Difference Between Public and Private Sector
Private sector banks can be defined as banking institutions where the private equity holders hold the majority of the shares. In contrast, public sector banks (also called government) can be defined as banking institutions where the government owns most of the stake.
Table of contents
- Difference Between Public and Private Sector
What is the Public Sector?
Public Sector encompasses the companies, enterprises, or businesses wherein the Government is the owner of the business by way of a majority shareholding in the business. These businesses are controlled, managed, and operated by the Government.
Companies owned, controlled, managed, and operated by Government/Government Bodies come under the public sector.
What is a Private Sector?
Private Sector includes those companies, enterprises, or businesses that are owned by Private Individuals or Private Companies. The companies in the Private Sector are controlled, managed and operated by Private Individuals/Private Entities.
Companies owned, controlled, managed, and operated by Private Companies/Private Individuals come under the private sector.
Companies in Public Sector and Private Sector in the Indian Context
Companies such as National Thermal Power Corporation, Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited, State Bank of India, National Highway Authority Limited are an example of public sector companies operating in power, Oil & Gas, Banking, Roads sectors in India.
There are numerous examples of companies operating in the private sector in India. Reliance Industries Limited, HDFC Limited, HDFC Bank, ICICI Bank are a few examples of private sector companies in an Indian context.
Public Sector vs Private Sector Infographics
Here we provide you with the top 11 differences between Public Sector vs Private Sector.
Public Sector vs Private Sector – Key Differences
The key differences between the Public Sector vs Private Sector are as follows –
- Public sector companies serve the purpose of providing basic public services to larger people, whereas private sector companies are entirely profit-driven.
- The government prefers retaining ownership of companies involved in utility services such as water, electricity, roads, agriculture, and also for industries sensitive to national security. Private sector companies have a large gamut of industries to operate with a growing trend of privatizationPrivatizationPrivatization refers to transferring ownership, operation, and control of a government or public entity to a non-government or private enterprise..
- Both public vs private sector companies can be listed on stock exchanges, and their shares can bePublicly Traded Companies, also called Publicly Listed Companies, are the Companies which list their shares on the public stock exchange allowing the trading of shares to the common public. It means that anybody can sell or buy these companies’ shares from the open market. publically tradedPublically TradedPublicly Traded Companies, also called Publicly Listed Companies, are the Companies which list their shares on the public stock exchange allowing the trading of shares to the common public. It means that anybody can sell or buy these companies’ shares from the open market.
- Public Sector companies are prone to more Government interferences for multiple reasons, including political reasons, than their public sector counterparts
- The government has control over the pricing of the products in public sector entities which is not the case with private companies.
- Public sector companies are relatively better placed than private-sector counterparts in mobilizing funds from the market because of Government backing
- Public sector entities may be asked by the Government to fund the Government budget deficitBudget DeficitBudget Deficit is the shortage of revenue against the expenses. The budgetary deficit could be the sum of deficit from revenue and capital account. by way of declaring the dividendDeclaring The DividendDividend declared is that portion of profits earned that the company’s board of directors decides to pay off as dividends to the shareholders of such company in return to the investment done by the shareholders through the purchase of the company’s securities. which is not the case of private sector entities.
Public Sector vs Private Sector Head to Head Differences
Let’s now look at the head-to-head difference between Public Sector vs Private Sector.
|Public Sector refers to the part of the Country’s overall economy which is controlled by the Government or various Government bodies.
|The private Sector refers to the part of the Country’s overall economy which is controlled by Individuals or Private Companies.
|Public sector companies are owned and managed by Government/Ministries/State Govt./Govt. Bodies
|Private sector companies are owned and managed by Private Individuals and Private Companies.
|Generally, Public Sector entities are driven by the purpose of providing the basic public services to the common public at a reasonable cost in their respective industries by being also self-sustainable and profitable. However, profitability is not the primary motive.
|The purpose of Companies in the Private Sector is profit-making by operating within the rules and compliances of the respective country.
|Public sector companies mostly operate in industries such as Water, Electricity, Education, Oil & Gas, Mining, Defense, Banking, Insurance, Agriculture, etc.
|Private Sector companies generally operate in multiple industries such as Technology, Banking, Financial Services, Manufacturing, Pharmaceuticals, Real Estate, Constructions, etc.
|Financial Support from Government
|Companies in the Public Sector get all possible financial support from the Government even in adverse circumstances wherein the financial health of the companies is not good.
|Very little or no financial support from the Government unless a private entity is too big and systemically important for the Country.
|Listing in Stock Markets
|Entities in Public Sectors are publically traded on exchanges.
|Entities in Private Sectors are publically traded on exchanges.
|Companies in the Public Sector are relatively less profitable because of their primary purpose of not being profitability driven.
|Companies in the Private Sector are relatively more profitable than their public sector counterparts in the same industry.
|Since Public Sector companies are owned by the Government, therefore they are subject to the uncertainties related to unfavorable Government decisions and larger Government interference.
|Private Sector entities are relatively less exposed to Government interference.
|Ease of Doing Business
|Public Sector companies find it relatively easy to operate in a country because of its proximity to the Government
|Private Sector companies find it relatively difficult to operate and manage the regulatory issues and compliance in a country in comparison to Public Sector companies
|Resource Mobilisation (Funding)
|Better placed to raise funds from the market because of backup by Government irrespective of the company’s financial health.
|It depends upon the financial strength of the private sector entity—stronger the financials, better capacity to mobilize funds from the market.
|Work Culture for Employees
|Relatively relaxed work culture with higher job security. However, pay and perks may not be that attractive in comparison to private sector companies.
|Competitive work culture with performance-based career growth and better pay than public sector companies.
The public sector vs private sector is differentiated by the nature of the ownership and their purpose of existence. The businesses operating in both the public and private sectors are critical to the economy of any country and co-exist in the economy. There are certain industries wherein it makes sense for the Government to take ownership and manage the businesses in that industry. Industries like defense wherein many things are sensitive from the national security point of view, are owned and managed by the Government. The private sector makes up a large part of the overall economy of any country, and of late, they have been participating in almost all businesses/industries at multiple levels of the value chainValue ChainValue chain (VC) refers to the sequence of activities and processes a business undertakes to add value to its product or service at every stage from its inception to delivery..
This has been a guide to the Public Sector vs Private Sector. Here we discuss the top difference between Public Sector and Private Sector along with infographics and comparison tables. You may also have a look at the following articles on Corporate Finance –