Class 11

Business Studies
Chapter – 3
Private, Public and Global Enterprises
NOTES

INDIAN ECONOMY
mIXED

PRIVATE SECTOR PUBLIC SECTOR

(Mi
Sole Proprietorship Departmental Undertakings
(
Partnership Statutory Corporations

Joint Hindu Family Business Government Companies

Cooperative Society

Joint Stock Company

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.

PUBLIC SECTOR ENTERPRISES

The public sector consists of various organizations owned and managed by

central or State or by both governments. The govt. participates in economic
activity of the country through these enterprises. The various forms of
organisation are:

❖ Departmental Undertaking
❖ Statutory Corporation
❖ Government Company
Departmental Undertaking
These are established as departments of the ministry and are financed, managed and controlled by
either central govt. or state govt. or both.
Eg. Indian Railways, Post & Telegraph Departments.
SUITABILITY:
(i) Where full Govt. control is needed.
(ii) Where secrecy is very important such as defence.

FEATURES

➢ It is financed by annual budget allocation of the govt. and all its earnings go
to govt. treasury

➢ The govt. rules relating to audit & accounting are applicable to it

➢ Its employees are govt. employees & are recruited & appointed as per
government rules.

➢ These are accountable to the concerned ministry.

➢ It is considered as major subdivision of govt.

MERITS

➢ It is more effective in achieving the objective laid down by govt. as it

is under the direct control of govt.

➢ It is a source of govt. income as its revenue goes to govt. 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.
 Limitations

➢ 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 organizations are usually insensitive to consumer needs and do not

provide goods and adequate service to them.

➢ Such organization are managed by civil servants and govt. officials who
may not have the necessary expertise and experience in management

STATUTARY CORPORATIONS
It is established under a special Act passed in the Parliament. Its objectives, powers and functions
are clearly defined in the special Act.

Examples: Food Corporation of India, Life Insurance Corporation.

FEATURES

➢ It is established under a special Act which defines its objects, powers and
functions.

➢ It is wholly owned by the State and has financial responsibility

➢ It is a body corporate and has a separate legal entity.

➢ 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 govt. or from public or through earnings.

➢ It is not subject to same accounting & audit rules which are applicable to
govt. department

MERITS

➢ It has a high degree of operational flexibility free from undesirable

government regulation and control.

➢ The government generally does not interfere in their financial matters,

including their income and receipts.

➢ It frames their own policies and procedures within the powers assigned to
them by the Act.

➢ It has the power of the government, combined with the initiative of private
enterprises
 LIMITATIONS

➢ In reality, there is not much operational flexibility. It is subject to many rules

and regulations.

➢ Govt. and political interference has always been there in major decisions.

➢ Where there is dealing with public, rampant corruption exists.

➢ Advisors to the Corporation Board curbs the freedom of the corporation in

decision making and delays the work.

GOVERNMENT COMPANY
A government company is established under The Companies Act, 2013 in which not less than 51% of
the paid up share capital is held by the central govt. or state govt. or jointly by both.

These are established for purely business purposes and in true spirit compete with companies in the
private sector

The shares of the company are purchased in the name of the President of India.

Examples: Hindustan Insecticides Ltd., State Trading Corp. of India, Hindustan Cables Ltd.
FEATURES

➢ It is created under the Companies Act 2013 or any previous Company

Law

➢ It can sue and be sued in the court of Law

➢ It can enter into a contract and can acquire property in its own name.

➢ Management is regulated by the provision of companies Act.

➢ Employees are recruited and appointed as per the rules and regulations
contained in their Memorandum and Articles of Association.

➢ It is exempted from the accounting and audit rules and procedures. An

auditor appointed by the govt. present its report in the Parliament.

➢ The govt. Co. obtains it funds from govt. shareholdings and other
private shareholdings. It can also raise funds from capital market

MERITS

➢ It can be easily formed as per the provision of companies Act. No

separate Act is required.

➢ It has a separate legal entity, apart from the Government.

➢ It enjoys autonomy in management decisions and takes actions

according to business prudence.

➢ It is able to control the market by providing goods and services at

reasonable prices and curb unhealthy business practices.
 LIMITATIONS

➢ In reality the provisions of the Companies Act does not have much relevance
as in some Govt. Companies, Government is the only shareholder.

➢ It evades constitutional responsibility which a company financed by the govt.

should have as it is not directly answerable to parliament.

➢ 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.

CHANGING ROLE OF PUBLIC SECTOR

Public sector in India was created to achieve two types of objectives:

(1) To speed up the economic growth of the country

(2) To achieve a more equitable distribution of income and wealth among people.

The role and importance of public sector has changed with time. Its role over a period of
time can be summarized as following:

ROLE OF PUBLIC SECTOR BEFORE 1991

1. Development of Infrastructure: At the time of independence, India suffered from

acute shortage of heavy industries such as engineering, iron and steel, oil refineries,
heavy machinery etc. Because of huge investment requirement and long gestation
period, private sector was not willing to enter these areas. The duty of development of
basic infrastructure was assigned to public sector which it discharged quite efficiently.

2. Regional balance: Government is responsible for developing all regions in a balanced way
and remove regional disparities. So govt. took the charge to set up Public Sector Enterprises
in backward regions where private sector was not willing to go.
3. Economies of scale: In certain industries (like Electric power plants, Natural gas, Petroleum
etc) huge capital and large base are required to function economically. Such areas were
taken up by public sector.
4. Check over concentration of economic power: In the private sector there were very few
industrial houses willing to invest in heavy industries. It led to concentration of wealth in few
hands and private monopolies. Thus, Public Sector Enterprises were established to check
their monopolies and income to be shared by a large of number of employees and workers

5. Import Substitution: Public enterprises were also engaged in production of capital

equipment which were earlier imported from other countries. At the same time Public
Sector Companies like STC and MMTC have played an important role in expending
exports of the country.

Very important role was assigned to public sector but its performance was far away from
satisfactory level which forced govt. to do rethinking on their policy

ROLE OF PUBLIC SECTOR SINCE 1991

In the industrial policy 1991, the Govt. of India introduced four major reforms in
public sector.

(I) Reduction in number of industries reserved for public sector: This number is reduced
from 17 and to 3 only. These three industries are atomic energy, defence and railways.

(II) Memorandum of Understanding (MOU): Under this govt. lays down performance
target for public sector and gives greater operational autonomy. But the management is
held accountable for the specified results.

(III) Disinvestment: Equity shares of public sector enterprises were sold to private sector
and the public. It was expected that this would lead to improved managerial
performance and better financial discipline.

(IV) Policy regarding economically Sick Units : All public sector sick units were referred to Board
of Industrial and Financial Re-construction (BIFR). Units which were potentially viable were
restructured and which could not be revived were closed down by the board.

MULTINATIONAL COMPANIES/GLOBAL ENTERPRISES

It is a company whose business operations extend beyond the country in which it has been
incorporated.

Examples: PHILIPS, CocaCola etc.

FEATURES

1. Huge Capital Resources: MNCs possess huge capital resources and they are able to
raise lot of funds from various sources. They may issue equity shares, debentures to the
public. They are also in a position to borrow from financial institutions and international
banks.

2. Expansion of Market Territory: Their operations and activities extend beyond the physical
boundaries of their own countries. They operate through a network of subsidiaries,
branches and affiliates in host countries.
3. Centralized control: MNCs have headquarters in their home countries from where
they exercise control over all branches and subsidiaries. It provides only broad policy
framework to them and there is no interference in their day to day operations of branches
in host countries.

4. Foreign Collaboration: Usually Global Enterprises enter into agreements relating to sale of
technology, Production of goods, use of brand name etc. with local firms in the host
country. There have to fulfil various restrictive clauses in the agreement relating to transfer
of technology, pricing, dividend etc.

5. Advanced Technology: These organisation possesses advanced and superior technology

which enable them to provide world class products & services.

6. Product Innovations: MNCs have highly sophisticated research and development

departments. These are engaged in developing new products and superior design of
existing products.

7. Marketing Strategies: MNCs use aggressive marketing strategies. Their brands are well
known and they spend huge amounts on advertising and sale promotion.

JOINT VENTURES

When two or more independent businesses 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 Co. of Japan jointly established Hero Honda.
Similarly, Suzuki Motors of Japan and Maruti of Govt. of India came together to
form Maruti Udyog.

BENEFITS/ FEATURES

1. Greater resources and Capacity - In a joint venture the resources and capacity of two or
more firms are combined which enables it to grow quickly and efficiently

2. Access to advanced technology - Access to advanced techniques of production

helps in reduction in cost and improvement in quality of product. It saves a lot of time,
energy and investment as they do not have to develop their own technology.

3. Access to New Markets and distribution network- When two or more firms join together
for a common purpose it can access new market and can use distribution of each other.

4. Innovation – Joint ventures allow business to come up with something new and creative for
the same market. Especially foreign partners can come up with innovative products because
of new ideas and technology.

5. Low Cost of production - Raw material and labour are comparatively cheap in developing
countries so if one partner is from developing country they can be benefitted by the low cost
of production.

6. Established Brand Names: When one party has well established brands & goodwill, the
other party gets its benefits. Products of such brand names can be easily launched in the
market.
Public Private Partnership (PPP):
It means an enterprise in which a project or service is financed and operated through a partnership
of Government and private enterprises.

The government contributes to PPP in the form of capital for investment and transfer of assets that
support the partnership in addition to social responsibility, environmental awareness and local
knowledge. The private sector’s role in the partnership is to make use of its expertise in operations,
managing tasks and innovation to run the business efficiently.

Example : Kundli Manesar Expressway Ltd.: In this 135 km expressway, land has been provided by
the government and surface has been laid out by the company.

FEATURES/ BENEFITS

1. Inflow of investments: These projects attract private investments which is very important for
such essential projects. It reduces the need for public money which can be used in other
priority areas.

2. Facilitates partnership with private sector: It is an arrangement which facilitates partnership

between public and private sector enterprises in which private sector assumes significant
technical and operational activities risk in business.

3. Increase in efficiency: Involvement of private sector increase the efficiency in

implementation of projects and its completion.

4. Innovation: PPP helps in bringing innovative designs and better practices for the projects.

5. Better feasibility: Involvement of experience and credit worthy sponsors and commercial
lenders enhance the viability of project.

6.

NOTE: Click to the following links for practice videos

1. Introduction- https://youtu.be/54Xr8IR85aQ
2. Departmental Undertaking - https://youtu.be/FJJMjskAOwI
3. Statutory Corporation- https://youtu.be/IAE10gjmL9s
4. Government Company - https://youtu.be/9AtLBy8kWf4
5. Changing role of public sector- https://youtu.be/bGR5RgwP-aI
6. Global Enterprises- https://youtu.be/jGT0Z-SZ5JI
7. Joint Venture- https://youtu.be/ytNgIuoQrCc
8. PPP- https://youtu.be/XlcrDgneoM0
 MIND MAP

Departmental
Undertaking

Public Sector
Enterprise

Government Statutary
Company Corporation

CHANGING ROLE OF PUBLIC SECTOR

• Development of Infrastructure
• Regional Balance
Before1991 • Check on concentration of economic power
• Import Substitution
• Economies of Scale

• Reduction of industries reserved for public sector

• Disinvestment
Since 1991
• Policy for sick units
• Memorendum of Understanding
 Public Private
MNC Joint Venture
Partnership
• Huge capital resources • Increased resources and • Inflow of investments
• Foreign collaboration capacity • Facilitates partnership
• Advanced technology • Access to new markets with private sector
• Product innovation • Access to technology • Increase in efficiency
• Marketing strategies • Innovation • Innovation
• Expansion of market • Low cost of production • Better feasibility
territory • Established brand name
• Centralised control