Asked in
Business & Finance
Politics and Government

Problems faced by private sector in India?


User Avatar
Wiki User
April 12, 2009 5:02PM

The private sector had not been given a significant role in the economic development. The government has entrusted the basic and capital goods industries to the public sector and made it the prime mover of economic development. As a consequence, the private sector has to be satisfied with the secondary role assigned to it. The most important problem was delays due to regulatory structure. There have been too many regulations imposed by the government on the private sector which often resulted in procedural delays. It is estimated that on an average it takes seven years from the conceptual stage to the production stage for any significant investment project to materialise in India. Unrealistic controls influenced by contradictory motives hampered private sector initiative and flexibility. For example, the price controls imposed by the government on many of the goods do not give proper incentive for additional production. Capacity restrictions (with a view to prevent concentration of wealth and economic power) further aggravated the problem. Actually, the government should encourage competition among the rival firms and the resulting increase in production would automatically bring down prices. In complete contrast to this, price controls under conditions of shortage tend to perpetuate shortages, rise of black markets, and possible shifting of investment from controlled items to the production of non-controlled items. Reservation for small scale sector and special initiatives to units in that sector made the large scale sector to stand at a disadvantage. Further the complementarity of the two sectors in the process of growth has been lost. The decentralised sector has been facing the problem of inadequate credit facilities despite the existence of a network of financial institutions. With the economic reforms initiated in 1991, the private sector's prospects appear to be very bright.