Public Sector vs Private Sector

Difference Between Public and Private Sector

Private sector banks can be defined as banking institutions where the majority of the shares are held by the private equity holders whereas public sector banks (also termed as government banks) can be defined as banking institutions where the majority of the stake is owned by the government.

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 is 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 is operated by Private Companies/Private Individuals comes 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 is numerous example 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 difference 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 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 is a measure that transfers ownership and management of public sector industries (those under the control of the government) to the private sector. This can be accomplished through the outright sale of such enterprise's assets or by allowing private individuals to participate in such industry or enterprise by removing restrictions.read more.
• Both public vs private sector companies can be listed on stock exchanges and their shares can be 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.read more
• Public Sector companies are prone to more Government interferences for multiple reasons including political reasons than their public sector counterparts
• The government has a control on 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 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. read more 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.read more 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

Basis	Public Sector	Private Sector
Definition	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.
Ownership	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.
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 Focus	Public sector companies mostly operate in industries such as Water, Electricity, Education, Oil & Gas, Mining, Defence, Banking, Insurance, and 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 Public Sector get all possible financial support for 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.
Profitability	Companies in 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 Interference	Since Public Sector companies are owned by 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.	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 in comparison to public sector companies.

Conclusion

Public sector vs private sector is basically 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 Government. Having said that the private sector makes 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 chain.

Recommended Articles

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 –

• Public vs Private Accounting
• Public Company vs Private Company
• Private Sector Banks vs Public Sector Banks
• What is Wholly Owned Subsidiary?
• Capital Rationing