Importance of Private Sector in Indian Economy

The importance of private sector in Indian economy over the last 15 years has been tremendous. The opening up of Indian economy has led to free inflow of foreign direct investment (FDI) along with modern cutting edge technology, which increased the importance of private sector in Indian economy considerably.

Previously, the Indian market were ruled by the government enterprises but the scene in Indian market changed as soon as the markets were opened for investments. This saw the rise of the Indian private sector companies, which prioritized customer's need and speedy service. This further fueled competition amongst same industry players and even in government organizations.

The post 1990 era witnessed total investment in favor of Indian private sector. The investment quantum grew from 56% in the first half of 1990 to 71 % in the second half of 1990. This trend of investment continued for over a considerable period of time. These investments were especially made in sector like financial services, transport and social services.

The late 1990s and the period thereafter witnessed investments in sector like manufacturing, infrastructure, agriculture products and most importantly in Information technology and telecommunication. The present trend shows a marked increase in investment in areas covering pharmaceutical, biotechnology, semiconductor, contract research and product research and development.

The importance of private sector in Indian economy has been very commendable in generating employment and thus eliminating poverty. Further, it also effected the following -

  • Increased quality of life
  • Increased access to essential items
  • Increased production opportunities
  • Lowered prices of essential items
  • Increased value of human capital
  • Improved social life of the middle class Indian
  • Decreased the percentage of people living below the poverty line in India
  • Changed the age old perception of poor agriculture based country to a rising manufacturing based country
  • Effected increased research and development activity and spending
  • Effected better higher education facilities especially in technical fields
  • Ensured fair competition amongst market players
  • Dissolved the concept of monopoly and thus neutralized market manipulation practices
The importance of private sector in Indian economy can be witnessed from the tremendous growth of Indian BPOs, Indian software companies, Indian private banks and financial service companies. The manufacturing industry of India is flooded with private Indian companies and in fact they dominate the said industry. Manufacturing companies covering sectors like automobile, chemicals, textiles, agri-foods, computer hardware, telecommunication equipment, and petrochemical products were the main driver of growth.

The Indian BPO sector is more concentrated with rendering services to overseas clients. The KPO sector is engaged in delivering knowledge based high-end services to clients. It is estimated, that out of the total US $ 15 billion KPO service business around US $ 12 billion of business would be outsourced to India by the end of 2010.

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