Public Sector vs Private Sector

Article byWallstreetmojo Team
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

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.

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.

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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.

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Public Sector vs Private Sector – Key Differences

The key differences between the Public Sector vs Private Sector are as follows –

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.

BasisPublic SectorPrivate Sector
DefinitionPublic 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.
OwnershipPublic sector companies are owned and managed by Government/Ministries/State Govt./Govt. BodiesPrivate sector companies are owned and managed by Private Individuals and Private Companies.
Primary Purpose 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.
Industry FocusPublic 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 GovernmentCompanies 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 MarketsEntities in Public Sectors are publically traded on exchanges.Entities in Private Sectors are publically traded on exchanges.
Profitability 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.
Government InterferenceSince 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 BusinessPublic Sector companies find it relatively easy to operate in a country because of its proximity to the GovernmentPrivate 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 EmployeesRelatively 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.

Conclusion

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.read more.

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 –

Reader Interactions

Comments

  1. Susanta Kumar Patra says

    Thank you for dealing with most of the aspects about privatization.

  2. Jeneba Siaffa says

    I learnt a lot about public and private sector.

    • Dheeraj Vaidya says

      Thanks for your kind words!

  3. Bela isaiah says

    Briant explanation thanks very much

    • Dheeraj Vaidya says

      Thanks for your kind words!

  4. Kiran says

    Good keep it up .✌

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