ROLE OF PRIVATE SECTOR

After independence, government adopted the system of mixed economy. In mixed

economy both private sector and public sector are given importance. In INDIA government has been encouraging private sector to promote rate of economic development of nation. Following main steps taken by government to promote private sectors. (1) Financial Assistance Government has set up various bank and financial institution to cater to the credit needs of private sector entrepreneurs. These bank and financial institution provide loans to private sector. The main financial institution / banks are Industrial Finance Corporation of INDIA [ IFCI ], National bank for Agriculture and Rural Development [ NABARD ], Small Industries Developments Bank of INDIA [ SIDBI ], Exim bank, Public sector bank, cooperative bank etc.

(2) Increase in areas of private sectors Now government has allows private sectors to set up industries even in those areas which were earlier reserved for public sector. Number of industries reserved for public sector has been reduced from 17 to 3.

(3) Liberal Licensing To promote private sector government has given various concessions in industrial licensing. Now license is required only for 5 industries. The procedure to procure license has been simplified.

(4) Repeal of MRTP act Monopolies and Restrictive trade practices act was a great hurdle in the growth of big private industrial house. In the year 2002 government repealed MRTP act and framed Competition act 2002.

(5)Liberal import of capital goods and technology Government has liberalized the import of capital goods and technology. It has benefitted the private industrialist. They can now easily import modern technology. It has improved their efficiency and productivity.

(6) Liberal inflow of foreign funds Government has allowed liberal inflow of foreign funds. In some case government has allowed even lopper cent foreign equity participation. It has enabled private sector to raise funds even from foreign countries.

(7) Support to small scale industries Small scale industries have been given various concession like concessional loans, technical assistance, tax concessions etc.. Moreover some areas have been exclusively reserved for small scale units. It has benefitted small scale units of private sector.

(8) Infrastructural Facility Government has provide basic infrastructural facilities like roads, power, railway transport, warehouse, banking, insurance, telecommunication etc.. This basic infrastructure has promoted the growth of private sector.

IMPACT OF PRIVATE SECTOR

Positive impact of private sector

(1) Political Security and Stability Indian economy continues to remain politically secured and stable ever since independence. Foreign aggressions have been effectively repulsed and domestic forces of separatism have been controlled. All this has offered very congenial environment to industrial growth in the country.

(2) United Market United market in INDIA has also contributed to the growth of private capitalism with the merger of princely states in the union of India, the size of unified market expanded considerably. This accelerates the process of modification and growth of the industrial sector.

(3) Development of capitalist agriculture Various types of land reforms in terms of abolition of zamindari system, consolidation of land- holdings and green revolution facilitated commercialization of agriculture, resulting into sizeable marketable surplus of food grains as well as raw material. Availability of raw material for the industries contributed to the expansion of private capitalism.

(4) Impact of public sector Stupendous growth of the public sectors particularly in the field of basic industries offering a variety of infrastructural facilities has been yet another factor accelerating capitalism in INDIA. Without infrastructural facilities the private sector perhaps would not grown to extent it.

(5) Allowing Indian private corporate sector to invest outside INDIA In 2008 09 limit on investment in foreign countries by Indian companies is raised from 300 percent to 400 percent of their net worth. Now many Indian companies are investing outside INDIA and acquiring companies outside INDIA.

Negative Impact of Private Sector

(1) Industrial Disputes Industrial disputes are more common in private sector. Have not are in disputes with the Haves as the former aim at maximizing their wages while the latter aim at minimizing the cost of production, strikes and lockouts are the obvious outcome. It causes loss of production and man hours. Compared to private sector, public sector is much less prone to industrial disputes.

(2) Industrial Sinkness Industrial sinkness is another discouraging feature of the private sector. Because of the excessive use machinery, poor management and jack of quality control, many units in the private sectors start facing losses, driving these units to the state of bankruptcy and closure. This results into wastage of resources, unemployment and loss of production. This problem is more common in small scale private sector units.

(3) Promotes Black Money Private sector promotes black money. Private entrepreneurs evade taxes, they do not maintain proper books of accounts, sales production and income are under recorded. So they pay less sales tax, less excise duty and less income tax. The problem of black money prevails mainly in private sector.

(4) Promotes Corruption Private entrepreneur often indulge in corrupt practices. Private entrepreneurs give donation to political parties, bribe the government officials and get the policies changed according to their own interest. All this promotes corruption.

(5) Increase in Regional Imbalance Private sector enterprises set up their business units in the well developed regions having sufficient infrastructural facilities. They do not bother to set up their units in backward areas. It promotes regional imbalance.

FORMS of PRIVATE SECTOR

Sole Trading Concern

Meaning:Sole trading concern is the oldest form of commercial organization. Sole means

one person. So a sole trading business is carried on by one person. The person who conduct the business is called Sole Trader.

Definition:According to Michael Greener, A sole trader is a person who trades on his own

account rather than in partnership or as a member of a company.

Feature:1) A sole trading concern is carried on by one person only. 2) The capital contributed by a sole trader in comparatively less as compared to a partnership firm. 3) The formation of a sole trading concern is easy and simple. There are least formalities. 4) There is no need of registration for a sole trading concern. 5) Its management and ownership vest in one person. 6) A sole trader enjoys more flexibility in business decision as he need not get the consent of anyone. 7) There is no question of entering into an agreement. 8) The sole trading concern does not enjoy a separate legal status in the eyes of the law. 9) A sole trader enjoys all the profits and bears all the risk of business. 10) A sole trader can maintain 100% business secrecy. There is no need to publish the accounts and reports of a concern.

Partnership Firm

Meaning:A partnership firm is a form of a commercial organization in which two or more

persons contributed their capital and services, and share the profits and losses in an agreed proportion. Person who have entered into a partnership are individually known as partner and collectively as partnership firm.

Definition:Section 4 of the Indian Partnership act, 1932 define, Partnership is the relation

between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

Features:1) A partnership firm must have at least two partners. The maximum number of partner is 10 in the case of banking and 20 in the case of ordinary business. 2) The partners can raise large capital as compared to a sole trader. This is because the partners are more in number. 3) To form a partnership firm is little more difficult as compare to the formation of sole trading concern. 4) It requires registration with the registrar of Indian Partnership Firms. 5) A partnership is jointly managed and owned by several partners. 6) A partnership is less flexible. This is because all partners should agree to major changes. 7) A partnership needs an agreement to sign by all the partners. 8) The partnership firm does not enjoy separate legal entity. 9) In a partnership firm, there cannot be 100% business secrecy. 10) In a partnership firm, there is sharing of profits among all the partners either equally or in agreed proportion.

Joint Hindu Family Business

Meaning:The Joint Hindu Family Business Firm is a distinct form of business

organization existing only in India. It comes into existence by the operation of Hindu law. This form of business is based on the principles of Mitakshara Law. Under this law the property inherited by a Hindu male from his father, grandfather and great grandfather in ancestral property. It is to be noted that the Hindu succession Act 1956 has extended the line of co-parcenery interest to the female members born in a Joint Hindu Family Business. The business is managed by the senior person or head of the family known as Karta.

Features:1) There is no limit on the number of members of a Joint Hindu Family Business. 2) The capital of Joint Hindu Family Business can be more as compared to a sole trading business. 3) The management of a Joint Hindu Family Business is in the hands of Karta who is assisted by the other members of family. 4) There is joint ownership of business. 5) The liability of co-parceners is limited, but the liability of Karta is unlimited. 6) There are fewer complications in its formation. 7) There is least government regulation regarding this type of business. 8) Business secrecy can be easily maintained. 9) There is greater flexibility as the Karta is free to take any decision. 10) There is no need of any agreement expect when there is a division of business among the co-parceners.

Joint Stock Company Meaning:A Joint Stock Company is a voluntary association of members formed for the purpose of undertaking a business. It is called a Joint Stock Company, because the shares or stock of the company are jointly owned by its members.

Definition:Chief Justice Marshall has defined company as, a person, artificial, invisible

and existing only in the eyes of law.

Features:1) For a private limited company the minimum number is 2 and maximum 50. For a public limited company the minimum number is 7 and there is no limit for maximum number. 2) The formation is a complicated process as many legal formalities are required. 3) The management of a joint stock company is in the hands of elected board of directors. 4) There is greater government control. 5) There is less secrecy as it has to publish its account and other information. 6) It can raise large capital. 7) A company has an independent legal entity separate and distinct from its member. 8) The liability of the member in a joint stock company is limited to extent of unpaid value of shares. 9) There is often delay in decision making but the quality of decision making is superior. 10) It has to conduct meetings such as statutory and annual general meetings.

Co-operative Society Meaning:A cooperative society is a voluntary association of individuals formed for the purpose of economic and social interest. Interested individuals can come together and form a cooperative society under the Cooperative Societies Act. A cooperative society differs from other forms of commercial organization. This is because the main objective of cooperative societies is to provide services to members rather than to make profit.

Definition:In the words of Talmaki, It is an association of the weak who gather together

for a common economic need and try to lift themselves from weakness into strength through business organization.

Features:1) Minimum 10 persons are required to form cooperative society. There is no maximum limit for membership. 2) Registration is compulsory under the act. 3) It is managed by managing committee. 4) The capital that can be generated by cooperative society can be large due to large number of members. 5) It lacks secrecy as information is made available to all the members. 6) The formation is little complicated as bye laws need to be framed and filed with registrar. 7) The basic objective of cooperative society is to provide services to its members. Profit is a secondary. 8) Each member has one vote, irrespective of shareholding. The principle followed is one man, one vote. 9) The cooperative society conducts its operations in the local area. 10) Normally, the quality of decision making is poor due to lack of experts.