Difference between Public and Private Sector

Public Sector

The Public Sector consists of businesses that are owned and controlled by the government of a country. The ownership and control of the central or state governments in these organisations are either complete or partial. But it still holds a majority stake and makes every single decision regarding running the entity. These organisations include government agencies, state-owned enterprises, municipalities, local government authorities and other public service institutions.

Some of them can be non-profit organisations while others participate in commercial activities as well. It generally focuses on providing goods and services to the general public at relatively cheaper rates than private companies. Its main aim is to ensure the welfare of the general public within a country.

Private Sector

The Private Sector enterprises are owned, controlled and managed either by individuals or business entities. It can be small-scale, medium-scale or even large-scale organisations. These get formed to earn a profit from their business operations, and they can raise funding from individuals, groups, and the general public.

The different entities within the private sector include sole proprietorship, partnership, cooperative societies, companies and multinational corporations. They also focus on taking care of the needs of their customers to survive in the long run. Ever since the introduction of the New Economic Policy in 1991 by the Government of India, almost every industry in the country has opened up to the private sector. It has led to a phenomenal increase in the size of the Indian economy and its growth rates.

Differences between Public and Private Sector

The main differences between Public and Private Sectors are as follows:

Public Sector

Private Sector

Definition

Public sector organisations are owned, controlled and managed by the government or other state-run bodies.

Private sector organisations are owned, controlled and managed by individuals, groups or business entities.

Ownership

The ownership of the public sector units can be by central, state or local government bodies, and this ownership is either full or partial.

The ownership of private sector units is by individuals or entities with zero interference from the government.

Motive

The main motive of public sector organisations is to engage in activities that serve the general public.

The main motive of the private sector is to earn profits from their business operations.

Source of Capital

The capital for public sector undertakings comes from tax collections, excise and other duties, bonds, treasury bills etc.

The capital for private sector entities comes either from its owners or through loans, issuing shares and debentures, etc.

Employment Benefits

Public sector units provide several employment benefits like job security, housing facilities, allowances and retirement benefits.

Private sector units offer benefits like higher salary packages, better chances of promotion and recognition, competitive environment and greater incentives in terms of bonus and other benefits.

Stability

Jobs within the public sector are very stable since the chances of getting sacked due to non-performance are very low.

Jobs within the private sector are not very secure since non-performance can lead to sacking. Companies can also fire people in case of cost cutting or scaling down of operations.

Promotions

The criteria for promotion in the public sector units is generally based on the seniority of the employee.

The criteria for promotion in the private sector units is generally based on the merit and job performance of the employee.

Areas

Some of the main areas that come under the public sector are police, military, mining, manufacturing, healthcare, education, transport, banking, etc.

Some of the main areas that come under the private sector are information technology, finance, fast moving consumer goods, construction, hospitality, pharmaceuticals, etc.

Conclusion

Any country needs both the public sector and the private sector to work at their full potential. There are many differences between the two but a robust financial and economic system must have an adequate mixture of companies belonging to both these sectors.

Frequently Asked Questions

What is the difference between a public limited company and a private limited company?

The main difference between a public limited company and a private limited company is over the method of raising capital. A public limited company gets listed on the stock exchange and it can raise capital directly from the general public through issuing shares, debentures and bonds. A private limited company, on the other hand, is not listed on the stock market. The shares of these entities are under the control of private investors and entities.

Do banks in India belong to the public sector or the private sector?

Banks in our country are a part of both the private and public sectors, based on their ownership structure. Banks like State Bank of India, Bank of India, Bank of Baroda and Indian Bank are some examples of public sector banks. On the other hand, banks like ICICI Bank, HDFC Bank, Kotak Mahindra Bank, Axis Bank and Yes Bank are examples of private sector banks.

Can the government reduce their stake in a public sector undertaking?

Governments often follow a policy of disinvestment through which they can reduce their role in a public sector unit. The Government of India also follows this policy from time to time when they want to sell off a part or the entirety of their stake in a public sector unit.

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