Open In App

How Public Sector Contributes to the Economic Development of a Nation?

Last Updated : 27 Jul, 2023
Like Article

The public sector of an economy is the part of the economy that provides infrastructure, public transportation, public education, health care, and police and military services, among other things. Governments, as well as other publicly managed or sponsored agencies, corporations, and other entities that supply public programmers, goods, or services, make up the public sector. However, it is not always clear if a specific organization should be included in that umbrella. As a result, particular criteria must be identified to properly define the limits.

The public sector encompasses more than just core government and may intersect with the not-for-profit and private sectors. The public sector is described as a growing ring of institutions, with the central government at the center and agencies and public firms following. A grey zone surrounds this ring, consisting of government-sponsored contractors and publicly held enterprises that may or may not be part of the public sector. Public sector agencies include the police, military, public roads, public transit, and public education. Public companies and NGOs are similar to government organizations in that they produce programmers, goods, or services, but they are not governed by the government and may have revenue sources other than government money.

7 Ways the Public Sector Boost Economic Development

1. By developing Infrastructure: 

Economic development is impossible without the development of infrastructure. Infrastructure investment by the public sector in areas such as power, transportation, communication, basic and heavy industries, irrigation, canals, education, and technical training, and so on has set the way for the country’s agricultural and industrial development, resulting in overall economic growth. These infrastructural facilities produced by the country’s public sector are also dependent on private sector investments.

2. Strong industrial foundation:

Another significant contribution of the public sector is that it has successfully built the country’s strong industrial foundation. With the expansion of public sector enterprises in diverse disciplines such as iron and steel, coal, heavy engineering, heavy electrical machinery, petroleum and natural gas, fertilizers, chemicals, and medicines, the economy’s industrial basis has been significantly strengthened. These industries are also primarily responsible for the development of private sector industries. As a result of creating a solid industrial basis, the public sector has laid the groundwork for the country’s rapid industrialization. Furthermore, the public sector has dominated key industries such as petroleum products, coal, copper, lead, hydro and steam turbines, and so on.

3. Opportunities for employment: 

Employment in the public sector can also be a source of resource redistribution. When governments, for example, create more public sector positions in less affluent areas with higher unemployment and lower salaries, they may be inadvertently draining resources from more affluent areas of the economy to fund those jobs. This happens when tax collection is unified and public sector wages become more uniform. Furthermore, the development of public sector jobs has significant compositional implications on the economy’s various sectors. Employment in government administration, defense, and other government services are available in the public sector.

4. By creating job opportunities

The public sector helps a country’s economic development by promoting rapid economic growth through infrastructure creation and expansion. Hence, it generates job opportunities, which further contribute to the development of the financial resources of a country.

5. Formation of Capital:

The public sector has played a significant role to influence the country’s gross domestic capital production. In India, the public sector’s share in gross domestic capital formation has risen from 3.5 percent in the First five years’ plan to 9.2 percent in the Eighth five years plan. The country’s comparative proportions of public sector gross capital formation likewise changed from 33.67 percent under the First Plan to 50 percent during the Sixth Plan, before falling to 21.9 percent in 2005-06.

6. Export Promotion and Import Substitution: 

Some public sector firms have a track record of attaining import substitution and thereby saving the country’s valuable foreign exchange. In this regard, Bharat Heavy Electricals Limited (BHEL), Bharat Electronics Ltd., Indian Oil Corporations, and the Oil and Natural Gas Commission should be mentioned (ONGC). For example, Hindustan Antibiotics Ltd. (HAL), has cleared the road for import substitution in India.

7. Contributes to community development:

The central exchequer receives a significant amount of revenue from public sector firms in the form of dividends, excise duty, customs duty, corporate taxes, and other sources.

In general, a nation’s economic development can be characterized as long-term growth in per capita income combined with an improved quality of life. As listed below, the public sector contributes to a country’s economic development in a variety of ways:

  • The government owns the majority of assets in the public sector and provides a variety of services for the general public’s benefit. The Steel Authority of India and the Indian Oil Corporation are both government-owned companies.
  • Banks like the State Bank of India and Canara Bank are government-owned banks.
  • The public sector plays a prominent role in a country’s economic development because it undertakes large-scale development projects, whereas the private sector often lacks the resources and motivation to undertake large-scale development projects for the benefit of the people.


The public sector is a component of the economy that includes all levels of government as well as government-controlled businesses. It excludes private businesses, non-profit organizations, and households. The word “public sector” is also used to describe a comparison between the commercial sector and the third, or voluntary, sector. This makes it possible to map the scope of government activity inside the larger economy. The public sector helps a country’s economic development in more ways than one, through its health and education services, which contributes significantly to the Human Development Index. The government also ensures that people have a good life by purchasing food grains at a “fair price” from farmers and providing low-cost power, water, and postal services. It does it with the help of taxes and grants. As a result, it is critical for a nation’s economic development to be based on its human development situation.

Like Article
Suggest improvement
Share your thoughts in the comments

Similar Reads