CHAPTER 3
PRIVATE, PUBLIC AND GLOBAL ENTERPRISES
In this chapter we shall be studying how the economy is divided into two sectors, public and private.
PRIVATE SECTOR
The private sector consists of business owned by individuals or a group of individuals, as you have learnt in the previous chapter.
PUBLIC SECTOR
The public sector consists of various organisations owned and managed by the government.
FORMS OF ORGANIZING PUBLIC SECTOR ENTERPRISES :
Public Sector
Departmental Undertakings
Statutory Corporation
Government Companies
(i) Departmental undertaking
These enterprises are established as departments of the ministry and are considered part or an extension of the ministry itself.
Examples: railways and post and telegraph department.
Features:
(i) The funding of these enterprises come directly from the Government Treasury and are an annual appropriation from the budget of the Government. The revenue earned by these is also paid into the treasury.
(ii) They are subject to accounting and audit controls applicable to other Government activities.
(iii) The employees of the enterprise are Government servants.
(iv) It is generally considered to be a major subdivision of the Government department and is subject to direct control of the ministry; (v) They are accountable to the ministry since their management is directly under the concerned ministry.
Merits:
(i) These undertakings facilitate the Parliament to exercise effective control over their operations.
(ii) These ensure a high degree of public accountability.
(iii) The revenue earned by the enterprise goes directly to the treasury and hence is a source of income for the Government.
(iv) Where national security is concerned, this form is most suitable.
Limitations:
(i) Departmental undertakings fail to provide flexibility, which is essential for the smooth operation of business.
(ii) There is delay in decision making as employees can not take independent decisions.
(iii) These enterprises are unable to take advantage of business opportunities.
(iv) There is a lot of political interference through the ministry.
Statutory Corporations:
Statutory corporations are public enterprises brought into existence by a Special Act of the Parliament. The Act defines its powers and functions, rules and regulations governing its employees and its relationship with government departments.
Example: SBI, SBSTC, RBI, LIC, etc.
Features:
(i) Statutory corporations are set up under an Act of Parliament and are governed by the provisions of the Act.
(ii) This type of organisation is wholly owned by the state.
(iii) A statutory corporation is a body corporate and can sue and be sued, enter into contract and acquire property in its own name.
(iv) This type of enterprise is usually independently financed.
(v) A statutory corporation is not subject to the same accounting and audit procedures.
(vi) The employees of these enterprises are not government or civil servants.
The conditions of service of the employees are governed by the provisions of the Act itself.
Merits
(i) They enjoy independence in their functioning and a high degree of operational flexibility.
(ii) Since the funds of these organisations do not come from the central budget, the government generally does not interfere in their financial matters, including their income and receipts.
(iii) Since they are autonomous organisations they frame their own policies and procedures within the powers assigned to them by the Act.
(vi) A statutory corporation is a valuable instrument for economic development. It has the power of the government.
Limitations:
(i) In reality, a statutory corporation does not enjoy as much operational flexibility.
(ii) Government and political interference has always been there in major decisions or where huge funds are involved.
(iii) Where there is dealing with public, rampant corruption exists.
(iv) The government has a practice of appointing advisory to the Corporation Board.
Government Company:
According to the Indian Companies Act 1956, a government company means any company in which not less than 51 percent of the paid up capital is held by the central government.
Features:
(i) It is an organisation created by the Indian Companies Act, 1956.
(ii) The company can file a suit in a court of law against any third party and be sued.
(iii) The company can enter into a contract and can acquire property in its own name.
(iv) The employees of the company are appointed according to their own rules and regulations as contained in the Memorandum and Articles of Association of the company.
(vi) These companies are exempted from the accounting and audit rules and procedures.
(vii) The government company obtains its funds from government shareholdings and other private shareholders.
Advantages:
(i) These companies by providing goods and services at reasonable prices.
(ii) A separate Act in the Parliament is not required.
(iii) It enjoys autonomy in all management decisions.
(iv) It has a separate legal entity, apart from the Government.
Limitations:
(i) Since the Government is the only shareholder in some of the Companies, the provisions of the Companies Act does not have much relevance.
(ii) It evades constitutional responsibility.
(iii) It is not answerable directly to the parliament.
(iv) The management and administration is in the hand of government who do not work efficiently.
CHANGING ROLE OF PUBLIC SECTOR
(i) Development of infrastructure:
The private sector did not show any initiative to invest in heavy industries or develop it in any manner.
It was only the government which could mobilize huge capital, coordinate industrial construction and train technicians and workforce.
Investments were to be made to:
[a] Steel plants, power generation plants.
[b] Fertilizers, pharmaceuticals, petro-chemicals, newsprint, medium and heavy engineering.
[c] Future investments like hotels, project management, consultancies, textiles, automobiles, etc.
(ii) Regional balance:
The government is responsible for developing all regions and states in a balanced way and removing regional disparities.
Development of backward regions so as to ensure a regional balance in the country.
(iii) Economies of scale: Where large scale industries are required to be set up with huge capital outlay, the public sector had to step in to take advantage of economies of scale.
(iv) Check over concentration of economic power:
The public sector acts as a check over the private sector. In the private sector there are very few industrial houses which would be willing to invest in heavy industries with the result that wealth gets concentrated in a few hands and monopolistic practices are encouraged. This gives rise to inequalities in income, which is detrimental to society.
(v) Import substitution:
Public sector companies involved in heavy engineering which would help in import substitution were established.
Ex: STC and MMTC.
(vi) Government policy towards the public sector since 1991:
The Government of India had introduced four major reforms in the public sector in its new industrial policy in 1991.
(a) Reduction in the number of industries reserved for the public sector from 17 to 8 (and then to 3):
In 2001, only three industries were reserved exclusively for the public sector. These are atomic energy, arms and rail transport.
This meant that the private sector could enter all areas (except the three) and the public sector would have to compete with them.
Therefore, both the public sector and the private sector need to be viewed as mutually complementary parts of the national sector.
(b) Disinvestment of shares of a select set of public sector enterprises:
Disinvestment involves the sale of the equity shares to the private sector and the public. The objective was to raise resources.
(c) Policy regarding sick units to be the same as that for the private sector:
All public sector units were referred to the Board of Industrial and Financial Reconstruction to decide whether a sick unit was to be restructured or closed down.
(d) Memorandum of Understanding:
Under this system, public sector units were given clear targets and operational autonomy for achieving those targets.
GLOBAL ENTERPRISES
GLOBAL ENTERPRISES also known as "Multi National Corporations" (MNCs).
Multi means 'many' and National means 'countries'. These companies operate in several countries and have their in impact on international economy.
Ex: Nike, Sony, KFC, iPhone, etc.
Features:
(i) Huge capital resources:
These companies possesses huge financial resources and the ability to raise funds from different sources.
(ii) Advanced technology:
These enterprises possess technological superiority in their methods of production.
(iii) Product innovation:
MNC's have highly sophisticated research and development departments engaged in the task of developing new products and superior designs of existing products.
Ex: Avg. company 'Mountai due introduce grow well', to attract youth customer.
KFC introduce 'veg. ginger', 'potato crisper' in their menu.
(iv) Marketing strategies:
The marketing strategies in order to increase their sales in a short period. They posses a more reliable and up-to-date market information system.
(v) Expansion of market territory:
Their international image also builds up and their market territory expands enabling them to become international brands.
(vi) Centralized control:
They have their headquarters in their home country and exercise control over all branches and subsidiaries.
(ii) Foreign collaboration:
MNCs may collaborate with companies in the public and private sector in the foreign country.
JOINT VENTURES
When two businesses agree to join together for a common purpose and mutual benefit, it gives rise to a joint ventures.
A joint venture may also be the result of an agreement between two businesses in different countries.
Ex: Maruti Suzuki
Q. What are the Benefits of Joint Ventures?
Ans. (i) Increased resources and capacity:
Joining hands with another or teaming up adds to existing resources and capacity enabling the joint venture company to grow and expand more quickly and efficiently.
(ii) Access to new markets and distribution networks:
When a business enters into a joint venture with a partner from another country, it opens up a vast growing market.
(iii) Access to technology:
Advanced techniques of production leading to superior quality products saves a lot of time, energy and investment as they do not have to develop their own technology.
(iv) Innovation:
Joint ventures allow business to come up with something new and creative for the same market.
(v) Low cost of production:
When international corporations invest in India, they benefit immensely due to the lower cost of production. They are able to get quality products for their global requirements
(vi) Established brand name:
When two businesses enter into a joint venture one of the parties benefits from the other’s goodwill which has already been established in the market.
Q. What do you mean by PPP?
Ans. Public Private Partnership describe a government service and private business which is funded and operated through partnership of government and private sector companies. This scheme are also referred PPP or P3.
Its Feature:
[i] It is a contract between public sector and private sector.
[ii] The government may provide capital subsidy.
[iii] PPP is suitable for high priority project.
Ex: Lucknow Metro Rail Company
[iv] The revenue is share between the government and private company is greed ratio.
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PRIVATE, PUBLIC AND GLOBAL ENTERPRISES
In this chapter we shall be studying how the economy is divided into two sectors, public and private.
PRIVATE SECTOR
The private sector consists of business owned by individuals or a group of individuals, as you have learnt in the previous chapter.
PUBLIC SECTOR
The public sector consists of various organisations owned and managed by the government.
FORMS OF ORGANIZING PUBLIC SECTOR ENTERPRISES :
Public Sector
Departmental Undertakings
Statutory Corporation
Government Companies
(i) Departmental undertaking
These enterprises are established as departments of the ministry and are considered part or an extension of the ministry itself.
Examples: railways and post and telegraph department.
Features:
(i) The funding of these enterprises come directly from the Government Treasury and are an annual appropriation from the budget of the Government. The revenue earned by these is also paid into the treasury.
(ii) They are subject to accounting and audit controls applicable to other Government activities.
(iii) The employees of the enterprise are Government servants.
(iv) It is generally considered to be a major subdivision of the Government department and is subject to direct control of the ministry; (v) They are accountable to the ministry since their management is directly under the concerned ministry.
Merits:
(i) These undertakings facilitate the Parliament to exercise effective control over their operations.
(ii) These ensure a high degree of public accountability.
(iii) The revenue earned by the enterprise goes directly to the treasury and hence is a source of income for the Government.
(iv) Where national security is concerned, this form is most suitable.
Limitations:
(i) Departmental undertakings fail to provide flexibility, which is essential for the smooth operation of business.
(ii) There is delay in decision making as employees can not take independent decisions.
(iii) These enterprises are unable to take advantage of business opportunities.
(iv) There is a lot of political interference through the ministry.
Statutory Corporations:
Statutory corporations are public enterprises brought into existence by a Special Act of the Parliament. The Act defines its powers and functions, rules and regulations governing its employees and its relationship with government departments.
Example: SBI, SBSTC, RBI, LIC, etc.
Features:
(i) Statutory corporations are set up under an Act of Parliament and are governed by the provisions of the Act.
(ii) This type of organisation is wholly owned by the state.
(iii) A statutory corporation is a body corporate and can sue and be sued, enter into contract and acquire property in its own name.
(iv) This type of enterprise is usually independently financed.
(v) A statutory corporation is not subject to the same accounting and audit procedures.
(vi) The employees of these enterprises are not government or civil servants.
The conditions of service of the employees are governed by the provisions of the Act itself.
Merits
(i) They enjoy independence in their functioning and a high degree of operational flexibility.
(ii) Since the funds of these organisations do not come from the central budget, the government generally does not interfere in their financial matters, including their income and receipts.
(iii) Since they are autonomous organisations they frame their own policies and procedures within the powers assigned to them by the Act.
(vi) A statutory corporation is a valuable instrument for economic development. It has the power of the government.
Limitations:
(i) In reality, a statutory corporation does not enjoy as much operational flexibility.
(ii) Government and political interference has always been there in major decisions or where huge funds are involved.
(iii) Where there is dealing with public, rampant corruption exists.
(iv) The government has a practice of appointing advisory to the Corporation Board.
Government Company:
According to the Indian Companies Act 1956, a government company means any company in which not less than 51 percent of the paid up capital is held by the central government.
Features:
(i) It is an organisation created by the Indian Companies Act, 1956.
(ii) The company can file a suit in a court of law against any third party and be sued.
(iii) The company can enter into a contract and can acquire property in its own name.
(iv) The employees of the company are appointed according to their own rules and regulations as contained in the Memorandum and Articles of Association of the company.
(vi) These companies are exempted from the accounting and audit rules and procedures.
(vii) The government company obtains its funds from government shareholdings and other private shareholders.
Advantages:
(i) These companies by providing goods and services at reasonable prices.
(ii) A separate Act in the Parliament is not required.
(iii) It enjoys autonomy in all management decisions.
(iv) It has a separate legal entity, apart from the Government.
Limitations:
(i) Since the Government is the only shareholder in some of the Companies, the provisions of the Companies Act does not have much relevance.
(ii) It evades constitutional responsibility.
(iii) It is not answerable directly to the parliament.
(iv) The management and administration is in the hand of government who do not work efficiently.
CHANGING ROLE OF PUBLIC SECTOR
(i) Development of infrastructure:
The private sector did not show any initiative to invest in heavy industries or develop it in any manner.
It was only the government which could mobilize huge capital, coordinate industrial construction and train technicians and workforce.
Investments were to be made to:
[a] Steel plants, power generation plants.
[b] Fertilizers, pharmaceuticals, petro-chemicals, newsprint, medium and heavy engineering.
[c] Future investments like hotels, project management, consultancies, textiles, automobiles, etc.
(ii) Regional balance:
The government is responsible for developing all regions and states in a balanced way and removing regional disparities.
Development of backward regions so as to ensure a regional balance in the country.
(iii) Economies of scale: Where large scale industries are required to be set up with huge capital outlay, the public sector had to step in to take advantage of economies of scale.
(iv) Check over concentration of economic power:
The public sector acts as a check over the private sector. In the private sector there are very few industrial houses which would be willing to invest in heavy industries with the result that wealth gets concentrated in a few hands and monopolistic practices are encouraged. This gives rise to inequalities in income, which is detrimental to society.
(v) Import substitution:
Public sector companies involved in heavy engineering which would help in import substitution were established.
Ex: STC and MMTC.
(vi) Government policy towards the public sector since 1991:
The Government of India had introduced four major reforms in the public sector in its new industrial policy in 1991.
(a) Reduction in the number of industries reserved for the public sector from 17 to 8 (and then to 3):
In 2001, only three industries were reserved exclusively for the public sector. These are atomic energy, arms and rail transport.
This meant that the private sector could enter all areas (except the three) and the public sector would have to compete with them.
Therefore, both the public sector and the private sector need to be viewed as mutually complementary parts of the national sector.
(b) Disinvestment of shares of a select set of public sector enterprises:
Disinvestment involves the sale of the equity shares to the private sector and the public. The objective was to raise resources.
(c) Policy regarding sick units to be the same as that for the private sector:
All public sector units were referred to the Board of Industrial and Financial Reconstruction to decide whether a sick unit was to be restructured or closed down.
(d) Memorandum of Understanding:
Under this system, public sector units were given clear targets and operational autonomy for achieving those targets.
GLOBAL ENTERPRISES
GLOBAL ENTERPRISES also known as "Multi National Corporations" (MNCs).
Multi means 'many' and National means 'countries'. These companies operate in several countries and have their in impact on international economy.
Ex: Nike, Sony, KFC, iPhone, etc.
Features:
(i) Huge capital resources:
These companies possesses huge financial resources and the ability to raise funds from different sources.
(ii) Advanced technology:
These enterprises possess technological superiority in their methods of production.
(iii) Product innovation:
MNC's have highly sophisticated research and development departments engaged in the task of developing new products and superior designs of existing products.
Ex: Avg. company 'Mountai due introduce grow well', to attract youth customer.
KFC introduce 'veg. ginger', 'potato crisper' in their menu.
(iv) Marketing strategies:
The marketing strategies in order to increase their sales in a short period. They posses a more reliable and up-to-date market information system.
(v) Expansion of market territory:
Their international image also builds up and their market territory expands enabling them to become international brands.
(vi) Centralized control:
They have their headquarters in their home country and exercise control over all branches and subsidiaries.
(ii) Foreign collaboration:
MNCs may collaborate with companies in the public and private sector in the foreign country.
JOINT VENTURES
When two businesses agree to join together for a common purpose and mutual benefit, it gives rise to a joint ventures.
A joint venture may also be the result of an agreement between two businesses in different countries.
Ex: Maruti Suzuki
Q. What are the Benefits of Joint Ventures?
Ans. (i) Increased resources and capacity:
Joining hands with another or teaming up adds to existing resources and capacity enabling the joint venture company to grow and expand more quickly and efficiently.
(ii) Access to new markets and distribution networks:
When a business enters into a joint venture with a partner from another country, it opens up a vast growing market.
(iii) Access to technology:
Advanced techniques of production leading to superior quality products saves a lot of time, energy and investment as they do not have to develop their own technology.
(iv) Innovation:
Joint ventures allow business to come up with something new and creative for the same market.
(v) Low cost of production:
When international corporations invest in India, they benefit immensely due to the lower cost of production. They are able to get quality products for their global requirements
(vi) Established brand name:
When two businesses enter into a joint venture one of the parties benefits from the other’s goodwill which has already been established in the market.
Q. What do you mean by PPP?
Ans. Public Private Partnership describe a government service and private business which is funded and operated through partnership of government and private sector companies. This scheme are also referred PPP or P3.
Its Feature:
[i] It is a contract between public sector and private sector.
[ii] The government may provide capital subsidy.
[iii] PPP is suitable for high priority project.
Ex: Lucknow Metro Rail Company
[iv] The revenue is share between the government and private company is greed ratio.
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