The economy at all the level, whether it is developed or developing economy, it is divided into two parts, private and public sector. Private sector economy is owned and operated by an individual entrepreneur whereas public sector economy is under control of government and operated by government.

Public sector of an economy exists in Bhutanese economy before the private sector development. The privatization or private sector development has never been long time back since the country had a policy of isolation till 1961. It was only agriculture sector in private in 1960s and later it was accompanied by some trading activities. And with increase in demand in the market, many more private sectors have developed. The private sector have developed at very fast rate and played an important role in economic development by contributing large share to the gross domestic product (GDP) and employing large number of people. The public sector equally made a significant role in economic development.

The gross domestic product, literacy rate, balance of payment (BoP) and poverty rate are some important indicators of economy. The progress of the economic development fully depends upon these indicators. Private sector contributes huge amount to the GDP and employs a 63% of Bhutanese population by it. Similarly, huge share of GDP is contributed by public sector but only 10% of the population is employed in this sector.

The geographical features, underdeveloped infrastructure, lack of skilled manpower, and financial problem are the main difficulty factors faced by both the sectors to develop. The creation of employment, generation of revenue to the government is the most vital role played by the private sector. Capital formation, maintaining regional balance development and to reduce poverty rate are roles played the public sector.

In conclusion, both the sectors are equally important for the progress of economic activity.

Introduction

The Private sector is the part of economy owned and operated by an individual for their own personal benefit without interference of the government. The private sector is defines as “the part of the economy of a country that is not under the direct control of the government” (Oxford Advanced Learner’s Dictionary, 1948, P.1207). And Clayton (2001, P.256) defines private sector as “the part of the economy made up of private individuals and privately owned business”. The public sector is the part of an economy owned by society and operated to derive a benefit for the whole society with the help of government at all level of an economy. Oxford Advanced Learner’s Dictionary (1948, P.1227) states the public sector as “the part of the economy of a country that is owned or controlled by the government”. But Lisey, Purvis &Steiner (1985, p. 34) states “public sector refers to all production that is in public hands”.

This assignment analysis what role does the private sector and the public play in economic development of modern Bhutan, therefore, a brief history of public and private sector, indicator of an economic development of Bhutan, contribution to GDP from both the sectors, employment opportunities provided and difficulties in development of public and private sector.

History of Private and Public Sector

The development of private sector in Bhutan date back prior to inception of five year plan in 1961s and even before that era, there exist the private sector in the Bhutanese economy. Since the date from the opening up the economy in the 1961s, after the inception of the of five year plan, the only private sector exist was in the agriculture accompanied by some trading activities in the economy. Since then, as time get passed, the demand exceed the supply in economy the more private sector such as hydro-power, wood industries, tourism and many more important industries have supplemented agriculture sector later to meet the demand. By the end of the year 2000, the government had issued over 9000 industrial licenses, 12000 trading licenses and 124 companies (Bhutan Private Sector Survey). According to the Statistical Yearbook of Bhutan (2009) claims royal government made strong commitment to private sector development and privatization in the late 1980s. Therefore the privatization began in the 6FYP period (1987-1992) since it is the engine to the growth of an economy (Royal Monetary Authority of Bhutan). The public sector had existed even before the existence of private sector because most of the private sector was owned as public sector by the government. For an example, Wangchuk (2010) states tourism sector was established in 1974 as public sector but latter in year 1991 it was handed over private sectors.

Economic Indicator of Bhutan

Some of the economic indicators that measure the economy progress of Bhutan are mentioned as below;

Gross Domestic Product (GDP) per capita;

GDP per capita is the total value of final goods and services within the country divided the total population. Real GDP of Bhutan accelerated to 6.7 percent in 2009 which the performance of the economy during the year was progressive but growth rate is below the preceding 5-years (7 percent) since 2003. Bhutan’s per capita income/ GDP was recorded USD 1,827 which is highest in South-Asian countries and unemployment rate had increase from 3.7 percent to 4 percent in 2009 as compared to previous year (Royal Monetary Authority of Bhutan ). The growth rate had accelerated and country’s per capita income is highest in the South-East Asia but there is high public debt. This is because Bhutan had undergone a massive reconstruction of the houses which was destroyed by quake of 21st September 2009 and huge amount is invested in Puna-Tsangchhu hydro-power project through public borrowing.

Literacy Rate;

Literacy rate is one of the imperative indicators of the economic development. The higher literacy rate indicates better economic development. Royal Monetary Authority of Bhutan states, “… unemployment has risen to 4 percent (2009) from 3.7 last year”. The statement shows the literacy rate had shoot up within short span of time after introduction of modern education and there are more people with better qualification.

Balance of Payment;

Positive balance of payment shows better economic development since it shows more inflow of capital, more export than the import and better competition in the international market. Bhutan’s balance of payment shows positive because the negative balance of payment is finance through foreign aids.

Poverty Rate;

Lower the rates of the poverty, better the economic progress and versa-vice. To reduce poverty rate from 23% to 15% is the main object of the 10th five year plan and is an important indicator that indicates the Bhutanese economy at the present times is progressing well

Contribution of Public and Private sector to GDP of Bhutan

The contribution from the machinery and equipment to the GDP has fluctuated every year but the private sector account more than public sector since year 2000 till 2009 in machinery and equipment. In construction side, there is slight decrease in the amount contributed to national income in 2005 to 2006 and hereafter there is a continuous increase in the contribution sector. The private sector shows continuous increase in trend from year 2006 but fluctuation still occurs in public sector in construction sector. Therefore it signifies the government gives priority to privatization rather than public works in the construction side. Similarly the value added from gross fixed capital formation has increased since from a year 2000 till 2009, thus indicating good progress in the development activities.

Employment Contribution from both the sectors

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From the above table it is clearly shows the maximum employment is generated by the agriculture sector. This indicates the country is still on dependent to agriculture sector. On the other hand a contribution from the agriculture sector to GDP has decrease. Therefore, we can make out the country is still in the stage of primitive style of farming without using modern technology. And the next to agriculture sector is private business sector where it gives employment to 66,000 people. Government, Public Corporation, Private Corporation, Armed force and NGO/INGO employs 49900, 10500, 8500, 4900 and 1000 respectively.

Penjor (2011) states that 63% of Bhutanese population is employed in private sector followed by the government with 24%, 10% in public sector and 3% in non-governmental Organization.

Difficulties in the Development of Private and Public Sector in Bhutan

Geographical feature;

Geographical feature such as gentle slope, rugged terrain and climate condition in some place have played a vital role in the developing the private sector. Most of the place in Bhutan have slope of more than 30 degree which requires huge amount for the construction roads, water supply, power supply, which leads for the failure to set up the private and public sector development.

Underdeveloped Infrastructure and lack of skilled people;

The lack of infrastructure and skilled manpower had been major factor that makes difficulties in developing the private and public sectors and it force both the sectors to be technically backward and slow in the progress of the development activities.

Financial Problem;

Financial Institutions in Bhutan are not in position to lend an amount that is required by the entrepreneurs to develop a private and public sector and to purchase modern and productive technology which is very much required. Therefore, government and entrepreneurs are force to lend loans from other countries and that increases the public debt of the country.

Lack of competition;

Bhutanese economy lacks the competition in domestic as well in the international market. It is only hydro-power project that compete in the international market and generates revenue for the country. In some case, the market operates with monopoly power and enjoys the benefit, this leads to the increase in the gap of rich and poor, therefore, richer become richer and poor people remain as it is. Lack of competition thus leads to difficulty to develop public and private the sector in Bhutan.

Role of Private Sector

Creation of Employment Opportunities;

The private sector creates and provides vast opportunities of employment for the both skilled and unskilled workers. It requires large number of work to run private sectors.

Generation of revenue to the government;

Large amount of the revenue is generated through the private sector by the government by imposing taxes on the activities carried out by the private sector. And the GDP of the country and per capita income increase and thus living standard improves in the economy.

Role of Public sector;

The revenue generated by the public sectors directly into the capital formation.

The development of the public sector also maintains regional balance development through the development of equal infrastructure, roads, schools etc.

It also reduces the poverty through equal distribution of income.

Conclusion

Since private sector is an engine to the economic development, it is recommended that government should have certain policies such as incentives to develop private sector, different financial institution for private sector development, tax redemption, the entrepreneur access to the credit (loan) facilities at the lower interest rate and direct foreign investment (FDI) to private sector. But, on other hand, government should not leave public sector as an unproductive (idle) in economy.