Contribution To Gdp By Private And Public Sector Economics Essay

INTRODUCTION

After ages of isolation, Bhutan embarked into the developmental process in the year 1961. It followed a planned economic development; and the series of five yearly plans laid the foundation for continuous development for the impending years. This then led to the growth of public sector in Bhutan. Prior to this the public sector had very little part to play in the economy and did very little to develop the country. Whatever the resources the country had remained in the country and people used those resources to sustain their lives. Resources flowed from the people and societies to the government to sustain its status as government. (Ura, 2010) asserts, “Taxes were collected and consumed by the state for many purposes including the maintenance of the country’s security and the upholding of Buddhism”. He further goes on to say that taxes which were collected in kind then, flowed to the monastic bodies or to the administration. Public sector and its roles changed only after the initiation of planned economic development in 1961 under the leadership of third king. The year 1961 marked a reverse flow of resources. Resources were mobilized from the international sphere and invested in the economy. Then there was the need for a public sector to allocate and utilize those resources for developmental purposes. This was when Public sector first really came into existence in the Bhutanese economy.

The section of the economy that is financed and controlled by government is generally called the public sector. (Lipsey, Purvis & Steiner, 1985) defines public sector as, “…all production that is in public hands.” Public sectors are generally concerned with the provision of basic social amenities to the general public. The social amenities include national defense, police protection, fire fighting, urban planning, education, health care, maintenance of law and order in the country and taxation in return for the services provided. It also undertakes the construction of major infrastructure where private sectors are generally reluctant to invest because it involves goods of social nature.

With the public sector coming into existence in the Bhutanese economy, it made significant contribution in the development of the country. Public sector carried out large scale construction of roads. The first two plans entirely emphasized on the development of roads and infrastructure for social services. (Tshering, 1999) writes, “The Dragon has awakened to a new outer look after centuries’ slumber. The construction of proper paved roads was begun in 1959 and the responsibility was shouldered by the Indian Border Roads Organization and the Bhutan Engineering Services…” the public sector was heavily involved in the construction of roads with assistance from the Indian government. Along with the construction government also established the public transport service. (Tshering, 1999) further writes, “…with the birth of Bhutan Government Transport Service (BGTS) during March 1962. This organization was started by the development wing, royal government of Bhutan with a view to create an infrastructure and provide swifter and safer road transport communication in the country.” The public sector provides transport services to the public with the commencement of BGTS. Later in January 1985 this services were privatized.

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During the 1980’s the government slowly began to involve private individuals in the developmental activities. Private sector can be understood in simple language as the part of an economy in which goods and services are produced and distributed by individuals and organizations that are not part of the government. (Lipsey, Purvis & Steiner, 1985) defines private sector as, “all production that is in the private hands.” And (Clayton, 20001) in support defines private sectors as, “the part of the economy made up of private individuals and privately owned business…”

(Bhutan Private Sector survey, 2002) reports, “The government embarked on a series of large projects such as BCCL, BBPL, and Gedu Wood Manufacturing Corporation (GWMC) that were beyond the capacity of the private sector. To pave the way for their entry into large scale enterprises, favorable terms – such as management of the company with an investment of only 15-20 percent of the equity – were offered.” With a decade into development programs, government felt the importance of the involvement of private sector in the developmental activities but private individuals were not in position to carry out such activities. These were mainly because, prior to 1960 most of the private activities carried out were in agriculture and had very little income. So in order to involve private sector in development process and make private individuals capable to take up such activates the government set favorable terms like the one stated above.

Today after five decades of development the private sector is still in the nascent stage and is mainly dominated by medium scale industries. Private companies like, Tashi, Singye, Damchen, Lhaki, Yarkey are rapidly expanding. This assignment will give an insight on roles the private and public sector are playing in the economic development; and the difficulties faced in the development of private and public sector in Bhutan. It will also outline the contribution made to the Gross domestic Product and employment by these sectors. It will then identify the indicators of economic development and put in the picture of the present set-up of Bhutanese Economy.

CONTRIBUTION TO GDP BY PRIVATE AND PUBLIC SECTOR

The economic development of any country is measured in terms of the Gross Domestic Product [GDP]. When a country develops the GDP normally rises. The following table gives overall picture of the GDP of Bhutan for the Past ten years.

Table 1: GDP of Bhutan in Current Prices For Different Years

YEAR

GDP (In Millions)

2000

19,736

2001

22,526

2002

26,000

2002

28,461

2003

31,285

2005

36,112

2006

40,674

2007

49,457

2008

54,713

2009

61,224

Source: National Statistical Yearbook (2010), GDP 2005, 2006,2007,2008,2009

Royal Monetary Authority of Bhutan Annual Report (2009/20010), 2000, 2001,2002,2003,2004

GDP is normally the market value of all final goods and services produced in a country and the contribution comes from both the private and public sectors. Public and Private firms and business are present in every sector of the economy. This section of the assignment will find the contribution made by Private and public sector in different sectors of the economy.

Figure 1: Contribution of GDP in 2009 Prices

Source: National Statistical yearbook (2010)

The figure given above shows the overall sectoral contribution to the national GDP coming from both public and private entrepreneurship. So what this assignment has done here is firstly classify the nature of ownership and operation in that particular sector and added the contribution to either public or private sector.

Agriculture, Livestock and Forestry

According to the National Statistical yearbook (2010) agriculture sector contributes to around 18.2% to the national GDP which is about Nu.11159million in 2009. This assignment has classified agriculture sector into private sector because activities of agriculture sector includes the growing of crops, rearing of livestock, forestry and logging activities which are mostly carried out by private individuals.

Since the revenue earned in this sector is mainly from private individuals, agriculture sector becomes private sector. Public sector too is involved in providing farm machineries, better tools, high yielding verities of seeds, chemical fertilizers and carrying out research but since the final produce and revenue is from the private individual it becomes a private sector and thus the largest private sector contributing 18% to GDP.

Mining and Querying

Mining and Querying contribution to GDP is Nu.1392million which is around 2.3% in 2009. Since mining and quarrying activities are carried out by private companies it contribution to GDP also goes to Private sector. The following table shows the ownership of mining companies in Bhutan and it is entirely owned by Private individuals.

Table 2: Mining Companies in Bhutan

Year

Public

Joint

Private

2007

0

0

27

2008

0

0

47

2009

0

0

53

Source: National Statistical yearbook (2010)

Manufacturing

The manufacturing activities in the country are carried out by both public and private sectors and some joint ventures. National Statistical Bureau [NSB] has subdivided manufacturing into:

Food Processing and Milling

Textile and Clothing

Wood and Paper Products

Mineral Products

Manufacturing share to GDP was 8.2% in 2009 which is equivalent to Nu.5017million. The following Table shows the ownership of these industries which would classify manufacturing into public private and joint sectors

Table 3:Types of Manufacturing Activities and its ownership in different years

MANUFACTURING

2007

2008

2009

Public

Joint

Private

Public

Joint

Private

Public

Joint

Private

Food Processing and Milling

5

1

201

5

1

211

6

1

245

Textile and Clothing

0

0

2

0

0

1

0

0

1

Wood and Paper Products

2

2

513

2

2

570

2

2

647

Mineral Products

0

2

81

0

3

94

1

3

106

Others

7

0

411

8

0

445

8

0

490

Total

14

5

1208

15

6

1321

17

6

1489

Source: National Statistical yearbook (2010)

The Table given below shows the major industrial establishment in the economy and most of them are joint sector ventures so the contribution made from manufacturing is clubbed into joint sector.

Table 4: Major Industries of Bhutan

Industries

Incomes

Army Welfare Project

3 27.8

Bhutan Board Products Limited

413.7

Bhutan Carbide & Chemicals Ltd.

1158.5

Bhutan Fruit Products Limited

201.2

Bhutan Polythene Company

72.7

Penden Cement Authority Ltd.

1784.6

Bhutan Ferro Alloys Limited

1711.8

Bhutan Agro Industries Limited

71.4

S.D. Eastern Bhutan Coal Company Ltd.

197.3

Druk Satair Corporation Limited

468.8

Druk Plaster & Chemicals Limited

51.9

TOTAL

6459.6

Source: Royal Monetary Authority of Bhutan Annual Report (2009/20010)

Electricity and Water supply

Generation of electricity has been the main source of income in the economy off lately. Its share to GDP in 2009 stood at 19.3%. Generation of electricity is undertaken mainly by public sector since private individuals are not in position to make such huge investments.

The electricity in Bhutan is all generated from the hydropower plants which are owned and operated by public sector. Its contribution amounted to Nu.11816million. Public sector also earns a little amount from providing water and sewerage facilities to the general public. The water supply and sewerage contributed around Nu.27 million. So the Contribution made by this sector goes to Public sector.

Construction

Construction of Hydro power projects is the main reason for the growth of construction sector. Its share to GDP is 12.2% which is equal to Nu.7470million. The construction sector is run by private firms. What government does here is that, it tenders out the construction to private contractors including foreign private firms. So the contribution from Construction goes to private sector.

Wholesale and Retail Trade

Wholesale and Retail Trade are largely undertaken by private firms and individuals. The contribution from wholesale and retail trade amounted to Nu. 2935million in 2009 at constant prices and its share to GDP stood at 4.8%. So again the contribution from this sector goes to private sector.

Hotels and Restaurants

Hotels and restaurants are directly correlated with the performance of the tourism sector. The contribution of this sector to the total economy during 2009 at current prices stood at Nu.538 million which is about 1% of the national GDP. All the hotels and Restaurants in the economy are owned by private individuals and the contribution from this sector goes to private sector.

Transport, Storage and Communication

The contribution from transport, storage and communication reached to Nu.5990million. This was contributed mainly by land transportation. According to the (National Account Statistics 2009), the share of land transportation was 66.0 percent, followed by communication at 18.0 percent and air at 8.0 percent.

Table 5: Share of Transport, Storage and Communication

Transport, Storage and Communication

% Contribution

Million Nu.

Share to total GDP

Land Transport

66

3953.40

6.45

Communication

18

1078.20

1.76

Air transport

8

479.20

0.78

Storage

8

479.20

0.78

TOTAL

100

5990

10

Source: National Account Statistics (2010)

Of the total land transportation, the trucks contributed maximum at 66.0 percent, taxis at 22.0 percent and buses at 12.0 percent. Land transport in completely undertaken by private sectors except for two busses between Thimphu and Phuentsholing and two busses between Phuentsholing and Kolkota operated by Bhutan post. So land transport is clubbed into private sector.

In communication the two operators of telecom are Bhutan Telecom which is a joint venture and Tashi Cell which is a privately owned company. The table below gives its customers and coverage in the economy.

Table 6: Telecommunication Provider In 2010

Company

Service

Subscriber

Coverage

Bhutan Telecom

Fixed land line

26,292

20 Dzongkhags

Cellular Mobile Service

312,316

20 Dzongkhags

Internet

NA

20 Dzongkhags

Tashi Cell

Cellular Mobile Service

82,000

14 Dzongkhag

Internet

NA

14 Dzongkhag

Drukcom

Internet Lease line

NA

Thimphu

Samden Tech

Internet lease line

NA

Thimphu

Source: Annual Info-Comm and Transport Statistical Bulletin (2010)

Since Bhutan telecom is the largest telecommunication provider in the country and is a joint sector the contribution from communication is clubbed into private sector. Although there are other telecommunication provider like Tashi Cell, Drukcom and Samden Tech but its actual contribution to communication is not known so it is clubbed into joint sector. Same is the case with different newspapers and Bhutan Broadcasting service (BBS). Storage in the Food Corporation of Bhutan is around 8% and Air transport is again 8% which are both joint sectors. In total the transport, storage and communication contributed almost 10 percent of GDP.

Finance, Insurance, Real-Estate and Business Services

The contribution of the financial institutions, real-estate and business services was Nu.4962million. Its share to GDP accounted for 8.1% in 2009. Financial sectors are mainly owned by joint sector so the contribution goes to joint sector.

Others

The share from other smaller activities includes the Community and Social services. The sector, consisting of public administration and social services, recorded gross value added of Nu.7963million.The overall share of this sector to GDP stood at 13.01%. Private, Social and Recreational Services contributed Nu.276.42 to GDP.

Assignment Findings on the Contribution of Private and Public sector To National GDP in 2009

Table 7: Contribution from Private, Public and Joint sector to GDP in 2009

Sectors

Activities

Million Nu

% Contribution

Private

Agriculture, livestock and Forestry

11,159

18.2

Mining and querying,

1392

3.2

Construction,

7470

12.2

Wholesale and retail trade,

2935

4.8

Hotel and restaurants,

538

0.9 1

Land Transport

3953

6.5

TOTAL

27447

46

Public

Electricity and water supply

11816

19.3

Community and social services

7,963

13.0

Private, social and recreational services

276

1

TOTAL

20055

33

Joint

Manufacturing,

5017

8.2

Finance, insurance and real estate,

4,962

8.1

Communication

1078

2.0

Storage

479

1.0

Air Transport

479

1.0

TOTAL

12015

21

GDP

61223

100

Figure 2: Percentage Contribution to GDP in 2009

EMPLOYMENT CONTRIBUTION FROM BOTH PRIVATE AND PUBLIC SECTOR

The total projected Population in 2009 according to the National statistical Bureau was 6,83,407 out of which 357,307 were male and 3,26,302 females. That made 52.3 percent male and 47.7 percent female. From the total population not all can be considered as working age. The table given below shows the distribution of population by different age group.

Table 8: Population distribution by age by %

Indicators

2001

2003

2004

2006

2009

<15

36.4

35.5

31.3

30.8

31.2

15-64

60.5

59.5

62.3

60.9

62.6

65+

3.1

5.0

6.4

8.3

6.3

Total

100

100

100

100

100

Total labor force

–

40.5

37.4

42.8

50.0

Labour force participaoion rate

56.5

62.9

54.4

61.8

68.5

Source: Labour Force Survey Report (2009)

In 2009, 31% were below the age of 15, 63% were between ages 15 to 64 which is considered the working age group and a mere 6% were above the age 65. This gives a conclusion that in 2009 63% percent of the total population was of the working age. From the 63 % of working age, only 50% are considered as the labor force. This is because many will still be studying and some will be with disabilities. The table given below shows the employment in different sectors of the economy.

Table 9: Percentage distribution of employed persons by gender and economic activity, 2009

Economic Activity

Male

Female

Both

Agricultural and forestry

59.11

72.12

65.37

Mining and quarrying

0.12

0.20

0.16

Manufacturing

1.29

8.38

4.70

Electricity, gas & water supply

1.79

0.40

1.12

Construction

0.80

0.07

0.45

Wholesale & retail trade, repair of motor vehicles, & household goods

0.12

0.00

0.06

Hotels & restaurants

0.92

0.86

0.90

Transport, storage & communication goods

0.31

0.27

0.29

Financial intermediation

0.43

0.20

0.32

Real estate, renting & business activities

0.37

0.13

0.26

Public administration & defense

14.66

2.86

8.99

Education

3.33

2.59

2.97

Health & social work

1.05

0.60

0.83

Other community, social & personal service activities

9.73

7.32

8.57

Private households with employed persons

5.97

3.99

5.02

Total

100

100

100

Source: Labour Force Survey Report (2009)

Assignment Findings on the Contribution of Private and Public sector in Employment

Table 10: Employment in Private, Public and Joint sector

Sectors

Economic Activity

Employment

PRIVATE

Agricultural and forestry

65.37

Mining and quarrying

0.16

Construction

0.45

Wholesale & retail trade, repair of motor vehicles, & household goods

0.06

Hotels & restaurants

0.90

Private households with employed persons

5.02

TOTAL

71.96

JOINT

Manufacturing

4.70

Transport, storage & communication goods

0.29

Financial intermediation

0.32

Real estate, renting & business activities

0.26

TOTAL

5.57

PUBLIC

Electricity, gas & water supply

1.12

Public administration & defense

8.99

Education

2.97

Health & social work

0.83

Other community, social & personal service activities

8.57

TOTAL

21.36

GRAND TOTAL

100

Figure 3: Employment Contribution from Various sectors

INDICATORS OF ECONOMIC DEVELOPMENT OF BHUTAN

The following indicators of economic development will show the present set-up of Bhutanese economy.

Table 11: Indicators of Economic Development (Bhutanese Economy)

Indicators

2009

National GDP

61,224 in current prices

Per capita Income

US$ 21521

Poverty levels

23.2% (2007)

Balance of Payments

9% of GDP deficit in current account

Primary Education Enrollment (PEE)

17,108

Unemployment Rate

4%

Health Coverage

90%

Source: National Statistical Year book (2010), National GDP, PEE and Health coverage

National Budget Financial Year 2010-11,Bop

Economic development policy of the kingdom of Bhutan (2010), Per capita income

10th Five Year Plan 2008-2013 vol. 1, Poverty Rate

Table 12 and Figure 4: GDP and GDP Growth Rate for different Years in Current Prices (2009)

YEAR

GDP (In Millions)

2000

19,736

2001

22,526

2002

26,000

2002

28,461

2003

31,285

2005

36,112

2006

40,674

2007

49,457

2008

54,713

2009

61,224

Source: National Statistical Yearbook (2010), GDP 2005, 2006,2007,2008,2009

Royal Monetary Authority of Bhutan Annual Report (2009/20010), 2000, 2001,2002,2003,2004

The economy’s GDP was Nu.61224million according to NSB andt he country’s per capita income was US$ 21521in 2009 according to the Economic development policy of the kingdom of Bhutan (2010). 10th Five Year Plan 2008-2013 estimated that 23.2 percent of the population was poor in 2007. In absolute numbers it was 146100 individuals. Poverty in rural areas was significantly much higher than in urban areas. Food poverty rate was 5.9 %. Health coverage was 90% according to National statistical yearbook 2009. Bhutan’s current account has been generally on the deficit side as is the case in most developing countries. According to the National Budget Financial Year 2010-11 In the FY 2007-08, it was at 2 % of the GDP while in the FY 2008-09 it was estimated to have worsened to 9% with a deficit of Nu. 5.4 billion. Enrollment in Primary education is on the rise and so is the number of schools, institutions and teachers in 2009. The table below gives a picture of that

Table 13: Enrollment in Pre Primary for different years

Year

Enrollment in Pre Primary

2005

15,518

2006

16,869

2007

16,392

2008

16,432

2009

17,108

Source: National Statistical Yearbook (2010),

Table 14: Educational Infrastructure, Teachers and Sstudents in Different years

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Source: National Statistical Yearbook (2010)

The current unemployment was found to be at 4%. The following table gives a clearer picture of unemployment trends for the past five years.

Table 15: Unemployment Rate in Different Years

Year

Unemployment Rate

2003

1.8

2004

2.5

2005

3.1

2006

3.2

2007

3.7

2009

4

Source: 10th Five Year Plan 2008-2013 vol. 1

Table 16: Difficulties in the Development of Pvt and Public Sector in Bhutan

Private

Public

Financial Constraint

Not enough domestic revenue

High transportation cost.

Shortage of professionals.

Difficult access to finance.

Inadequate infrastructure.

Lack of management skills

Based on Foreign aid and grants

Low productivity of labour

High transportation cost

Access to land

Small domestic market

Inconsistent policies.

Small domestic market

Despite of the late start Bhutan had in the developmental process. Bhutan has undergone rapid changes and has achieved significant progress in the first few decades. Bhutan’s late start to economic development comes as an advantage. Bhutan has learned through the mistakes of other countries and took its steps towards development very cautiously. The growth in per capita income, Gross domestic product, poverty levels, general living conditions of the people and literacy has been very impressive. According to Dorji(2010). Bhutan is considered to have one on the highest economic growth in the South Asia with an annual growth rate of 8.5%. The balance of payment is a little worrying though because most of the foreign reserves are not through trade but through external grant and aids. Bhutan is also creating jobs along with economic growth and unemployment rate of 4% is not at all worrying. It falls below the natural rate of unemployment which is normally 5%. But Bhutan certainly has work to do in reducing the difficulties faced by both public and private in its development.

CONCLUSION

Bhutan began its developmental process in the year 1961. This then led to the growth of public sector in Bhutan. With the public sector coming into existence in the Bhutanese economy, it made significant contribution in the development of the country. Public sector carried out large scale construction of roads and started public transport service in the form of Bhutan government Transport Service. During the 1980’s the government slowly began to involve private individuals in the developmental activities. To pave the road for the private sector to come into the development activities the government set favorable terms like owning a company with just 15-20% share of the company.

In the first section it discussed the share of total GDP from the private, joint and public sectors. What the assignment did was it classified the economic activities given in different reports based on its ownership and operation and found out that 46% of GDP comes from private sector followed by 33% form Public sector and 21% comes from joint ventures of public and private.

In the next section this assignment dealt with the employment contribution from the above mentioned sectors. Just like in GDP contribution it classified economic activities based on operation and ownership. It found out that 72% of the labour force is engaged in private sector where large chunk of labour are employed in agriculture. 21% are employed in Public sector mainly comprising, civil servants and armed personals. The rest 6% are employed in Joint sector. The figure below summarizes all these.

Figure 5: Contribution from the three sectors in GDP and Employment

In the third section it discussed the economic indicators of economic development and brought into picture the present setup of Bhutanese economy. It also pointed out some of the difficulties faced by public and private sector in its development.