ROLE OF PRIVATE SECTOR IN INDIA'S ECONOMIC GROWTH

• The private sector’s role in encouraging a country’s growth and economic development cannot be overstated.
Private enterprises are the chief agents in creating employment, providing funds, building competitiveness and
driving innovation - all essential instruments for growth.

• The private sector, in particular, takes entrepreneurial risks, which is central to how it translates investments into
wealth creation and income generation. This role takes on further significance in the current context, as rising
uncertainties in a rapidly changing global landscape cause economic growth concerns, particularly for emerging
nations.

• In the past, India has shown strong resilience in the face of global volatility and has continued to grow steadily,
placing it among the world’s fastest-growing economies. The Indian economy grew at a rate of 6.8% during 2018
and is projected to grow at a rate of 7% and 7.2% during 2019 and 2020, respectively. The private sector has played
a huge role in India’s development and is largely responsible for the phenomenal growth registered by the country
since the economy was opened up in 1991.
Industry
•Overall gross value added by the industrial
sector has increased.
•Electronics exports increased threefold. It rose
from US $4.4 bn in FY19 to US $11.6 bn in FY22.
•India became the second-largest mobile phone
manufacturer globally.
•Foreign Direct Investment (FDI) flows into the
pharma industry in India have increased by
nearly four times.
•To promote ease of doing business, around
39000 compliances were reduced and more than
3500 provisions were decriminalized.
•The government also introduced the Production
linked incentive scheme for 14 sectors.
ROLE OF PRIVATE SECTOR IN THE INDIAN ECONOMY LIMITATIONS OF PRIVATE SECTOR

Private Sector and Industrial Development Too Much Emphasis on Low-Priority

Industries
Private Sector and Agriculture Emergence of Monopoly Power and
Economic Concentration
Private Sector and Trading
Concentration of Black Money
Private Sector and Infrastructure Industrial Disputes
Industrial Sickness
Private Sector and Services Sector
Regulatory Procedure and Related Delay
Private Sector in the Indian Economy Inadequate Diversification
Reservation for the Small Sector
Private Sector and Small Scale and Lack of Finance and Credit
Cottage Industry Low Ratio of Profit
Unnecessary Control
• CMIE Capex database shows that new investment project announcements by
the Private sector in Q1 of FY24 were 11.6 per cent higher than that in the
corresponding period of the previous year and the highest in Q1 in 14 years.
• Of the new projects announced, the transport services industry saw huge
project announcements accounting for 72 per cent of the total new
investment projects announced, followed by electricity and chemicals.
• As per RBI’s Order Books, Inventories and Capacity Utilisation Survey,
capacity utilisation (CU) in the manufacturing sector increased for the third
successive quarter to 76.3 per cent in Q4 of FY23 from 74.3 per cent recorded
in the previous quarter.
• Bank credit to the infrastructure sector was 1.7 per cent higher in Q1 of
FY24, compared to the corresponding period of the previous year, with the
most remarkable increase in credit availability to cargo ports and airports.
Higher capacity utilisation along with double digit growth in non-food bank
credit signals positive intent of the private sector to undertake fresh
investment going forward.
Unicorns
•The rapid growth in numbers of Indian unicorns (start-ups that have
achieved a valuation of over USD 1 billion) over the past five years has also
become a major focus for foreign direct investment inflows into India.
•By 2022, there were an estimated 107 Indian unicorns, with 44 of these
having reached unicorn status within the 2021 year and 21 in the 2022 year,
according to Invest India, the National Investment Promotion & Facilitation
Agency.
•Indian start-up firms have attracted large-scale foreign direct investment
from global venture capital and private equity firms such as Blackstone and
Sequoia Capital.
•Japan's SoftBank has been a leading global investor in Indian tech start-ups,
having invested over USD 14 billion into Indian firms over the past decade,
with an estimated USD 3 billion of new FDI in calendar 2021.
Creating livelihoods
India has entered the 37-year period of its demographic dividend, which means the expansion of its working-age population
will last until 2055. With a rapidly changing employment landscape, including 11-12 million youth entering the labour force
every year, jobs need to be created and effective skills initiatives put in place. The private sector plays a pivotal role in meeting
this challenge.
The private sector has strong links to higher investments in education and vocational training to bridge skill gaps in the
economy, facilitating skills and training programmes, creating partnerships with educational institutes and experts and, most
importantly, creating a future-ready and talented workforce. India has more than 900 universities and 39,000 colleges of which
78% are privately managed. In addition, most large, private enterprises have created in-house training and skills programmes to
help build the capacities of young workers in line with industry needs.

Driving investments is vital

Private investments by the corporate sector are critical to higher growth rates and economic development. More investment
creates a multiplier effect in the economy by generating both direct and indirect employment, boosting consumption and
fostering further development.
The total gross capital formation in India as a proportion of GDP during 2017-18 stood at around 31%. The private sector,
including small enterprises in the household sector, accounted for about two-thirds of this. Effective partnerships between the
government and private sector in critical areas of infrastructure and long-term investments would expedite development.
Public-private partnerships need to channel private sector funds into crucial areas of development. The Indian government has
introduced various formats in order to attract private investments, especially in roads and highways, airports, industrial parks
and higher education and skill development sectors.
Making use of technology
With the advent of the Fourth Industrial Revolution, India is at the cusp of a technology revolution that could transform
manufacturing and industrial production in the country. An important objective for the private sector must be to facilitate the
transfer or spread of new technology through industry-led initiatives or by building new business models that employ
technology in new ways, which in turn will increase productivity and lead to sustainable economic growth.
The private sector has the power to harness and use technology to unleash greater prosperity for the nation, but it is also
responsible for ensuring that the benefits of technology reach all sections of society. A focus on affordable technology to allow
equal access is imperative for inclusive development. Technology-enabled development in sectors such as health and education
go a long way in ensuring equitable development in emerging economies, which the private sector is best equipped to provide.

Fostering entrepreneurship and innovation

Corporates are integral to fostering innovation and entrepreneurship and ensuring the future progress of an economy.
Private sector investments provide necessary infrastructure that is sustainable, reliable, and can use modern technology to
create new products and services. In most countries, the private sector plays the lead role in research and development
spending, working with universities and institutions to translate new research into markets and crafting innovative
business models and strategies.
India has emerged as a significant player when it comes to converging technology and entrepreneurship. It is the second-
largest start-up nation in the world, with more than 14,000 start-ups recognized under the Startup India scheme. CII has
led initiatives to boost innovation in the country and encourage young entrepreneurs, including the CII Startups Coalition
and CII Startupreneurs which connect new entrepreneurs, investors, mentors and service providers.
Environmental efficiency
Scarcity of natural resources and environmental degradation pose major threats to sustainable growth. Engaging the private
sector has become critical to ensuring environmental efficiency through its greater adoption of cleaner, greener technologies
and the adoption and sharing of best practices. The private sector’s use of new technologies in sustainable production, while
coming at some cost, will promote sustainability, efficiency and better use of inputs and raw materials.
Green growth and climate change action require significant financing and investments. The private sector should lead from
the front and enable more innovation and mobilization of resources, for example, the funds, budgets, communication systems
and necessary infrastructure, which are essential for ecological as well as economic sustainability.