The Private And Public Sectors Of Bhutans Economy Economics Essay

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While Bhutan has made significant growth in developing the economy, it is still in its infancy. Moreover, the institution of private and public sector started lately with ending its self-imposed isolation in 1960s wherein the history of private and public sector in Bhutan begins. The private sector in Bhutan is not only regarded as the major engine of growth but also an essential partner in the development of the country. It is seen as the dynamic force behind employment growth, which is likely to make increased levels of productive employment to attract the fast growing labour force. Their contributions towards GDP are quite significant.

Bhutan has made progress in its recent economic structure and dipping poverty. The public sector, particularly hydro-power, has long been the most important source of economic growth, but the government now identifies that developing the private sector is more fundamental. Expansion of public and private sector in Bhutan is held back by the small size of (or no) market, the lack of obligatory infrastructures and the moderately high costs of operating business. Moreover, craggy Mountains dominate the landscape and make the building of transportation networks and other infrastructure facilities difficult and expensive.

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Government sector and private enterprise are the two main important sections of an economy that functions hand-in-hand and without one of it would impossible the balanced growth of economy. These two sections of economy play a lead role in the socio economic development of the country in all aspects of development. Therefore, private enterprises must be encouraged and strict competition is allowed among the private entrepreneurs, so to improve private companies and enhance the rapid economic growth.

Introduction

Bhutan has roughly 700,000 population sustaining with its limited resources within its total area of 38,394 square kilometer. Besides its shallow and narrow economic structure Bhutan is trying excel its socio-economic development at very faster rate, although at its infant stage now. Considering private sector as one of the main keys of development is healing towards its progression in Bhutan.

Private sector and public sector are important segments of any economy. The public and private sector play a key role in the developmental activities of the economy and for the smooth functioning of the government. The growth of private sector indicates the true sense of development in the economy, and private sector is the engine of economic growth. Privatization means the modernization; which enhances the wide range of opportunities to its citizens.

Private sector is that part of economy, sometimes referred to as the citizen sector, which is run by private individual or groups, usually as means of enterprise for profit, and is not controlled by state. On contrary, the part of the economy concerned with providing basic government services. The services offered by the public sector vary from country to country. Public sector activity in Bhutan includes delivering social security, administering urban planning, organizing national defense, public roads, primary education and healthcare centers, etc.

This assignment contains analysis of role of private and public sector in the economic development of modern Bhutan. Moreover, it also discusses the series of economic indicators, its contribution to GDP, opportunities, and some of the challenges in the development of both the sectors.

Definition: the public and the private sector

The economy is composed of private and public sector, which may be differed slightly. However, each sector is characterized as below:

Private sector: "Private sector or private enterprise refers to all types of individual or corporate enterprise, domestic and foreign, in any field of production activity. Private sector enterprises are characterized by ownership in management in private hands, personal initiatives and profit motive", (Datt & Sundharam, 2006, p.217). Private sector ccomprises of business activity, which is self financed and run by private individuals or in group and that are purposefully operated for profit motive.

Public sector: According to Dhingra (1986), "private sector can be defined as an enterprise where there is no private ownership, where its functions are not merely confined to the maximization of profits or the promotion of the private interest of the enterprise, but are governed by public". Economy concerned with providing basic government services that vary from country to country. Public sector service in Bhutan consists of providing social security, managing urban planning, arranging national protection, public roads, primary education and healthcare centers, etc.

Brief history of private and public sector development in Bhutan

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The history of private and public sector enterprise development in Bhutan begins from the day where Bhutan opened its door to outside world after pursue of long self-imposed policy of isolation. In other words, the history of private and public sector in Bhutan can be traced back to the age of modern Bhutan, which is the implementation of the development plans in 1961. Prior to 1960s Bhutanese economy was closed economy, there wasn't any external threat and Bhutan was pursuing the extreme policy of isolation. There were no monetary system people exchanged goods for goods; it was purely a traditional economy. Although, the development of different sectors in Bhutanese economy started lately, since the inception of development plans in 1961, but the rate of development seems faster. The Bhutanese private sector has expanded rapidly over the last four decades of development but is still relatively small and underdeveloped. Unlike many countries with well-established mercantile traditions, Bhutan does not have any extended history of private enterprise (Planning Commission Secretariat, 1999, p.60). Before the beginning of planned development activities and the recent modernization of the economy, private enterprise was mainly limited to little trade of small agricultural surpluses and a few handcrafted products.

Indicator of economic development of Bhutan

Table 1. shows the key indicators of economic development of Bhutan

Indicators

2005

2006

2007

2008

2009

1

GDP (Nu. Million)

At current prices

36,112.13

40,673.52

49,456.60

54,712.88

61,223.46

At constant prices

28,879.35

30,857.41

36,388.85

38,087.98

40,650.64

2

GDP (US$ Million)

At current prices

818.87

897.67

1,196.05

1,257.77

1,264.69

At constant prices

654.86

681.03

880.02

875.59

839.72

3

GNI (Nu. Million)

31,425.22

41,264.08

45,209.53

46,696.42

55,381.49

4

GDP Growth Rate (%)

At current prices

13.40

12.63

21.59

10.63

11.90

At constant prices

7.12

6.85

17.93

4.67

6.73

5

Inflation (%)

Implicit GDP Deflator

5.86

5.41

3.11

5.69

4.85

CPI

5.06

4.99

5.15

8.31

4.41

6

Govt. Expenditure as % to GDP

Current Expenditure

18.25

17.51

16.17

20.36

18.26

Capital Expenditure

13.74

16.47

16.99

19.85

15.18

7

Govt. Revenue as % to GDP

Domestic Revenue

17.96

20.88

22.67

24.12

24.25

Other Receipts

14.95

15.27

12.07

14.09

13.75

8

Govt. Dept as % to GDP

India

48.47

45.20

37.73

36.87

32.40

Others

58.07

55.38

28.04

28.13

42.80

9

Exchange Rate (Nu/$)

44.01

45.31

41.35

43.51

48.41

10

GDP per Capita

In Nu.

56,869.50

62,864.79

75,047.95

81,539.46

89,963.04

In US$

1,289.56

1,387.44

1,814.94

1,874.47

1,851.66

11

Population (million)

0.635

0.647

0.659

0.671

0.683

Sources: National Accounts Statistics; 2009, National Statistics Bureau

GDP (in million Nu.) at both the current price and constant price increases fairly over the period of time (i.e. from 2005-2009), which indicates the socio-economic development of the country. The GNI (million Nu.) had increased from 31,425.22 in 2005 to 55,381.49 in 2009. The rate of inflation on the other hand has practically gone down to 3.11 in 2007 and there is bit of oscillation that has risen to 5.69 in 2008.

Government expenditure as percentage to GDP has decreased from 18.25 in 2005 to 16.17 in 2007 which has increased to 20.36 in 2008 once again gone down to 18.26 in 2009. There is a fluctuation in the govt. expenditure over the time. But the domestic revenue has increased yearly which has recorded to 24.25 percent in 2009 and that indicates that Bhutan is generating much of revenue from the sale of hydropower energy. Bhutanese GDP per capita was Nu. 56,869.50 in 2005, which has increased to Nu. 75,047.95 in 2007 and has further augmented to 89,963.04 in 2009. Besides this large amount of GDP per capita there is a wide range of disparities in the economy.

Population growth is another indicator of economic development of the country. Unless there are adequate numbers of population economy is not considered as developed economy. There for Bhutanese population is increasing every year that has recorded to 0.683 million in 2009. It would be wise to say the Bhutan is still need of more population so to consider as one of the developed nations of the world.

Contribution of public and private sector towards GDP

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Agriculture sector in Bhutan has been the backbone of our economy since the time immemorial, and the agriculture productivity has increased because of the agriculture proper, which confirms a modest growth of 3 percent per annum. Apart from this sector, construction and manufacturing contributes significant shares to the GDP of country at an average growth rate of 6.5 percent and 13.5 percent respectively. This is because of the commissioning of Chukha Hydropower Project and other private companies like BCCL, BBPL, PCAL, BFAL etc. Moreover the under construction of hydropower projects like PHPA, Kholongchu Hydropower Project, Mangdichu Hydropower Project, Dungsam Cement Corporation Ltd, would contribute a significant share to our GDP and would definitely boost our economy.

Table 2. Shows the gross domestic product (GDP) or value of all final goods and services produced within a nation in a given year

Year

GDP (purchasing power parity) (Billion $)

2000

2.1

2001

2.3

2002

2.5

2003

2.7

2004

2.7

2005

2.9

2006

2.9

2007

2.9

2008

3.359

2009

2.731

Courtesy: http://www.indexmundi.com/g/g.aspx?c=bt&v=65

Chart 1. Represents the GDP (purchasing power parity) of different year

The above graph shows the representation of the country's GDP (purchasing power parity) of different years (2000-2009). It is clear from the chart that the GDP of our country is increasing fairly from 2000 until 2003. But in 2003 and 2004 it remained constant at 2.7b, where the developments lag far behind and government had to spend all its budgets on 2003 warfare. The maximum GDP was in the year 2008 that recorded 3.36b of total GDP, which might be because of the Tala Hydropower Project. However, it has decreased to 2.73b in the subsequent year.

Employment opportunities in both the sectors

Private sector plays a lead role in the process of economic development of country and employment generation. In view of the limited employment growth opportunities in the public sector, the Royal Government has strongly emphasized the need to enhance the attraction for youth to take up work in the private sector. Therefore, the government did

not expect public sector employment to grow rapidly; rather it was the private sector that is expected to play an important role in creating jobs for youths (Bhutan National Human Development, RGoB Report 2005, p.74). Since the private sector remains small and underdeveloped, the creation of adequate quality employment in the sector remains mostly unrealized.

Table 3. Represents the number of person engaged in industrial sectors by employment status and sex, Bhutan, 2000

Sector

Female

All female

Proprietor

Employee

Casual

Skilled

Unskilled

Private company

341.0

0

40.0

149.0

83.0

69.0

Government Company

1,094.0

0

201.0

383.0

88.0

422.0

Source: Statistical Yearbook of 2010

Chart 2. Shows employment of females in private and public sector

Most of the females have been employed in government sector in all. Until 2000 there wasn't any female proprietor in both the sectors. According to the above representation the more number of females are engaged in government companies than in private companies, whether skilled or unskilled, employee or casual.

Table 4. Number of person engaged in industrial sectors by employment status and sex, Bhutan, 2000

Sector

Male

All male

Proprietor

Employee

Causal

Skilled

Unskilled

Private Company

2,406.0

7.0

601.0

648.0

707.0

443.0

Government Company

3,632.0

-

1,607.0

566.0

789.0

670.0

Source: Statistical Yearbook of 2010

Chart 3. Shows the employment of males in private and public sector

Correspondingly the male employment of private and public sector also shows a similar representation. More of males are employed in government sector which recorded 3,632 and 2,406 in private sector in 2000. There were 7 male proprietors in private sector. The more number of employee in public sector clearly shows that private sector in Bhutan is still not well developed.

Difficulties in development of private and public sector in Bhutan

The private sector in Bhutan is hindered by the small size of the market, the lack of helpful infrastructure and the relatively high costs of doing business. Despite a number of limitations, the private sector has sustained to register modest growth and play its role in the economic development of the country. The factors that have restrained the possible growth of the sector have been recognized as;

"Topography

The relatively small size of the local market,

Lack of entrepreneurial expertise and experience,

Limited access to credit facilities,

High interest charges and

Shortages of domestic skilled and unskilled labour", (Ministry of Planning, 1996, p.66).

According to the ADB report of Country Strategy and Program (2005), When asked about the single largest problem confronting them, Bhutanese firms ranked (i) lack of skilled labor (20% of all firms); (ii) non-competitiveness of products relative to foreign supplies (17%); (iii) bureaucratic obstacles (16%); and (iv) inadequate and costly financing (16%). So, that is why the structure of production is still relatively shallow and the pace of private sector development in both urban and rural areas continues to lag behind expectations. Private sector in Bhutan lack initiative and innovation that generally comes from partnership with foreign firms and as of research and development. The expansion of infrastructure is an absolute prerequisite for the broader economic and social transformation of the country. Regardless of the quick extension of road network, still more than 50 percent of their population resides half a day's walk from the nearest motor road point.

Conclusion

Private and public sectors are two important segments of any economy. Development private and public in Bhutan started lately, with the inception of development plans in 1961. Prior to 1961 Bhutan was pursuing the policy of isolation that was closed economy and purely a traditional economy. With the institution of development plans the private and public sector has generated wide range of economic opportunities and played a very key role in the socio-economic development of the country. These sectors have contributed to the GDP of country to a significant extent. Since private sector is the engine of economic growth, it is therefore necessary to encourage the establishment of private enterprises and allow the strict competition in order to shine the economy. Unfortunately, development of private and public sector in Bhutan is hampered by various causes that require high input cost and some of which are not avoidable.

Recommendation

Since Bhutan is lagging behind the well established private enterprise which is considered to be the engine of economic growth, so in order to raise a well-built private enterprises Bhutan government must encourage private individuals by providing loans at lower interest rates and incentives.

Bhutanese entrepreneurs lack innovation and modernism which is very important in the process of privatization. Therefore, young Bhutanese entrepreneurs must be guided and given intensive training programmes.

Concentration of government and privates venture in particular place is one of the greatest defects in Bhutan, where people get concentrated and congested. So, these schemes must be persuaded in rural areas so that every region of the economy is equally developed.