Key Differences Between Public and Private Sector Businesses

The public and private sectors are the two major streams of business that operate through different structures and play different types of roles in the society and economy. Though the sectors have been major engines for the growth of the Indian economy, providing work opportunities and contributing to GDP, one needs to distinguish between the two so that one can understand their distinct objectives, structures and impacts on society.

This article explores the differences between the public and private sectors, their characteristics and major differences for the benefit of students, professionals and entrepreneurs, alike.

What are Public Sector Businesses?

Public sector business could be defined as the enterprises owned, funded and operated by the government for delivering necessary goods and services to the public. The rationale behind forming an enterprise goes beyond ensuring the existence of public utilities to also ensure advancing economic welfare. Mainly, the purpose and dogma governing such businesses generally seek to and in most cases lack the profit motive.

In the case of India, public sector enterprises are central to infrastructure building and crucial service delivery. Such enterprises are critical in the development of the economy.

Key Characteristics of Public Sector Businesses

1. Government Ownership and Control: Most public sector enterprises are owned and controlled by the government fully or holding a significant share. In India, PSUs like Bharat Heavy Electricals Limited (BHEL) and Indian Oil Corporation (IOC) were wholly owned government businesses.
2. Not Making Profits, Social Welfare: Unlike private businesses, public sector enterprises do not prioritize profit motive but have social welfare as their objective. It is because social enterprise businesses try to serve the community with the necessities of life such as electricity, transportation and healthcare.
3. Funding from the Government Budget: Public sector businesses are primarily funded from the government budget, taxation and sometimes loans. This funding enables them to provide services at a highly subsidized rate to make access easier.
4. Public Accountability and Transparency: Public sector enterprises are accountable to the government and the public. They observe norms relating to transparency, and more often than not are put under audits, public scrutiny and oversight by the regulatory bodies.
5. The Objective of Economic Stability: The public sector also stabilizes the economy through employment and infrastructure creation and price control in necessary sectors, which control inflation.

Examples of Public Sector Businesses in India

In India, state-owned enterprises dominate an important share of the industries, particularly in energy, transportation and finance sectors. Some of these include:

• Indian Railways: The backbone of the transportation sector in India, Government-run department provides the general masses with cheap public transport.
• Oil and Natural Gas Corporation (ONGC): It is a state-owned entity and also carries out oil and gas exploration and production.
• State Bank of India (SBI): A public sector bank, catering to millions in the country.

What are Private Sector Businesses?

The private sector businesses are owned, managed and financed by private individuals, corporations or shareholders. It is mainly characterized as profit-oriented compared to the public sector and it operates under a competitive market environment.

Small family-owned businesses and large multinational corporations are classified under the private sector; these broadly complement innovation, employment and economic growth.

Key Characteristics of Private Sector Businesses

1. Private Ownership and Control: Private sector businesses are owned and managed by private individuals or groups. The decisions are made there to maximize shareholder value, profitability and survival.
2. Profit Motive: The ultimate goal of private sector companies is to earn profits. For businesses, the primary motive includes competitive advantage development, new product development and increasing market share.
3. Source of Funding for Private Organizations: Private enterprises source their finances from private investment, venture capital private equity and loan advances. These organizations do not possess sources of funding in the public sector but depend on private funding to seek growth.
4. Operational Flexibility and Innovation: Small business ventures are flexible in terms of changes in the market. These private enterprises usually are ahead in innovating due to the role they have to play by responding to customer orders and competitor pressure.
5. Public Accountability: In contrast, public sector undertakings have no public accountability. Private enterprises are constrained to only business rules and financial statements presentations to law. However, the counterpart private businesses in the sector do not face the levels of public scrutiny that the public sector business organizations face.

Examples of Private Sector Businesses in India

The Indian private sector includes different industries like technology, manufacturing, retail and finance among others:

• Reliance Industries: The energy, petrochemical and telecommunication interests of a conglomerate.
• Infosys: An IT services and consulting firm that is a global leader, focused on innovation through technology with value efficiency.
• Tata Consultancy Services (TCS): India’s largest IT company, providing services to clients in over 50 countries and constantly driving technology advancement.

Differences Between Public & Private Sector Businesses

Ownership, goals, funding, accountability and even operational approaches do vary significantly between the public and private sectors. These differences reflect the contrasting roles of the economy between the two sectors — where the public sector strives toward stability and welfare and the private sector contributes innovation and economic growth.

Ownership & Management

• Public Sector: Companies owned and managed by the public sector are owned and managed by the government. It means their answerability is to governmental bodies and, indirectly, to the public.
• Private Sector: Privately owned and managed, whose choices shall be such that they favour shareholder interests and profit motives.

Goals & Objectives

• Public Sector: These businesses are more concerned with the welfare of society and attempt to deliver necessary services to maintain the stability of the economic system.
• Private Sector: Driven to maximize returns to shareholders, the private sector has set its targets for increasing market shares to benefit from competitive advantages.

Funding Sources

• Public Sector: It is largely funded by government budgets, taxes and public funds. Therefore even at a low level of profit margins, the business units of the public sector continue to be run.
• Private Sector: Funded by private investors and banks through capital markets whose growth depends on the bottom line because this will depend on the profit to raise funds.

Accountability & Transparency

• Public Sector: Highly accountable and exposes to public audit, disclosure requirements and transparency. These entities are mandated to make periodic disclosures about their financial and operational performance.
• Private Sector: Controlled, Private Sector Enterprises have very little public accountability and follow mainly standard business laws and investor demands.

Market Orientation & Innovation

• Public Sector: Stability and a basic need for the population are underscored. The basic needs mainly translate into scant attention lent to innovation.
• Private Sector: Innovation is a priority in the private business enterprise since it is market-driven, highly competitive and needs to capture the market and satisfy consumer preferences.

Conclusion

The public and private sectors, though having different utilizations, are parts of economic growth and social development. Public sector businesses sustain vital services whereas private sector businesses help bring innovative competition and expansion to the economy. Such differences between these sectors are highly important for professionals and students to make informed decisions regarding their careers and strategic business directions. For example, the public sector and the private sectors maintain a balanced landscape for Indians since these contribute to employment and development as well as dynamic market structures.