National Institute for Competitive Exams (NICE)

1.7 Facilitators of economic development: Public, Private, and

Cooperative Sector

Public Sector:
• Public sector constitutes that part of the national economy which is controlled, either wholly or partly,
by national, provincial, or local governments, and is engaged in the provision of governmental services
to the people such as infrastructure development, public education, health care, security services and
the like.
• Thus, the public sector is a composite of agencies of the government, their spread, and working areas.
• The services provided by the public sector are service-oriented rather than profit-oriented and include
services that a non-payer cannot be excluded from, such as street lighting, and which benefit the entire
society rather than individuals who use the service.
• Thus public sector may take various forms such as:
• Government and its affiliated agencies. (Federal, and Provincial)
• Public enterprises and institutions
• Commissions, councils, and centers
• Local Level governments

Role of the Public Sector in Economic Development:

• Development of a long-term perspective of economic development and the formulation,
implementation monitoring, and evaluation of plans, policies, and programs.
• Creating an enabling environment through legislation, regulation, or investment for other sectors to
engage in economic development.
• Engage in critical areas characterized by heavy investment and long gestation periods such as physical
infrastructure.
• Generate critical employment opportunities by employing in areas such as government bureaucracy,
public enterprises, security forces, and the like.
• The public sector also plays an important role in export promotion and import substitution through the
identification, development, and investment in areas of comparative advantage.
• The public sector makes valuable contributions to the central exchequer in the form of dividends, excise
duty, customs duty, corporate taxes, and the like.
• Helps in the balanced development of the economy and removes regional disparities in development. It
also contributes to rural development through infrastructure development and by locating
development projects in rural areas.
• The public sector contributes towards capital formation by mobilizing savings through public sector
banks and financial institutions and provides medium-term and long-term funds to various sectors.
• Through the export of many products, the public sector contributes to foreign exchange earnings.
• Public sector participation in the economy helps to prevent the concentration of economic powers thus
redressing the problem of inequality of wealth.
• The public sector plays an integral role in the field of agriculture development. It assists in the
manufacture of fertilizers, insecticides and pesticides, and mechanical implements used in agriculture.
• Helps to increase the participation of people in the process of development at the local level and in the
utilization of local skills and resources.

Strengths of Public Sector:

• Have a specific mandate and a broad set of activities.
• Public sector enterprises are well-resourced.
• Have clearly defined responsibilities.
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• Are not profit-oriented and are guided by public welfare.
• Have public approval
• Through progressive taxation and targeted social programs, the public sector can address income
inequality and distribute wealth more equitably.
• During economic downturns, the public sector can invest in infrastructure and social programs.
• The public sector plays a crucial role in funding research and development (R&D) in areas like basic
science, renewable energy, and healthcare.
• The public sector can invest in strategic industries and technologies, safeguarding national interests
from foreign dependence. This includes areas like defense, telecommunications, and critical resources,
ensuring national security and independence.
Problems of Public Sector in Nepal:
• Political interference and frequent changes in leadership and management positions have hampered
the effective functioning and continuation of policies in the public sector.
• Red tape and rule process orientation have hampered flexibility and adaptability in decision-making.
• Lack of profit motive means that the public sector does not have the incentive to enhance efficiency.
• Instances of engaging in corrupt activities.
• Under-utilization of capacity and resources where both the volume and value of output are less than
what can be attained.
• The activities of the public sector are also hampered by trade unionism.
• Corruption and Lack of Transparency
• Inadequate monitoring and evaluation mechanisms make it difficult to assess the effectiveness of public
programs and policies.
• Building effective partnerships between the public and private sectors remains a challenge in Nepal.
Lack of trust, differing priorities, and complex bureaucracy can impede joint investments and initiatives
crucial for economic progress.
• The division of responsibilities across multiple ministries and agencies can lead to overlaps, duplications,
and inefficiency. Lack of coordination and collaboration between different actors hinders holistic
development strategies.
• The public sector in Nepal generally exhibits a low level of investment in research and development,
crucial for technological advancements and adapting to changing economic conditions. This can lead to
stagnation and missed opportunities for generating new sectors and jobs.
• Lack of adequate infrastructure like roads, power grids, and communication networks hinders effective
development and resource mobilization in remote areas. This creates regional disparities and limits
economic opportunities for marginalized communities.

Private Sector:
• It is the profit-oriented non-governmental part of the national economy that operates within the limits
of the law set by the government in expectation of returns on its investment.
• Characteristics of the private sector:
• Has private (individual or group) ownership.
• It is based on profit motive and competition.
• Private financing and management control.
• Focus on efficiency, innovation, professionalism, entrepreneurship, and risk-taking.
• Have flexibility in decision-making.

• Positive aspects of the private sector:

• Marked by competition hence have incentive for innovation and efficiency.
• Are autonomous with minimal political interference.
• Effective organizational structure.
• Responsive to customer needs.
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• Quick to adopt new technologies.
• Flexibility in decision-making.
• Clear responsibilities and accountability structure.
• Effective employee management.
• Negative aspects of private sector:
• Are profit oriented and hence are less concerned about overall public welfare.
• Have tendency to contravene the laws of the land such as taxation.
• May engage in unhealthy competition and restrictive practices.
• Lack public accountability.
• May disregard human values.

Role of Private Sector in Economic Development:

• The private sector plays an important role in the development of various sectors such as hydro power (
investment and management), agriculture( professionalization, commercialization, and diversification),
tourism( investment and promotion), and industries( investment and management).
• The private sector is also the primary provider of employment opportunities where the majority of the
workforce is engaged in the private sector. Be it in the form of large-scale industries, sole enterprises, or
small and cottage industries, the private sector plays an important role in absorbing the burgeoning
workforce.
• The private sector also contributes to the diversification of the economy by engaging in a wide array of
sectors, sectors where the public sector will not or cannot effectively participate. It also widens the
choices of goods and services available to the population thus enhancing their quality of life.
• Through various private financial institutions, the private sector helps in the collection and mobilization
of idle private savings, hence filling the resource gap in the economy.

Role of Private Sector in Economic Development:

• The private sector with its emphasis on profit, efficiency, and innovation helps to bring new ideas and
technologies and instill a sense of entrepreneurship which is critical for the development of the
economy.
• Private sector involvement increases the level of competition in the market hence providing an
incentive to enhance the efficiency of the market. It also ensures the de-concentration of economic
power.
• The private sector is also a major contributor to the state treasury in the form of corporate taxes,
individual taxes, VAT, excise duty, etc.
• Supports the government in the formulation of policies.
• Private sector involvement in society and in social issues through corporate social responsibility
initiatives plays a crucial role in the advancement and growth of society.
• Partner with the government through various models such as PPP to contribute in the infrastructural
development of the country.

Private Sector in 15th plan:

• Major Problems:
• Eroding competitive capacity of domestically produced goods and services due to increasing cost
of production.
• Procedural complexities focus on trading imported goods due to the high cost of setting up new
businesses.
• SEZ and EZ have not come into operation.
• Entrepreneurship has not taken shape as per expectations.
• Dearth of both skilled and unskilled human resources.
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• Challenges:
• Attracting the private sector in productive areas.
• Strengthening micro, small, and medium enterprises.
• Lowering middlemen charges.
• Promoting a competitive environment.
• Utilizing opportunities created by multilateral agreements.
• Opportunities:
• Overall stability after a long transition.
• End of era of power shortage.
• Increasing connectivity with neighbors and access to their markets.
• Strategies:
• Promoting the private sector’s role in commercialization, modernization of agriculture, and
industrialization.
• Increasing quality and competitive capacity of the private sector.
• Making timely corrections in laws to encourage investment and employment creation.

Problem and challenges of Private sectors:

• Frequent changes in policies of the government.
• The culture of entrepreneurship is still in its infancy and current provisions do are not completely
forthcoming in their facilitation.
• Weak regulation of the activities of the private sector.
• Uncertain application of international laws.
• Tendency to flout the laws of the land.
• Limited areas of investment.
• Limited incentives for investment.
• Keeping pace with technological advancements is a challenge for many businesses.
• Increasing emphasis on environmental and social responsibilities adds a layer of complexity to business
operations.

Recommendations:
• Streamline and simplify regulatory processes to reduce bureaucratic hurdles.
• Implement policies and initiatives to improve access to affordable financing for businesses, especially
small and medium-sized enterprises (SMEs)
• Invest in critical infrastructure, such as transportation, energy, and telecommunications, to reduce
operating costs for businesses and enhance overall competitiveness.
• Implement robust anti-corruption measures and promote a transparent and ethical business
environment.
• Foster political stability and policy continuity to provide a predictable business environment
• Invest in education and skill development programs to create a skilled and adaptable workforce.
• Facilitate market access by reducing trade barriers, tariffs, and other obstacles. Engage in international
trade agreements that create favorable conditions for businesses to expand globally.
• Encourage the adoption of technology by providing incentives, training programs, and infrastructure
support.
• Promote sustainable business practices by encouraging corporate social responsibility (CSR) and
adherence to environmental standards.
• Encourage collaboration between the public and private sectors through PPPs.
• Invest in research and development to foster innovation within the private sector. Support initiatives
that promote technology transfer, entrepreneurship, and the development of new products and
services.
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• Ensure that policies are inclusive and consider the needs of diverse businesses, including those owned
by women and minority groups.

Public Private Partnership:

• A Public-Private Partnership (PPP) is an agreement between governmental bodies and organizations in
the private sector to jointly fund, develop, execute, and manage services and projects that have
previously been provided by the public sector. PPPs are created to utilize the advantages of the public
and private sectors to produce more effective and efficient results in a range of public interest areas.
• PPPs are often established to address the limitations of public resources and bring in private sector
efficiency, innovation, and expertise.
• PPPs can cover a wide range of sectors, including infrastructure development (such as roads, bridges,
and airports), public utilities (water supply, sanitation), healthcare, education, and more.
• Risks associated with the project are shared between the public and private sectors.
• Private sector partners often contribute a significant portion of the financing for the project. This can
include equity investment and loans.

PPP in 15th plan:

• Major Problems:
• Low level of stock of capital in the country.
• Mistrust between the public and private sector.
• Lack of legal and procedural clarity.
• Poor implementation of the single-door system.
• Foreign currency risks.
• Challenges:
• Increasing the volume of investment to meet national development goals.
• Ensuring the safety of investment.
• Creating a positive environment to attract private investment.
• Strategies:
• Instituting legal, policy, and institutional provisions for PPP.
• Creating a conducive environment for the safety of investment for partnership in all three levels
of government.
• Prioritizing domestic capital in PPP.
• Prioritizing implementation of projects in “Project Bank” in the PPP model.
What is the cooperative sector?
• The cooperative sector refers to a form of organization where individuals voluntarily come together to
meet common economic, social, and cultural needs and aspirations through a jointly-owned and
democratically controlled enterprise.
• Cooperatives operate across various sectors, including agriculture, finance, consumer goods, and
services.
• The cooperative model is based on principles that emphasize equality, democratic participation, and
mutual benefit.
• The principles of cooperatives, as outlined by the International Cooperative Alliance (ICA) are:
• Voluntary and Open Membership: • Education, Training, and Information:
• Democratic Member Control: • Cooperation Among Cooperatives:
• Member Economic Participation: • Concern for Community:
• Autonomy and Independence:

Role of Cooperative sector in development:

• Cooperatives play a crucial role in the collection and mobilization of local savings.
• Help in the utilization of local skills and resources.
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• Help to fulfill local needs at a reasonable price.
• Play an important role in mitigating economic inequality and promoting an inclusive economic system.
• Aid in increasing domestic production, thereby reducing foreign dependence and improving the status
of the Balance of Payment.
• Provide valuable employment opportunities.
• Support in shifting decision-making power from corporate ownership to large groups of people, where
stakeholders include farmers, small entrepreneurs, women, minorities, workers, and a broad range of
customers. Hence this leads to empowerment of the society and enhances leadership skills and
collective decision-making capacity at the local level.
• Foster entrepreneurial spirit at the local level, thus promoting sustainable social entrepreneurship.
• By providing access to financial services, cooperatives help to promote a culture of saving at the local
level.
• Help to promote human security in a number of ways: food security through agricultural cooperatives,
housing security through housing cooperatives, etc.
• Aid in community building, conflict resolution, and peacebuilding.

Problems faced by Cooperative sectors in Nepal:

• High in number and low in quality.
• Supply-driven rather than demand-driven.
• Growing incidents of fraud and mis-utilization of funds.
• A deficit of skilled human and financial resources has hindered the promotion and entrepreneurial
development of cooperatives.
• Lack of adequate training and orientation has hampered the management cooperatives.
• Growing interference of politics in cooperatives means that they have started to deviate from their
founding principles and values.
• Lack of coordination and cooperation among cooperatives.
• Cooperatives are marked by a weak internal control system and weak internal audit system which has
hampered effective financial management.
• Lack of a comprehensive long-term vision for the development of cooperatives and absence of timely
reforms in existing laws and policies.
• Weak monitoring and evaluation: Inadequate oversight and outdated regulations can limit transparency
and fairness in the sector.
• Cooperatives often struggle to secure funding for expansion and diversification, relying mainly on
member contributions and limited government support.
• Some cooperatives struggle to compete with private businesses due to factors like limited marketing
resources and outdated practices.

Cooperative sectors facilitator of economic development of Nepal: Way forward

• Capacity Building:
• Train leaders and members on cooperative principles, financial management, and leadership
skills.
• Transparency and Accountability:
• Implement robust monitoring and auditing systems to prevent mismanagement and build trust.
• Professionalization:
• Recruit and retain skilled professionals for management and technical roles.
• Access to Finance:
• Facilitate access to funding through loan guarantees, cooperative banks, and innovative
financing models.
• Commercial Viability:
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• Encourage adoption of efficient business practices, diversification of services, and market
research.
• Resource Mobilization:
• Explore fundraising methods beyond member contributions, such as grants and partnerships.
• Knowledge Sharing and Mentorship:
• Build platforms for experienced cooperatives to share best practices and mentor new ones.

Cooperative sectors facilitator of economic development of Nepal: Way forward

• Raise awareness about cooperative principles and successes through campaigns and media outreach.
• Lobby for supportive policies like tax breaks, preferential procurement, and regulatory reforms.
• Foster partnerships with private and public sectors for technical assistance, market access, and joint
ventures.
• Train members and staff on using digital tools for financial management, communication, and
marketing.
• Encourage adoption of relevant technology like e-commerce platforms, online learning platforms, and
data analytics tools.
• Build digital platforms for inter-cooperative communication, resource sharing, and joint marketing
initiatives.
• Facilitate research into new cooperative models, products, and services adapted to local needs.
• Encourage cooperatives to address social and environmental challenges through innovative solutions.
• Help cooperatives access resources and expertise for product development and branding.
• Strengthen the role of apex cooperative bodies in advocacy, training, and resource mobilization.
• Facilitate networks between cooperatives within the same sector for resource sharing and
collaboration.
• Recognize and celebrate successful cooperatives to inspire and motivate others.
• Actively encourage women, youth, and marginalized groups to join and participate in cooperative
activities.
• Empower women to take on leadership roles within cooperatives and ensure equal decision-making
power.
• Develop programs and services catering to the specific needs of women, youth, and vulnerable groups.
• Review and simplify regulations to facilitate cooperative formation and operations.
• Establish efficient and accessible dispute resolution mechanisms within the cooperative sector.
(Troubled Cooperative Management Committee)

Cooperative sector in 15th plan:

• Major Problems:
• The major focus of the cooperatives movement has been on collecting savings and issuing loans
rather than on production and self-employment.
• Many cooperatives have not stayed true to the value of cooperatives and lack good governance
practices.
• Supply-oriented, dual membership, and lack of financial discipline.
• Challenges:
• Focusing on making cooperatives community-based and member-centered through qualitative
improvement rather than quantitative improvement.
• Attaining poverty alleviation outcomes by including women and marginalized sections of society.
• Securing funds mobilized by the sector through appropriate legislation.
• Directing capital mobilized by cooperatives in productive sector.
• Developing institutional capacity to regulate cooperatives.
• Opportunities:
• Recognition by the constitution as a pillar of the national economy.
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• Regulation opportunities as it has structures in all three levels.
• Increasing participation of women in cooperatives.
• Strategies:
• Encouraging cooperatives to be centered on productive sectors.
• Making policy and institutional provisions strong for the promotion of the cooperative sector.
• Developing a unified monitoring mechanism.
• Use of COPOMIS (Cooperatives and Poverty Management Information System)