industries. The silk produced by the village-weavers had been a source of attraction all over the world. With the advent of heavy mechanical industries began the chapter of the decline of our village cottage industries.

Mass migration from rural areas:Another attack is that with the creation of heavy mechanized industries in the urban areas, the rural population would start mass-migration into town and cities, thereby making the unemployment problem more acute and complex.

Depletion of natural resources:Due to industrialization, there is constant depletion of natural resources. Many industries are powered by thermal power plants that consumes coal. Since, large industries are spread over many acres of land, agricultural lands and forests are often cleared to make available the required land.

Pollution:Largeindustries emits many harmful gases into the environment. The introduction of harmful chemicals into air leads to air-pollution. The noises that it produces leads to noise-pollution.

Increaseof war-like situation:Out of the degenerating effects of heavy industries is born contention. In developed nations, most of these Heavy industries are engaged in the production of war materials. With a lot of war weapons in hands, there has been an increase in war-like situation among countries.

Problems of Industrialization in India

(i) Gap between Targets and Achievement:The review of targets and achievements of every plan shows that there is a great difference in both. The rate of growth is very slow than the fixed targets. For instance, Fifth Plan achieved 5.5 per cent growth rate against its target of 7.9 per cent. Similar trend was found in the Sixth Plan.

It attained 5.9 per cent growth rate while it fixed 7 per cent. In particular, industrial sector failed to absorb a higher proportion of labour force. In the following Plans also, there is a gap between targets and its achievements. Therefore, gap between targets and achievements is a matter of deep concern for all of us.

(ii) Under Utilization of Capacity:A large number of industries suffer from under-utilization of capacity. According to an estimate, it varies between 50 to 60 per cent.

(iii) Industrial Sickness:The incidence of sickness in large and medium scale industries has increased manifold in recent years. It not only aggravates the problem of unemployment but also creates adverse climate for industrial investment.

(iv) Elite Oriented Consumption Pattern:Another unfavorable aspect that the production of industrial goods only caters to the needs of rich consumers while the requirements of common masses have been marginally expanded.

(v) Growth of Big Houses:In spite of various policy measures adopted by the government (MRTP Act and licensing policy), the share of big houses in the total assets of the private corporate sector has increased. This resulted in the concentration of economic powers in few hands.

(vi)Increase in Regional Imbalances:Perhaps, the most serious weakness is that industrial development has remained concentrated in a few advanced states of Maharashtra, Gujarat, West Bengal and Tamil Nadu. These states accounted for a very large proportion of about 80 per cent of the industrial activities of the country. Other states get only a small share (Bihar, Orissa and Madhya Pradesh).

(vii)Non-Proper Employment Planning:

Another constraint has been noticed in the industrialization of the country as it lacks a proper employment planning. It favoured capital-intensive techniques while the need of the hour is to adopt labour-intensive techniques in the country.

(vii) Poor Productivity Performance:The productivity performance in the industrial sector has been poor and dismal. According to the study made by the Dr. Hallis Chenery who observed covering 40 countries, that India is at the bottom in terms of increasing capital output ratio in manufacturing sector.

Advantages of industrialization

Industrialization in economic condition marked by an increase in the importance of industry to an economy. During the process of industrialization per capita income increases and productivity levels increase

The advantages of industrialization are as follows:

1. employment opportunity

2. affordable price

3. development of skills

4. utilization of resources

5. earning of foreign currency

1. employment opportunity :- Industries have provided employment to people. As we know an industry requires skilled, semi skilled and unskilled manpower. so people having different abilities are employed

In the context of our country Nepal industrialization has been of great importance in reducing unemployment. According to the data it is found that even now 48% of total population of Nepal are unemployed. So an industry can be of great help in reducing unemployment.

2. affordable price :- An industry produces goods in large quantities so the production cost is reduced and the price becomes affordable like for example a computer is a demand of people it is imported from other countries the costing is definitely very high but if the same computer is started to be produced in own country the price will be reduced and it will be affordable to everybody.

3. development of skills:- An industry develops skills and ability in an individual, so we can say industry is a factor which is responsible to built up a countrys manpower. It makes a person specialize in a particular field. For example a person is employed in a noodle factory he/she can learn the skills to manufacture noodles and he/she can start own noodle business. so an industry is of great importance in developing individual skills

4. utilization of resources: Industry utilizes the resources present in country, and produce finished products which are of affordable and best quality. For example there is sufficient sugar cane present in the Terai side of Nepal so it can be used to produce sugar in the sugar industry.

5. earning foreign currency :- If the goods are produced in bulk quantities then the goods can even be used for export purpose which will help in earning foreign currency. Our country Nepal is specialized in production of carpets and pashmina shawls so it exports the products in order to earn high foreign currency.

PUBLIC SECTOR IN INDIA

Meaning of Public Sector

Public Sector organisations areowned and controlled by the government (or local government). They aim to provide public services, often free at the point of delivery eg the NHS. There are particular goods, calledmerit goodsandpublic goodswhich cause problems for the private sector, and so they are often better provided by the public sector.At the time of independence, India was backward and underdeveloped basically an agrarian economy with weak industrial base, high rate of unemployment, low level of savings and investment and near absence of infrastructural facilities. Indian economy needed a big push. This push could not come from the private sector because of the lack of funds and their inability to take risk with large long-gestation investments. As such, government intervention through public sector was necessary for self-reliant economic growth, to diversify the economy and to overcome economic and social backwardness.

OBJECTIVES:The public sector aims at achieving the following objectives:i. To promote rapid economic development through creation and expansion of infrastructureii. To generate financial resources for developmentiii. To promote redistribution of income and wealthiv. To create employment opportunitiesv. To promote balanced regional growthvi. To encourage the development of small-scale and ancillary industries, andvii. To promote exports on the one side and import substitution, on the other.Characteristics of Public Sector1. State Ownership:The enterprise ownership has to be vested with the State. It could be in the nature of Central, State or local government ownership or any instrumentality of the state too can have the ownership of public enterprise.

2. State Control:Public Enterprise is controlled by the Government both in its management and functioning. The Government has the direct responsibility to manage the affairs of the enterprise through various devices and exercises control over it by means of a number of agencies and techniques.

3. Public Accountability:Public Enterprises owe accountability to people as they are funded through public money. This accountability is realised through legislature and its committees, ministers, audit institutions and other specialised agencies.

4. Autonomy:Public Enterprises function with utmost autonomy under given situations. They are free from day to day interference in their affairs and management.

5. Coverage:The public enterprise traverses all areas and activities. There is hardly any field of activity, which is not covered by the operations of public enterprises.

Role of Public Sector:The public sector has been playing a vital role in the economic development of the country. Public sector is considered a powerful engine of economic development and an important instrument of self-reliance. The main contributions of public enterprises to the country's economy may be described as follows:

1. Filling the Gaps in Capital Goods:At the time of independence, there existed serious gaps in the industrial structure of the country, particularly in the fields of heavy industries such as steel, heavy machine tools, exploration and refining of oil, heavy Electrical and equipment, chemicals and fertilizers, defense equipment, etc. Public sector has helped to fill up these gaps. The basic infrastructure required for rapid industrialisation has been built up, through the production of strategic capital goods. In this way the public sector has considerably widened the industrial base of the country.2. Employment:Public sector has created millions of jobs to tackle the unemployment problem in the country. Public sector accounts for about two-thirds of the total employment in the organised industrial sector in India. By taking over many sick units, the public sector has protected the employment of millions. Public sector has also contributed a lot towards the improvement of working and living conditions of workers by serving as a model employer.

3. Balanced Regional Development:Public sector undertakings have located their plants in backward and untrodden parts of the county. These areas lacked basic industrial and civic facilities like electricity, water supply, township and manpower. Public enterprises have developed these facilities thereby bringing about complete transformation in the socio-economic life of the people in these regions. Steel plants of Bhilai, Rourkela and Durgapur; fertilizer factory at Sindri, are few examples of the development of backward regions by the public sector.

4. Contribution to Public Exchequer:Apart from generation of internal resources and payment of dividend, public enterprises have been making substantial contribution to the Government exchequer through payment of corporate taxes, excise duty, custom duty etc. In this way they help in mobilizing funds for financing the needs for the planned development of the country. In recent years, the total contribution from the public enterprises has increased considerably, between the periods 2002-03 to 2004-05 the contribution increased by Rs 81,438 crores on the average.5. Export Promotion and Foreign Exchange Earnings:Some public enterprises have done much to promote Indias export. The State Trading Corporation (STC), the Minerals and Metals Trading Corporation (MMTC), Hindustan Steel Ltd., the Bharat Electronics Ltd., the Hindustan Machine Tools, etc., have done very well in export promotion. The foreign exchange earnings of the public sector enterprises have been rising from Rs 35 crores in 1965-66 to Rs 42,264 crores in 2004-05.6. Import Substitution:Some public sector enterprises were started specifically to produce goods which were formerly imported and thus to save foreign exchange. The Hindustan Antibiotics Ltd., the Indian Drugs and Pharmaceuticals Ltd. (IDPL), the Oil and Natural Gas Commission (ONGC), the Indian Oil Corporation Ltd., the Bharat Electronics Ltd., etc., have saved foreign exchange by way of import substitution.7. Research and Development:As most of the public enterprises are engaged in high technology and heavy industries, they have undertaken research and development programmes in a big way. Public sector has laid strong and wide base for self-reliance in the field of technical know-how, maintenance and repair of sophisticated industrial plants, machinery and equipment in the country. Through the development of technological skill, public enterprises have reduced dependence on foreign knowhow. With the help of the technological capability, public sector undertakings have successfully competed in the international market.In addition to the above, the public sector has played an important role in the achievement of constitutional goals like reducing concentration of economic power in private hands, increasing public control over the national economy, creating a socialistic pattern of society, etc. With all its linkages the public sector has made solid contributions to national self-reliance.Limitations:of public sector

Despite their impressive role, Public enterprises in India suffer from several problems and shortcomings. Some of these are described below:

1. Poor Project Planning:Investment decisions in many public enterprises are not based upon proper evaluation of demand and supply, cost benefit analysis and technical feasibility. Lack of a precise criterion and flaws in planning have caused undue delays and inflated costs in the commissioning of projects. Many projects in the public sector have not been finished according to the time schedule.2. Over-capitalization:Due to inefficient financial planning, lack of effective financial control and easy availability of money from the government, several public enterprises suffer from over-capitalization The Administrative Reforms Commission found that Hindustan Aeronautics, Heavy Engineering Corporation and Indian Drugs and Pharmaceuticals Ltd were over-capitalized. Such over-capitalization resulted in high capital-output ratio and wastage of scare capital resources.

3. Excessive Overheads:Public enterprises incur heavy expenditure on social overheads like townships, schools, hospitals, etc. In many cases such establishment expenditure amounted to 10 percent of the total project cost. Recurring expenditure is required for the maintenance of such overhead and welfare facilities. Hindustan Steel alone incurred an outlay of Rs. 78.2 crore on townships. Such amenities may be desirable but the expenditure on them should not be unreasonably high.

4. Overstaffing:Manpower planning is not effective due to which several public enterprises like Bhilai Steel have excess manpower. Recruitment is not based on sound labour projections. On the other hand, posts of Chief Executives remain unfilled for years despite the availability of required personnel.5. Under-utilisation of Capacity:One serious problem of the public sector has been low utilisation of installed capacity. In the absence of definite targets of production, effective production planning and control and proper assessment of future needs many undertakings have failed to make full use of their fixed assets. There is considerable idle capacity. In some cases productivity is low on account of poor materials management or ineffective inventory control.6. Lack of a Proper Price Policy:There is no clear-cut price policy for public enterprises and the Government has not laid down guidelines for the rate of return to be earned by different undertakings. Public enterprises are expected to achieve various socio-economic objectives and in the absence of a clear directive, pricing decisions are not always based on rational analysis. In addition to dogmatic price policy, there is lack of cost-consciousness, quality consciousness, and effective control on waste and efficiency.7. Inefficient Management :The management of public enterprises in our country leaves much to be desired. Managerial efficiency and effectiveness have been low due to inept management, uninspiring leadership, too much centralisation, frequent transfers and lack of personal stake. Civil servants who are deputed to manage the enterprises often lack proper training and use bureaucratic practices. Political interference in day-to-day affairs, rigid bureaucratic control and ineffective delegation of authority hamper initiative, flexibility and quick decisions. Motivations and morale of both executives and workers are low due to the lack of appropriate incentives.Causes for the expansion of public enterpriseAt the time of independence, India was backward and underdeveloped basically an agrarian economy with weak industrial base, high rate of unemployment, low level of savings and investment and near absence of infrastructural facilities. Indian economy needed a big push. This push could not come from the private sector because of the lack of funds and their inability to take risk with large long-gestation investments. As such, government intervention through public sector was necessary for self-reliant economic growth, to diversify the economy and to overcome economic and social backwardness.Let us discuss the rationale or causes for the expansion of public sector enterprises in India.1. Rate of Economic Development and Public Enterprises:The justification for public enterprises in India was based on the fact that the targeted rate of economic growth planned by the government was much higher than could be achieved by the private sector alone. In other words, the public sector was essential to realize the target of high growth rate deliberately fixed by the government.2. Pattern of Resource Allocation and Public Enterprises:Another reason for the expansion of the public sector lies in the pattern of resources allocation decided upon under the plans. In the Second Plan the emphasis was shifted to industries and mining, mainly basic capital goods industries to be developed under the aegis of the public sector. Thus more resources for industrialization were funneled through the public sector.3. Removal of Regional Disparities through Public Enterprises:Another important reason for the expansion of the public sector was the need for balanced development in different parts of the country and to see that there were no serious regional disparities. Public enterprises were set up in those regions which were underdeveloped and where local resources were not adequate. Good examples are the setting up of the three steel plants of Bhillai, Rourkela and Durgapur and the Neyveli Project in Madras which were meant to help industrialise the regions surrounding the projects.4. Sources of Funds for Economic Development:Initially, state was an important source of funds for development. The surplus of government enterprises could be re-invested in the same industries or used for the establishment and expansion of other industries. Profits of public sector industries can be directly used for capital formation which is necessary for the rapid development of the country.5. Socialistic Pattern of Society:The socialistic pattern of society envisaged in the Constitution calls for expansion of public sector. For one thing, production will have to be centrally planned as regards the type of goods to be produced, the volume of output and the timing of their production. Besides, one of the objectives of the directive principles of the Indian Constitution is to bring about reduction of the inequalities of income and wealth and to establish an egalitarian society. The Five Year Plans have taken this up as a major objective of planning. The public enterprises were used as major instruments for the reduction of inequalities of income and to bring about a more equitable distribution of income in several ways.6. Limitations and Abuses of the Private Sector:The behavior and attitude of the private sector itself was an important factor responsible for the expansion of the public sector in the country. In many cases the private sector could not take initiatives because of the lack of funds and their inability to take risk with large long-gestation investments. In a number of cases, the government was forced to take over a private sector industry or industrial units either in the interest of workers or to prevent excessive exploitation of consumers. Very often the private sector did not function as it should and did not carry out its social responsibilities. Accordingly, the government was forced to take over or nationalize the private sector units.To sum up, the expansion of the public sector was aimed at the fulfillment of our national goals, viz., the removal of poverty, the attainment of self-reliance, reduction in inequalities of income, expansion of employment opportunities, removal of regional imbalances, acceleration of the pace of agricultural and industrial development, to reduce concentration of ownership and prevent growth of monopolistic tendencies by acting as effective countervailing power to the private sector, to make the country self-reliant in modern technology and create professional, technological and managerial cadres so as to ultimately rid the country from dependence on foreign aid.Private Sector

introductionThe private sector is the part of a country's economic system that is run by individuals and companies, rather than the government. Most private sector organizations are run with the intention of making profit.

The segment of the economy under control of the government is known as thepublic sector. Charities and non-profit organizations are sometimes considered to make up a third segment, known as the volunteer sector. However, such organizations are more commonly considered part of the private sector.

The private sector is larger in free enterprise economies, such as the United States, in which the government imposes relatively few restrictions on businesses. In countries with more government control, such as China, the public sector makes up the larger part of the economy.

The term 'private sector' refers to the segment of the economy that is not directly controlled or operated by government-run agencies and organizations, which make up thepublic sector. Other terms that are used to refer to the private sector include the 'citizen sector' or the 'free market.' The private sector is made up of companies that operate to make a profit. (A third segment of the economy, made up of charities and nonprofit organizations, is known as thevoluntary sector.)

In very basic terms, the private sector includes anything that is not part of the public sector. Where the public sector provides services for everyone, the private sector provides goods and services generally only for the people who pay for them. For example, people who purchase an item in a store, subscribe to a magazine, or lease a car are the only ones eligible to receive those specific goods and services.

characteristics of private sector

These undertakings are owned, controlled and financed by private businessmen. There is no government participation in them. The main motive of private sector undertakings is to earn profits. Their main characteristics are as under:

(a)Private Ownership and Control:A private sector undertaking is fully owned and controlled by the private entrepreneurs. It may be owned by one individual or by a group of individuals jointly. When owned by one person, it is called Sole Proprietorship. A group of persons may jointly own the firm in the form of joint Hindu family business, partnership, Joint Stock Company or cooperative society.

(b)Profit Motive:The main objective of private sector undertakings is earning profits. Profits provide the reward for the risk assumed and the required return on capital.

(c)No State Participation:There is no participation by the Central or State Governments in the ownership and control of a private sector undertaking.

(d)Private Finance:The capital of a private sector undertaking is arranged by its owners. The sole trader contributes the capital of a sole proprietorship. In case of partnership, capital is invested by the partners. A joint stock company raises capital by the issue of shares and debentures. A private sector undertaking can also raise loans to meet its long-term and short-term needs for funds.

(e)Independent Management:A private sector undertaking is managed by its owners. In case of sole proprietorship and partnership, the owners directly manage the firm. The management of a joint stock company lies in the hands of directors who are the elected representatives of the shareholders.

Key Private Investment Sector in India:Healthcare:The health care sector of India has opened new investment opportunities for non-resident Indians (NRIs) and person of Indian origin (PIO) to invest in India because of the rise in disposable income, penetration of health insurance and unhealthy lifestyle of present generation.

Food Processing:India is emerging as sourcing hub of processed food because of huge agriculture sector, abundant livestock, and cost competitiveness. The food services sector in India is expected to register a growth of 50 per cent in investments in 2012 to about US$ 750 million, as food suppliers and retail companies plan to scale up business and stay competitive by tapping the large potential of the domestic market.

Real Estate:Returns from the investments in real estate sector of India have consistently performed well and have even outperformed other sectors. The sector is offering huge investment opportunities to NRIs and PIOs because of the friendly policies of the Government of India. People residing outside India holding Indian passports as well as PIO are allowed to invest in residential and commercial properties in India, according to the Reserve Bank of India.

Pharmaceutical:Pharmaceutical sector of India is gaining its position as a global leader. The pharma market in India is expected to touch US$ 74 billion in sales by 2020 from the current US$ 11 billion; according to a PricewaterhouseCoopers (PwC) report. Growth will be driven by the fastest growing molecules in the diabetes, skincare and eye care segment, as per a report by research firm, Credit Suisse. So, it is one of the most importantinvestment sectorsin India.

Power:India has been one of the top performing clean energy economies in the 21st century, registering the fifth highest five-year rate of investment growth and eighth highest in installed renewable energy capacity. The sector is opening up new opportunities for NRIs/PIOs.

The importance of private sector inIndian economycan be viewed from the tremendous growth of Indian IT & ITeS industry including both BPOs and Indian software companies, private banks and financial service companies.

Private Sector of Indian Economy

The private sector of Indian economy is the past few years have delineated significant development in terms of investment and in terms of its share in the gross domestic product. The key areas in private sector of Indian economy that have surpassed the public sector are transport, financial services etc.

Indian government has considered plans to take concrete steps to bring affect poverty alleviation through the creation of more job opportunities in the private sector of Indian economy, increase in the number of financial institutions in the private sector, to provide loans for purchase of houses, equipments, education, and for infrastructural development also. The private sector of Indian economy is recently showing its inclination to serve the society through women empowerment programs, aiding the people affected by natural calamities, extending help to the street children and so on. The government of India is being assisted by a number of agencies to identify the areas that are blocking the entry of the private sector of Indian economy in the arena of infrastructural development, like regulatory policies, legal procedures etc.

The most interesting fact about the private sector of India economy is that though the overall pace of its development is comparatively slower than the public sector, still the investment of private sector in the recent past, i.e. in the first quarter of 1990 registered approximately 56 % which rose to nearly 71 % in the next quarter, accounting for an increase of 15 %. Certain steps taken by the Indian government are acting as the stepping stone of the private sector continued journey to success, include industrial delicensing, devaluation that was implemented previously.

The private sector of Indian economy is also adversely affected by the huge number of permits and enormous time required for the processing of documents to initiate a firm, however the central government has decided to abolish MRTP Act and incorporate a Competition Commission of India to bring the public sector and the private sector at the same platform.

The participation of the private sector of Indian economy is desired by the government of India for infrastructural development including specific sectors like power, development of highways and so on. As the contribution of public sector in these sectors have been arrested due to the shift of the attention of the Indian government to issues like population increase, industrial growth.

The main reasons behind the low contribution of the private sector in infrastructural development activities are that: The small and medium scale companies in the private sector of Indian economy suffer from lack of finances to welcome the idea of extending their business to other states or diversify their product range. The private sector of Indian economy also suffer from the absence of appropriate regulatory structure, to guide the private sector and this speaks for its unorganized framework.

The unorganized framework of the private sector is interrupting the proper management of this sector resulting in the slowdown of its development.Joint Sector

The joint sector is an extension of the concept of mixed economy. The Industrial Policy Resolution 1956, sowed the seeds of the joint sector by advocating Government participation in the equity capital of private sector enterprises to promote socially determined pattern of industrial growth.

Joint sector industries are owned jointly by the government and private individuals who have contributed to the capital, but the day-to-day management is in private hands.Joint sector consists of business undertakings wherein the ownership, control and management are shared jointly by the Government, the private entrepreneurs and the public at large.

According to the guidelines laid down by the Government of India, the share capital of a joint sector undertaking (without foreign participation) is to be divided as follows: government 26 per cent, private businessmen 25 per cent and the public 49 per cent.

No single individual or organisation can hold more than 25 per cent of the paid-up capital of a joint sector enterprise without the permission of the Central Government.

In case of foreign participation, the respective shares will be: Government 25 per cent, Indian entrepreneur 20 per cent, foreign investor 20 per cent and the investing public 35 per cent.

Maruti Udyog, Cochin Refineries and Gujarat State Fertilizers are examples of joint sector undertakings in our country.

The main characteristics of joint sector enterprises are as follows:

1. Mixed Ownership:The government, private entrepreneurs and the investing public jointly own a joint sector enterprise.

2. Combined Management:The management and control of a joint sector enterprise lies with the nominees or representatives of the Government, private businessmen and the public.

3. Share Capital:The shares of the Government, private businessmen and the public in the capital are 26 per cent, 25 per cent and 49 per cent, respectively. The aim is to pool the financial resources and technical know-how of the State and the private individuals.

PPPs broadly refer to long term, contractual partnerships between the public and private sector agencies, specially targeted towards financing, designing, implementing, and operating infrastructure facilities and services that were traditionally provided by the Government and/or its agencies. These collaborative ventures are built around the expertise and capacity of the project partners and are based on a contractual agreement, which ensures appropriate and mutually agreed allocation of resources, risks, and returns. This approach of developing and operating public utilities and infrastructure by the private sector under terms and conditions agreeable to both the government and the private sector is called PPP.What's PPP

Public Private Partnership (PPP) is a contract between a public sector institution/municipality and a private party, in which the private party assumes substantial financial, technical and operational risk in the design, financing, building and operation of a project.

Traditionally, private sector participation has been limited to separate planning, design or construction contracts on a fee for service basis based on the public agencys specifications.

Expanding the private sector role allows the public agencies to tap private sector technical, management and financial resources in new ways to achieve certain public agency objectives such as greater cost and schedule certainty, supplementing in-house staff, innovative technology applications, specialized expertise or access to private capital. The private partner can expand its business opportunities in return for assuming the new or expanded responsibilities and risks.

PPPs provide benefits by allocating the responsibilities to the party either public or private that is best positioned to control the activity that will produce the desired result. With PPPs, this is accomplished by specifying the roles, risks and rewards contractually, so as to provide incentives for maximum performance and the flexibility necessary to achieve the desired results

What is not a PPP ?

The way a PPP is defined in the regulations makes it clear that:

A PPP is not a simple outsourcing of functions where substantial financial, technical and operational risk is retained by the institution

A PPP is not a donation by a private party for a public good

A PPP is not the 'commercialisation' of a public function by the creation of a state-owned enterprise

A PPP does not constitute borrowing by the state.PPP Models in Practice

There are range of PPP models that allocate a responsibilities and risks between the public and private partners in different ways. Depending on the nature of the project, the contractual structure/agreements used for new projects would include inter-alia: (as per Infrastructure Policy 07)

Build-and-Transfer (BT):a contractual arrangement whereby the concessionaire undertakes the financing and construction of a given infrastructure or development facility and after its completion turns it over to the Government Agency or Local Government unit concerned, which shall pay the proponent on an agreed Schedule its total investments expended on the project, plus a reasonable rate of return thereon. This arrangement may be employed in the construction of any infrastructure or development project, including critical facilities which, for security or strategic reasons, must be operated directly by the Government.

Build-Lease-and-Transfer (BLT):a contractual arrangement whereby a concessionaire is authorized to finance and construct an infrastructure or development facility and upon its completion turns it over to the government agency or local government unit concerned on a lease arrangement for fixed period after which ownership of the facility is automatically transferred to the government agency or local government unit concerned.

Build Operate and Transfer (BOT):a contractual arrangement whereby the concessionaire undertakes the construction, including financing, of a given infrastructure facility, and the operation and maintenance thereof. The concessionaire operates the facility over a fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals, and charges not exceeding these proposed in its bid or as negotiated and incorporated in the contract to enable the concessionaire to recover its investment, and operating and maintenance expenses in the project. The concessionaire transfers the facility to the Government Agency or Local Government unit concerned at the end of the fixed term.

Build-Own-Operate-and-Transfer (BOOT):a project based on the granting of a concession by a Principal (the Union or Government or a local authority) to the concessionaire, who is responsible for the construction, financing, operation and maintenance of a facility over the period of the concession before finally transferring the facility, at no cost to the Principal, a fully operational facility. During the concession period the promoter owns and operates the facility and collects revenue in order to repay the financing and investment costs, maintain and operate the facility and make a margin of profit.

Build-Own-and-Operate (BOO):a contractual arrangement whereby a concessionaire is authorized to finance, construct, own operate and maintain an infrastructure or development facility from which the proponent is allowed to recover its total investment , operating and maintenance costs plus a reasonable return thereon by collecting tolls, fees, rentals or other charges from facility users.

Build-Operate-Share-Transfer (BOST):a contractual arrangement whereby a concessionaire is authorized to finance, construct, operate and maintain, share a part of the revenue and transfer the infrastructure facility at the end of the period. The proponent is allowed to recover its total investment, operating and maintenance costs plus a reasonable return thereon by collecting tolls, fees, rentals or other charges from facility users.

Build-Own-Operate-Share-Transfer (BOOST):a contractual arrangement whereby a concessionaire is authorized to finance, construct, own operate and maintain, share a part of the revenue and transfer the infrastructure facility at the end of the period. The proponent is allowed to recover its total investment, operating and maintenance costs plus a reasonable return thereon by collecting tolls, fees, rentals or other charges from facility users.

Public Private Partnership has played a vital role in India's Economic Growth

Introduction

After India gained independence from British rule, it sought to establish itself as a leader in world politics and economics. Considered as the third largest economy in Asia, India is moving towards this goal with renewed force.

While the negative impact of recession has dented most world economies at some point or another, nations such as India seek to utilize their resources and demographic dividend for a brighter future.

Public-private partnerships (PPPs) have played a vital role in spurring economic growth in India. Regardless of which political party has been at the helm, public-private partnerships have had a high success rate in India. New technologies and software have been the result of collaborations between the corporate world and the public sector.

Viewpoint PPPs in India have ensures the speedy and cost effective of key projects in sectors such as power, technology and infrastructure. This has great value for taxpayers who are benefiting from the impact of such ventures.

Public-private partnerships in India have integrated public infrastructure with the superior financing and maintenance provided by private enterprises. The synergistic collaborations between the public sector and private firms and companies have led to the generation of resources and knowledge transfer.

PPPs have overcome the capacity constraints of the economy by generating huge productivity through optimal utilization of labour and capital resources.

Joint ventures and partnerships between the leading companies and the government have been very successful in generating jobs as well as growth in key economic sectors.

The public sector has regulated the projects to ensure accountability and delivery of quality products and services.

Innovation and excellence characterize the public-private partnerships that have emerged across the years in India. These PPPs are ensuring the effective utilization of state assets in a manner that is productive as well as profitable.

Infrastructure created using these partnerships is of a superior quality. This has led to the development of many good airports and buildings across India. India needs more basic infrastructure and PPPs are the best way to accomplish this.

PPPs also help the public sector to develop a more commercial approach. This is essential as most parties in India are very oriented towards social welfare and they often do not consider factors such as profit. Any partnership is only successful if it is able to meet the needs of the masses and also generate a profit.

PPPs have also ensured that the Indian public gets value for its money. India is a nation that has to meet the challenges of generating enough resources to meet the needs of the people.

India has one of the fastest growing populations in the world. Using the finances of the private firms to complete the PPP ventures has led to conservation of national and governmental resources.

ConclusionPublic-private partnerships offer great value for money. They also meet high standards of excellence. PPPs have contributed towards the growth and development of the Indian economy in multiple ways.

Combining the professionalism of the corporate sector with the welfare objectives of the state has resulted in projects such as the Mumbai airport which are known for their world class facilities and advanced amenities.1. TheMinistry of Micro, Small and Medium Enterprises, a branch of theGovernment of India, is the apex body for the formulation and administration of rules, regulations and laws relating to micro, small and medium enterprises inIndia. The current Minister of Micro, Small and Medium