Private Sector Enterprises:-
The Private sector consists of business owned by individuals or a group of individuals. The various forms of organisation are sole proprietorship, partnership, joint hindu family, cooperative and company.
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Public Sector Enterprises:-
The public sector consists of various organizations owned and managed by central or state or by both governments. The government participates in economic activity of the country through these enterprises. For example departmental undertaking,public corporation and government company.
FORM OF PUBLIC ORGANISATION:-
A public enterprises may take any particular form of organisation depending upon the nature of its operation and their relationship with the government. The suitability of a particular form of organisation would depend upon its requirements. At the same time, in accordance with general principal, any organisation in the public sector should ensure organisation performance productivity and quality standards.
- DEPARTMENTAL UNDERTAKING
- STATUTORY CORPORATIONS
- GOVERNMENT COMPANY
The forms of organisation which a public enterprise may take are as follows:
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1.DEPARTMENTAL UNDERTAKING:-
This is the oldest and most traditional form of organising public enterprises. These enterprises are established as departments of the ministry and are considered part or an extension of the ministry itself. The Government functions through these departments and the activities performed by them are an integral part of the functioning of the government. Example railway, agriculture, commerce and industry.
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FEATURES:-
- No Separate Entity:- It has no separate legal entity.
- Finance:- It is financed by annual budget allocation of the government and all its earning go to government treasury.
- Accounting & Audit:- The government rules relating to audit & accounting are applicable to it.
- Staffing:- Its employees are government employees & are recruited & appointed as per government rules.
- Accountability:- These are accountable to the concerned ministry.
MERITS:-
- It is more effective in achieving the objective laid down by government as it is under the direct control of government.
- It is a source of government income as its revenue goes to government treasury.
- It is accountable to parliament for all its actions which ensures proper utilization of funds.
- It is suitable for activities where secrecy and strict control is required like defence production.
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DEMERITS:-
- It suffers from interference from minister and top officials in their working.
- It lacks flexibility which is essential for smooth operation of business.
- It suffers from red tapism in day to day work.
- These organisation are usually insensitive to consumer need and do not provide goods and adequate service to them.
- Such organization are managed by civil servants and government officials who may not have the necessary expertise and experience in management.
2.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 department.
This is a corporate body created by the legislature with defined powers and functions and is financially independent with a clear control over a specified area or a particular type of commercial activity. example food corporation of India, life insurance corporation,ISRO.
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FEATURES:-
- It is established under a special act which defines its objects, examppowers and functions.
- It has a separate legal entity.
- Its management is vested in a Board of directors appointed or nominated by government.
- It has its own staff, recruited and appointed as per the provisions of act.
- This type of enterprise is usually independently financed. It obtains funds by borrowing from government or from public or through earnings.
MERITS:-
- Internal Autonomy:- It enjoys a good deal of autonomy in its day to day operations and is free from political interference.
- Quick Decisions:- It can take prompt decisions and quick actions as it is free from the prohibitory rules of government.
- Parliamentary Control:-Their performance is subject to discussion in parliament which ensures proper use of public money.
- Efficient Management:- Their directors and top executives are professionals and experts of different fields.
DEMERITS:-
- In reality, there is not much operational flexibility. It suffers from lot of political interference.
- Usually they enjoy monopoly in their field and do not have profit motive due to which their working turns out to be inefficient.
- Where there is dealing with public, rampant corruption exists. Thus public corporation is suitable for undertaking requiring monopoly powers e.g. public utilities.
3.GOVERNMENT COMPANY:-
According to the section 2(45) of the Companies Act 2013, a government company means any company in which not less than 51 per cent of the paid up capital is held by the central government, or by any state government or partly by one or more State government and includes a company which is a subsidiary of a government company. Example- State trading corporation of India, Hindustan cooperative limited.
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FEATURES:-
- It is registered or incorporated undr companies Act 1956.
- It has a separate legal entity.
- Management is regulated by the provision of companies Act.
- Employees are recited and appointed as per the rules and regulations obtained in Memorandum and Articles of association.
- The government company obtains it funds from government shareholdings and other private shareholdings. It can raise funds from capital market.
MERITS:-
- It has a separate legal entity, apart from the Government.
- These companies by providing goods and services at reasonable prices are able to control the market and curb unhealthy business practices.
- A government company can be established by fulfilling the requirements of the Indian Companies Act. A separate Act in the parliament is not required.
- It enjoys autonomy in all management decisions and takes actions according to business prudence.
DEMERITS:-
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- The government being the sole shareholder, the management and administration rests in the hands of the government. The main purpose of a government company, registered like other companies, is defeated.
- Since the Government is the only shareholder in Some of the companies. The provisions of the Companies Act does not have much relevance.
- It evades constitutional responsibility, which a company financed by the government should have. It is not answerable directly to the Parliament.
GLOBAL ENTERPRISES:-
Multinational company or global enterprises may be defined of a company that has business operations in several countries by having its factories, branches or offices in those countries. But is has its headquarter in one country in which it is incorporated.
Example:- PHILIPS, COCA COLA ,SAMSUNG etc.
FEATURES:-
- Huge capital resources:- These enterprises are characterized by possessing huge financial resources and the ability to raise funds from different sources. They are able to tap funds from various sources. They may issue equity shares, debentures or bonds to the public. They are also in a position to borrow from financial institution and international bank.
- Foreign Collaboration:- Global enterprises usually enter into agreements with Indian companies pertaining to the sale of technology, production of goods, use of brand names for the final products, etc. These MNCs may collaborate with companies in the public and private sector. There are usually various restrictive clauses in the agreement relating to transfer of technology, pricing, dividend payments, tight control by foreign technicians, etc.
- Advanced Technology:- These enterprises possess technological superiorities in their methods of production. They are able to conform to international standards and quality specification. they lead to industrial progress of country in which such corporation operate since they are able to optimally exploit local resources and raw material.
- Product Innovation:- These enterprises are characterized by having highly sophisticated research and development departments engaged in the task of developing new products and superior designs of existing products. Qualitative research requires huge investment which only global enterprises can afford.
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JOINT VENTURES:-
When two or more independent firms together establish a new enterprise by pooling their capital, technology and expertise, it is known as a joint venture.
Example:- Hero cycle of india and Honda Motors Company of Japan jointly established Hero Honda. Similarily, Suzuki Motors of Japan and Maruti of Government of india come together to from Maruti suzuki.
TYPE OF JOINT VENTURES TYPES:-
- Contractual Joint Venture (CJV):- In a contractual joint venture, a new jointly-owned entity is not created. There is only an agreement to work together. The parties do not share ownership of the business but exercise some elements of control in the joint venture. A typical example of a contractual joint venture is a franchisee relationship. Exp PNB Metlife , uber and volvo In such a relationship the key elements are:
- Two or more parties have a common intention- of running a business venture;
- Each party brings some inputs;
- Both parties exercise some control on the business venture
- The relationship is not a transaction-to-transaction relationship but has a character of relatively longer duration.
- Equity-based Joint Venture (EJV) :- An equity joint venture agreement is one in which a separate business entity, jointly owned by two or more parties, is formed in accordance with the agreement of the parties. The key operative factor in such case is joint ownership by two or more parties. The form of business entity may company, partnership firm, trusts, limited liability partnership firms, venture capital funds exp. Air asia india
- There is an agreement to either create a new entity or for one of the parties to join into ownership of an existing entity;
- Shared ownership by the parties involved;
- Shared management of the jointly owned entity;
- Shared responsibilities regarding capital investment and other financing arrangements;
- Shared profits and losses according to the agreement.
A joint venture must be based on memorandum of understanding signed by both parties ,highlighted the bases of joint venture agreement. the trem should be discussed and negotiated to avoid any legal complications at the later stage.
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BENEFITS:-
Business can achieve unexpected gains through joint ventures with a partner. Joint Ventures can prove to be extremely beneficial for both parties involved. One party may have strong potential for growth and innovative ideas, but is still likely to benefit from entering into a joint venture because it enhances its capacity, resources and technical expertise. The major benefits of joint ventures are as follows;
- 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. The new business pools in financial and human resources and is able to face market challenges and take advantage of new opportunities.
- 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. For example, when foreign companies form joint venture companies in India they gain access to the vast Indian Market.
- Access to Technology:- Technology is a major factor for most businesses to enter into joint ventures. 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.
- Innovation:- The markets are increasingly becoming more demanding in terms of new and innovative products. Joint ventures allow business to come up with something new and creative for the same market. Specially foreign partners can come up with innovative products because of new ideas and technology.
- 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. India is becoming an important global source and extremely competitive in many products.
- 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. If the joint venture is in India and with an Indian company, the Indian company does not have to spend time or money is developing a brand name for the product or even a distribution system
- Marketing Strategies:- The marketing strategies of global companies are far more effective than other companies. They use aggressive marketing strategies in order to increase their sales in a short period. They posses a more reliable and up-to-date market information system.
- Expansion of Market Territory:- Their operation and activities extend beyond the physical boundaries of their own countries. Their international image also builds up and their market territory expends enabling them to become international brands.
- Centralized Control:- They have their headquarters in their home country and exercise control over all branches and subsidiaries. However, this control is limited to the broad policy framework of the parent company. There is no interference in day-to-day operations
PUBLIC PRIVATE PARTNERSHIP (PPP):-
The Public Private Partnership model allocates tasks, obligations and risks among the public and private partners in an optimal manner. The public partners in PPP are Government entities, ministries, government departments, municipalities or state owned enterprises. The private partners can be local or foreign (international) and include businesses or investors with technical or financial expertise relevant to the project. PPP also includes NGOs and/or community. Example of ppp redevelopment of railway stations ,internation cricket stadium project.
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FEATURES:-
- Facilitates partnership between public sector and private sector.
- Pertaining high priority project.
- Suitable for big project (capital intensive and heavy industries).
- Public welfare example Delhi Metro Railway Corporation.
- Sharing revenue – Revenue is shared between government and private enterprises in the agreed Ratio.
Short Answer Questions
1.Explain the concept of public sector and private sector.
Ans-
Public sector organisations are owned, controlled and managed by the government or other state-run bodies. Private sector organisations are owned, controlled and managed by individuals, groups or business entities.
2.State the various types of organizations in the private sector.
Ans –
- Sole proprietorship
- Joint Hindu Family business
- Partnership
- Cooperative societies
- Joint Stock Company
3.What are the different kinds of organizations that come under the public sector?
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Ans-
- DEPARTMENTAL UNDERTAKING
- STATUTORY CORPORATIONS
- GOVERNMENT COMPANY
4.List the names of some enterprises under the public sector and classify them.
- Indian railway-departmental undertaking
- Tamil Nadu police
- department- departmental undertaking
- Food cooperation of India-public cooperation
- Tourism cooperation in India -public cooperation
- Coal India ltd-government company
- Steel authority of India- government company
5.Why is the government company form of organization preferred to other types in the public sector?
Ans- Government company form of organization preferred to other types in the public sector because it has management and financial autonomy. the government company come directly under the concern ministry.
6.How does the government maintain a regional balance in the country?
ANS-The government maintain regional balance in the country by paying particular attention to those regions which were lagging behind and public sector industries were deliberately set up. This helps in creating employment opportunities and facilitate the economic development and growth of rural and backward areas.
7.State the meaning of public private partnership.
The Public Private Partnership model allocates tasks, obligations and risks among the public and private partners in an optimal manner. The public partners in PPP are Government entities, ministries, government departments, municipalities or state owned enterprises. The private partners can be local or foreign (international) and include businesses or investors with technical or financial expertise relevant to the project. PPP also includes NGOs and/or community.
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Long Answer Questions
1.Describe the industrial policy 1991, towards the public sector.
Ans-
The Industrial Policy of 1991 in India introduced significant reforms aimed at liberalizing the economy and reducing the role of the public sector in industry. The key features of the policy toward the public sector include:
1. Reduction in Reserved Areas: The number of industries reserved exclusively for the public sector was reduced from 17 to 8. This meant that several sectors previously monopolized by the government were opened up to private investment.
2. Disinvestment: The policy introduced a program of disinvestment in public sector enterprises (PSEs). This involved selling shares of PSEs to the public and private sector to reduce the fiscal burden on the government and improve efficiency.
3. Performance Improvement: Emphasis was placed on improving the performance of public sector enterprises through measures like greater autonomy, accountability, and professional management. The goal was to make PSEs more competitive and self-sustaining.
4. Sick Public Sector Units: The policy proposed measures to address the issue of loss-making and inefficient public sector units. This included restructuring, closing down unviable units, and divestment.
5. Greater Private Sector Participation: The policy encouraged greater participation of the private sector in areas previously dominated by the public sector, thereby fostering competition and efficiency.
6. Focus on Core Areas: The public sector was to focus on strategic, high-tech, and essential infrastructure areas where private sector participation was inadequate or not feasible.
Overall, the Industrial Policy of 1991 marked a shift from a heavily regulated and state-controlled industrial framework to a more liberalized, market-driven economy with a reduced but more strategic role for the public sector.
2.What was the role of the public sector before 1991?
Ans-
Before 1991, the public sector in India played a dominant role in the economy, reflecting the country’s socialist-inspired economic policies. Key aspects of the public sector’s role included:
1. Economic Development: The public sector was considered the primary engine for economic development. The government established public sector enterprises (PSEs) to build infrastructure, promote industrialization, and ensure equitable distribution of resources.
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2. Control of Key Industries: The public sector controlled and operated core and strategic industries such as steel, coal, heavy machinery, railways, telecommunications, and defense production. This was done to prevent monopolies and ensure that critical industries were aligned with national priorities.
3. Employment Generation: Public sector enterprises were significant employers, providing jobs to a large number of people, thus playing a crucial role in reducing unemployment and promoting social welfare.
4. Self-Reliance: The government aimed to achieve self-reliance in key sectors, reducing dependence on foreign technology and capital. This was part of the broader strategy to establish economic sovereignty.
5. Balanced Regional Development: The public sector was used as a tool to promote balanced regional development by setting up enterprises in underdeveloped and remote areas to stimulate economic activity and reduce regional disparities.
6. Revenue Generation: Public sector enterprises contributed significantly to government revenues through dividends, taxes, and other financial contributions.
7. Control of the Commanding Heights: The government maintained control over the “commanding heights” of the economy, a concept articulated by the first Prime Minister, Jawaharlal Nehru. This meant that the state would control critical sectors to ensure that they were run in the public interest and not just for private profit.
8. Social Equity: The public sector aimed to promote social equity by ensuring that essential goods and services were available to all sections of society at reasonable prices, often subsidized.
Overall, the role of the public sector before 1991 was to lead and regulate the economy, ensuring that development was broad-based, equitable, and aligned with national goals. However, this approach also led to inefficiencies, bureaucratic red tape, and financial losses in many public sector enterprises, which eventually prompted economic reforms and liberalization starting in 1991.
3.Can the public sector companies compete with the private sector in terms of profits and efficiency? Give reasons for your answer.
Ans-public sector companies not compete with the private sector in terms of profits and efficiency due to these reasons:
(i)Objective: Private sector firms operate with the objective of profit maximisation while public sector companies have social welfare as the prime objective and private sectors cannot be completely profit oriented.
(ii)Ownership: The government is the major shareholder in public sector companies. The management and administration of these companies, therefore, rest in the hands of the government which may not make economically sound policies due to political considerations.
(iii) Management: Public sector companies are managed by government officials who may not be professionally trained while private sector companies are run and managed by professional managers. This leads to higher efficiency in the private sector
(iv)Area of Operation: Private sector operates in all areas with an adequate return on investment while the public sector operates mainly in basic and public utility sectors where returns are not very high.
(v)Motive. The motive of public sector is social service whereas the motive of private sector is earning profit.
(vi)Autonomy. The working of public sector enterprise is subject to interference of government whereas private sector enjoys complete freedom of operation.
4.Why are global enterprises considered superior to other business organization?
Ans-Global enterprises may be defined of a company that has business operations in several countries by having its factories, branches or offices in those countries. But is has its headquarter in one country in which it is incorporated. Example:- PHILIPS, COCA COLA ,SAMSUNG etc.
Features
- Huge capital resources:- These enterprises are characterized by possessing huge financial resources and the ability to raise funds from different sources. They are able to tap funds from various sources. They may issue equity shares, debentures or bonds to the public. They are also in a position to borrow from financial institution and international bank.
- Foreign Collaboration:- Global enterprises usually enter into agreements with Indian companies pertaining to the sale of technology, production of goods, use of brand names for the final products, etc. These MNCs may collaborate with companies in the public and private sector. There are usually various restrictive clauses in the agreement relating to transfer of technology, pricing, dividend payments, tight control by foreign technicians, etc.
- Advanced Technology:- These enterprises possess technological superiorities in their methods of production. They are able to conform to international standards and quality specification. they lead to industrial progress of country in which such corporation operate since they are able to optimally exploit local resources and raw material.
- Product Innovation:- These enterprises are characterized by having highly sophisticated research and development departments engaged in the task of developing new products and superior designs of existing products. Qualitative research requires huge investment which only global enterprises can afford.
- Marketing Strategies:- The marketing strategies of global companies are far more effective than other companies. They use aggressive marketing strategies in order to increase their sales in a short period. They posses a more reliable and up-to-date market information system.
- Expansion of Market Territory:- Their operation and activities extend beyond the physical boundaries of their own countries. Their international image also builds up and their market territory expends enabling them to become international brands.
- Centralized Control:- They have their headquarters in their home country and exercise control over all branches and subsidiaries. However, this control is limited to the broad policy framework of the parent company. There is no interference in day-to-day operation
5.What are the benefits of entering into joint ventures and public private partnership?
Ans-When two or more independent firms together establish a new enterprise by pooling their capital, technology and expertise, it is known as a joint venture.
Example:- Hero cycle of india and Honda Motors Company of Japan jointly established Hero Honda. Similarily, Suzuki Motors of Japan and Maruti of Government of india come together to from Maruti suzuki.
BENEFITS:-
Business can achieve unexpected gains through joint ventures with a partner. Joint Ventures can prove to be extremely beneficial for both parties involved. One party may have strong potential for growth and innovative ideas, but is still likely to benefit from entering into a joint venture because it enhances its capacity, resources and technical expertise. The major benefits of joint ventures are as follows;
- 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. The new business pools in financial and human resources and is able to face market challenges and take advantage of new opportunities.
- 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. For example, when foreign companies form joint venture companies in India they gain access to the vast Indian Market.
- Access to Technology:- Technology is a major factor for most businesses to enter into joint ventures. 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.
- Innovation:- The markets are increasingly becoming more demanding in terms of new and innovative products. Joint ventures allow business to come up with something new and creative for the same market. Specially foreign partners can come up with innovative products because of new ideas and technology.
- 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. India is becoming an important global source and extremely competitive in many products.
- 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. If the joint venture is in India and with an Indian company, the Indian company does not have to spend time or money is developing a brand name for the product or even a distribution system
The Public Private Partnership model allocates tasks, obligations and risks among the public and private partners in an optimal manner. The public partners in PPP are Government entities, ministries, government departments, municipalities or state owned enterprises. The private partners can be local or foreign (international) and include businesses or investors with technical or financial expertise relevant to the project. PPP also includes NGOs and/or community. Example of ppp redevelopment of railway stations ,internation cricket stadium project.
FEATURES:-
- Facilitates partnership between public sector and private sector.
- Pertaining high priority project.
- Suitable for big project (capital intensive and heavy industries).
- Public welfare example Delhi Metro Railway Corporation.
- Sharing revenue – Revenue is shared between government and private enterprises in the agreed Ratio.