PRIVATE AND PUBLIC SECTOR ENTERPRISES
♦ Private Sector Enterprises:
It implies all those enterprises which are owned and managed by individuals or group of individuals. e.g., Reliance Industries Ltd, Wipro Ltd, etc.
The various types of organisations in private sector are — Sole proprietorship, partnership, Joint Hindu Family business, Company, Cooperative
societies and Multinational Corporation.
♦ Public SectorEnterprises:
It implies all those enterprises which are managed/owned partly or wholly by Central or State Government or by both. They supply goods and
services at reasonable price and are operated on more or less self-supporting basis. Public enterprises are formed by the government to take
decisions and to participate in economic activities on behalf of it.
They contribute towards the economic development in the competitive and liberalised world. They are accountable to public through Parliament
, and public funds are used by them for their activities. e.g., Air India, Indian Railways, etc.
♦ Forms Of Organising Public Sector Enterprises:
Departmental Undertaking: It is the oldest and most traditional form of organising public sector enterprises. It may be run either by the Central
Government or by State Government. It is managed by the government officials, and rules of Central/State Governments are applicable. It has
no separate legal existence. It functions under the overall control of one ministry or department of government, and is managed by the concerned
minister. e.g., railways, post and telegraph department, defense, telephone services, etc.
♦ Features:
• They are financed from the Government Treasury and an annual appropriation for them is made in the budgets of the government.
• They are subject to accounting and audit controls applicable to other government activities.
• The staff of departmental undertakings are government servants and they are headed by civil servants and Indian Administrative Service (IAS)
officers. They are recruited and compensated as per the rules of civil services and are transferable from one ministry to another.
• They are major sub-divisions of government departments. They are not a separate entity. Thus, they are subject to direct control of the ministry.
• Their management is directly under the concerned ministry. Thus, they are accountable to it.
♦ Merits:
• The control on departmental undertaking is very effective, as it is subject to parliamentary control.
• They are subject to accounting and audit controls. Thus, they have high degree of public accountability.
• The revenue of departmental undertaking is deposited in the Treasury of the Government. So, these undertakings help in increasing the
government revenue.
• They are most suitable for operations where national security is concerned, because of direct control of the concerned ministry.
♦ Limitations:
• The departmental undertaking works under strict parliamentary control. There is too much interference of ministers and top officials.
This reduces the flexibility and efficiency of the undertaking.
• Heads of the departments of these enterprises do not have decision-making powers. Decisions can only be taken after approval from
concerned ministry. This leads to delay in decision-making.
• Due to interference and inflexibility, the bureaucrats are conservative and cautious. Therefore, they are unable to take advantage of
business opportunities.
• A number of rules and regulations and lengthy channels of operations cause delay in decision-making and consequently, urgent matters
suffer. This leads to red tapism and bureaucracy.
• Constant interference from the concerned ministry and the politicians unduly affects the working of to the public enterprises.
• Such enterprises are insensitive to consumers' needs and do not provide adequate services.
Public or Statutory Corporation
It is a corporate body created by the legislature with defined powers, functions and is financially independent with a clear control over a
specified area. It Si has the power of governance as well as considerable amount of operational flexibility like private enterprises. 10 e.g.,
Air India, State Bank of India, Life Insurance Corporation of India, etc.
♦ Features:
• They are formed by a Special Act of Parliament. The Act defines their powers, objects and privileges.
• They can sue and be sued, enter into contracts and purchase or sell property in their own name as it has the status of body corporate.
• They are independently financed. They are financed by borrowings from the government or from public and through revenue generated by sale
of goods and services. They can also make use of their revenues.
• They are free from government accounting and audit control because they are not financed from the central budget of the government.
• The employees of such enterprises are not government or civil servants. Their conditions, procedures, rules and regulations of work are
prescribed under the provisions of the act itself.
♦ Merits:
• They are free from undue interference from government control. Thus, they enjoy freedom in functioning and have operational flexibility.
• As they are not financed from central budget, the government do not interfere in their financial matters.
• Due to autonomous set up, they have their own rules and regulations, policies and procedures for their independent functioning. But the Act
may provide few matters and issues which require approval from particular ministry.
• With a combination of initiative of private enterprises and power of government, they prove to be of value in economic development.
♦ Limitations:
• Autonomy exists on papers only. In reality, all operations and actions are subject to many rules and regulations.
• Government and political interference has always been there in major decisions, especially where huge funds are involved.
• Government often appoints advisors to the Corporation Board. This affects the freedom in decision-making and leads to disagreements.
This further delays the decision.
• Corruption is rampant in these corporations, as the officials may misuse their autonomy and indulge in unfair practices.
Government Company
A government company is registered and governed by the provisions of the Indian Companies Act. They are established for purely business
purposes and in true spirit compete with companies in the private sector. The government exercises control over the paid up share capital
of the company. e.g., Steel Authority of India.
According to Indian Companies Act, 1956, '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 Central Government and partly by one or more State
Governments.
♦ Features:
• The government company is incorporated under theprevailing Indian Companies Act.
• The government company has a separate legalexistence. Thus, it can buy and sell property and enter into contract in its own name.
• The management is according to the provisions of Indian Companies Act.
• Government companies are exempted from the accounting/audit rules and procedures. However, an auditor is appointed by the Central
Government and an annual report is to be presented in Parliament/State Legislature.
• The government company obtains its funds from government shareholding and can also raise the funds from the capital market.
• The company can file a suit in court of law against any third party and be sued.
• The employees of a government company are appointed according to the rules and regulations as provided under the Memorandum and
Articles of Association of the company.
♦ Merits:
• A government company can be established by fulfilling the requirements of the Indian Companies Act. No separate act in Parliament is required.
• Government company is relatively free from government and political interference. It can function freely and smoothly under the general
vigilance of the government.
• Government company has a separate legal entity.
• The government company provides goods and services to consumers at a reasonable price. It helps to control market and curb unhealthy
business practices.
♦ Limitations:
• Government is the only shareholder in some of the companies. Thus, provisions of the Companies Act do not have much relevance.
• A government company evades constitutional responsibility, as it is not answerable directly to Parliament for non-performance of duties.
• The independent character of a government company exists in paper only. Politicians, ministers and government officials interfere in its working.
Executive agencies of the government can materially reduce its autonomy.
Changing Role of Public Sector
♦ Development of Infrastructure:
• It is a prerequisite for industrialization in any country
• Without proper transportation and communication facilities, fuel and energy, and basic and heavy industries, the industrialisation process
cannot be sustained. Only the government had the ability to collect vast sums of money, coordinate industrial building, and train technicians
and workers.
• Expansion of rail, road, sea and air transport has contributed to pace of industrialisation and ensured future economic growth.
♦ Regional Balance:
• The government is in charge of ensuring that all regions and states develop in a balanced manner and that regional inequities are eliminated.
Attention will be paid to the reasons for the delay, and public-sector industries will be purposefully established.
• Four big steel facilities were built in underdeveloped areas to help promote economic growth, generate jobs, and develop ancillary industries.
♦ Economies of Scale:
• Because large-scale companies demand a large capital investment, the government was forced to step in to take advantage of economies of scale.
• Electric, power, natural gas, petroleum and telephone Industries required a larger base to function economically which was only possible with
government resources and mass scale production.
♦ Concentration of Economic Power:
• New private sector industrial conglomerates should be willing to engage in heavy sectors, resulting in a wealth concentration in a few hands.
• The public sector has the ability to establish massive industries that demand significant investment
• This prevents wealth and economic power from being concentrated in the private sector.
♦ Import Substitution:
• Importing heavy machinery, which is necessary for a robust industrial basis, was challenging.
• At the time, public-sector heavy engineering firms were founded to aid in the import substitution process.
• Several public sector enterprises, such as STC and MMTC, have also played a major role in increasing the country's exports.
Government Policy Towards Public Sector Since 1991
• In 1991, the government implemented four important reforms in the public sector as part of its new industrial policy.
• In the 1956 resolution on industrial policy, 17 industries were reserved for the public sector. Atomic energy, armaments and communication,
mining, and railways were the sole industries retained for the public sector in 1991. Only three industries, atomic energy, armaments, and rail
transportation, were reserved solely for the public sector in 2001.
• The sale of equity shares to the private sector and the general public is referred to as disinvestment. The goal was to collect funds and foster
more public and worker participation in the ownership of these businesses.
• All public sector units were referred to the Board of Industrial and Financial Reconstruction, which determined whether a sick unit should be
rebuilt or closed down. In a few cases the board has reassessed revival and rehabilitation plans, as well as winding up for a number of units.
• Improvement of performance using a Memorandum of Understanding (MOU) system in which managements are given more authority but are held
accountable for specific outcomes. Public sector units were given explicit targets and operational autonomy to meet those targets under this approach
Global Enterprises Or Multinational Corporations (mncs):
A Multinational Corporation is one which operates in two or more than two countries. Such companies have branches, factories, offices, etc in different
countries. In simple words, it can be stated that a Multinational Company is a huge industrial organisation which extends its industrial and marketing
operations through a network of its branches in several countries. Their branches are also called Majority Owned Foreign Affiliates (MOFA). Few examples
of MNCs are Coca Cola, Hyundai, Reebok, L'oreal, Samsung, Sony, etc.
♦ Features:
• Huge Capital Resources: The assets and sales of MNCs are quite huge. They operate on large scale and have the ability to raise funds from many
sources. They may issue equity shares, debentures or bonds to the public. They can also avail loans from financial institutions and international banks.
Investors and banks of the host country are interested in investing in them. Thus, they enjoy credibility in capital market and are able to raise, huge
capital resources.
• Centralized Control: An MNC operates in more than one country. It has its branches, factories and offices in several countries. It operates through
network of branches and subsidiaries in host countries and controls the operations with a centralized system in home country.
• Foreign Collaboration: MNCs may collaborate with companies in the public and private sector. Big industrial houses wanting to diversify and expand
have gained by collaborating with MNCs in terms of patents, resources, foreign exchange, etc. At the same time, these foreign collaborations have given
rise to the growth of monopolies and concentration of power in few hands. In their collaboration agreements, generally, there are restrictive clauses
related to technology, pricing, dividends, payment, tight control by foreign technicians, etc.
• Advanced Technology: In the production methods, they possess technological superiorities. They are able to conform to international standards and
quality specifications. This leads to industrial progress of the home country of such corporations. Computerization and other inventions are due to the
technological advancements provided by them.
• Expansion of Market Territory: Their operations and activities extend beyond the physical boundaries of their own countries. Their international image
expands their market territory enabling them to become international brands. Due to their giant size, they occupy a dominant position in the market.
• Marketing Strategies: They use aggressive marketing strategies in order to increase the sales in short period. They have effective advertising and sales
promotion techniques. Because of a well-established brand, promoting sales is not difficult for them.
• Product Innovation: Due to a huge capital base, these enterprises are involved in qualitative research. They are able to have highly sophisticated research
and development departments. They are continuously engaged in developing new products of better quality and superior design of existing products.
Joint Ventures
When two or more firms join together for a common purpose and mutual benefit, it is known as a joint venture. The two organisations may be private,
government-owned or a foreign company. Joint ventures share technology, capital, human resources, risks, rewards, etc. In broader sense, a joint venture
is the pooling of resources and expertise by two or more business, to achieve a particular goal. obey buza e.g., Maruti and Suzuki, Bharti and Airtel, etc.
Joint ventures are formed due to the following reasons,
• Business expansion
• Development of new products
• Moving into new markets in another country
♦ Features:
• Joint venture is a short-term partnership between two firms.
• It is a temporary business activity.
• In joint venture, profits and losses are shared in agreed proportion. If there is no agreement, profits and losses are shared equally.
• The joint venture agreement will be automatically terminated after completing the venture.
• At the end of the venture, all the assets are liquidated and liabilities are paid-off.
♦ Merits:
• Increased Resources and Capacity: Joining hands with other enterprises helps in tapping up more resources and this enhances the capacity to grow
and expand.
• Access to New Markets and Distribution Networks: When two enterprises join their hands, they are free to enhance or expand their market. For
example, Indian company and Chinese company form a joint venture. This will help Indian company to sell its products in China also and the same
advantage can be derived by the Chinese company too. Establishing their own retail outlets may prove to be very expensive.
• Access to Technology: Companies who do not have the capacity to develop their own technology, join their hands with other companies to access
their technologies. This helps in improving the quality of products, thereby saving time, energy, investment, etc.
• Low Cost of Production: Most of the international companies invest in India because of the presence of lower cost of production. International
corporations obtain quality products for their global market at a low price because of low cost of raw materials, labour, technical workforce,
management, professional and excellent manpower in the field of science, law, etc.
• Established Brand Name: When two business firms enter a joint venture, one of the involved parties can derive the benefits from the other's
goodwill, which has been established in the market since long. Due to this fact, there is a ready market for the launch of product. Thus, a lot of
investment required for marketing is saved.
• Innovation: Joint venture allows business to come naman up with new and creative products. This helps in S raising the sale of innovative products
in the market. Specially foreign partners who have new ideas and technology come up with innovative products.
PUBLIC-PRIVATE PARTNERSHIP (PPP, P3 OR P3):
Infrastructure development has been a key responsibility of the government. Due to the shortage of funds, government alone would not be able to
fulfil this demand. To overcome this issue, Public-Private Partnership (PPP) came into the picture.
Public-Private Partnership means partnership between public sector and private sector in financing, designing and developing infrastructural
facilities. It refers to the participation of private sector in government projects. In such projects, the private sector contributes money, technical
knowhow and managerial expertise. It is basically a joint venture between public sector and private sector.
PPP is formed for the following projects
• Power
• Transport
• Water
• Healthcare Sort
• Education
• Telecommunications etc.
♦ Features:
• Facilitate Partnership between Public Sector: and Private Sector PPP is an arrangement between public sector and a private party, in which private
sector provides service and/or asset to the public at large.
a) Public Service: It is service that government is obligated to provide to its citizens. e.g., provision of electricity, water, etc.
b) Public Asset: It is an asset which is linked to the delivery of public service. e.g., public road, bridges, flyovers, etc.
• Operations or Management for a Specified Time Period: PPP arrangement is for a specific period and at the expiry of such period, such partnership
comes to an end.
• Suitable for Big and High Priority Projects: PPP is suitable for big projects where gestation period is long and also for high priority projects aimed
at creating public goods, like in infrastructure sector.is DEDE The government may provide subsidy, support a project by providing tax breaks, and
guarantee annual revenues for a fixed period to the private parties.
• Sharing of Revenues: Revenue is shared between the government and private enterprise in an agreed ratio.
• Risk Sharing: Risk of the project is also shared between the government and the private party.