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CHAPTER 3
Private, Public and Global Enterprises
Public and Private Sector

The Indian economy consists of both private and government-owned businesses.

Individuals or groups can own the private sector business. Any state or federal
government can own an organisation entirely or partly. The government is responsible
for taking care of public sector organisations. The federal or state governments may
take over these organisations entirely.

They could be a part of the ministry or created by a Parliamentary Special Act. The
government of India initiated an approach to economic development in the Industrial
Policy Resolution of 1948. The Industrial Policy Resolution of 1956 set forth some goals
to help achieve to speed up the expansion rate and industrialisation.

The industrial policy of 1991, as opposed to all the other strategies where the
government considered disinvesting in the public sector and allowing independence to
the private sector.

Companies outside India were asked to invest in India. The Indian economy consists of
the public sector, private sector and multinational corporations.

Indian Economy- Public and Private Sector

Public Sector

1. Departmental Undertakings
2. Statutory Corporation
3. Government Companies
Private Sector

1. Sole Proprietorship
2. Partnership
3. Joint Hindu Family
4. Cooperative
5. Multinational Corporations
6. Company (public ltd.), (private ltd.

Changing Role of Public Sector

 Development of Infrastructure: It is a prerequisite for industrialisation.

Without transportation, communication, fuel, energy and industries,
industrialisation cannot be continued. The government can collect money and
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coordinate and train workers and technicians. The expansion of rail, sea, road
and air transport is necessary to see industrialisation and future growth.
 Regional Balance: The Indian government oversees development in all states
and regions. Special attention is paid to any delays. Four major steel facilities
were built to help promote growth and get jobs.
 Economies of Scale: As large-scale companies require a lot of investment, the
government was forced to step in and take advantage of economies of scale.
Power, electricity and natural gas were necessary for proper functioning.
 The concentration of Economic Power: The industrial conglomerates should
engage in heavy sectors resulting in wealth. The public sector established
industries required a lot of investment for their functioning.
 Import Substitution: Importing heavy machinery, which is necessary for an
industrial basis was challenging. Different engineering firms helped in the
substitution process. Different public sector firms like MMTC played a significant
role in improving the country’s exports.
 Government Policy Towards Public Sector Since 1991: The government
has implemented reforms in the public sector as a part of a new industrial policy.
In 1956, about 17 industries were reserved for the public sector. Three industries
– rail, armaments and atomic energy were reserved for the public sector in 2001.
The goal was to collect funds and foster public and worker participation in
ownership of the businesses.
The public sector units came under the Board of Industrial and Financial Reconstruction.
It helps determine whether a sick unit should be finally built again or closed. In certain
cases, the board reassessed the revival and the rehabilitation plans. Performance could
be improved using MOU. The public sector units were given targets.

Global Enterprises

Global enterprises are industrial conglomerates that expand their marketing operations
across various nations. MOFA is the other name of these branches. They spread their
branches far and across. They help positively grow the economy.

Features:

 Huge Capital Resources: They can raise funds from various sources. There are
options to sell stock, debentures, and bonds to the public. They can borrow
money from banks and other institutions in the world.
 Foreign Collaborations: It is possible to enter into agreements with Indian
companies for selling of technology, manufacturing, use of brand names for
finished products and other things. They work with the government as well as
private companies. There are restrictive terms related to technology transfer and
Priceline. Collaborations with other countries led to monopolies and
concentration of power in a few hands.
 Advanced Technology: Businesses have a lot of advantages in the
manufacturing process. As they can adhere to worldwide norms and
specifications, the countries where these operations are advanced.
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 Product Innovation: High research and advancement in technology help invent

new products and improve existing ones. Proper research can help in financial
investments that only corporations can make.
 Marketing Strategies: Implementation of marketing strategies help improve
sales. The marketing methods help boost sales. They have a niche worldwide, so
their brand presence has grown over time.
 Expansion of Market Territory: The company’s market territory grows daily.
This helps to increase brand awareness. They have a monopoly in the market
due to their huge size.
 Centralised Control: The headquarters of the company are located in the home
nation. They have control over all branches. The control is limited to the broad
policy framework. There is no change in daily operations.

Joint Ventures

A joint venture is made when two businesses work together to achieve a certain goal.
This is done to enjoy profits. The agreement helps stipulate required permissions and
licenses will be obtained within a time frame. An MOU needs to be signed by both
parties where an outline is mentioned. The gain and loss of the business are also
mentioned. Some common examples of joint ventures are AVI of India Pvt Ltd.

Joint Venture-Types

1. Equity-Based

 Company
 Limited liability partnership
 Partnership
2. Contractual

 Cooperation Agreement/Strategic Alliances

3. Equity-Based Joint Venture

 A joint venture agreement is where two parties agree to create a company which
the parties jointly own. The business form may, however, vary.
4. Contractual Joint Venture

 This venture is based on commitment. There is no direct ownership, but the

involved parties need little control.
Benefits:

 The joint venture firm can help increase resources and capabilities, growing and
expanding.
 Once a company forms a joint venture with someone from another country, it
gains a huge market.
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 The access to latest technology and manufacturing helps in higher quality

products to help save time, energy and money.
 Joint ventures will let businesses come up with new and creative marketing
strategies. New ideas and technology can help international partners come up
with creative solutions.
 International companies invest in India because they can enjoy profits due to
cheap production costs. They can obtain high-quality products to meet all global
needs.
 Each party will gain from another party.

Public Private Partriershíp

A Public Private Partnership (PPP) collaborates between the public and private entities
based on infrastructure and its services.

Features:

 Government entities such as ministries, state enterprises and municipalities are

public partners in PPP.
 Along with social responsibility, expertise and environmental awareness, the
government’s involvement helps in investment and asset transfer, supporting
partnership.
Pros:

 Design transfer and construction risk.

 The potential to accelerate projects.
Cons:

 There may be a conflict between parties due to environmental considerations.

 It might not attract private finances.

How does this Class 11 Business Studies

Revision Notes Chapter 3 – Private, Public,
and Global H3 -Enterprises Help You?
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Business Studies Chapter 3 Revision Notes

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students to have a better understanding of the concepts.
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Business Studies Chapter 3 Revision notes

The Chapter 3 Business Studies Class 11 notes are prepared in a way that it helps
students to have a better grasp of the chapter and secure good marks in the exams.
The notes of chapter 3 Business Studies Class 11 are made to focus on the fundamental
concepts and have an in-depth understanding of all the points and basics.

Our Revision Notes Cover The Following

The revision notes provided by Extramarks cover all concepts related to private and
public sector enterprises.

Private Sector Enterprises

Individuals or groups of individuals own businesses. The different forms of organisation

are partnership, joint, sole proprietorship, cooperative and company.

Public Sector Enterprises

Those organisations which the central or state government owns are public sector
enterprises. The government participates in various economic activities through these
enterprises.

Features:

The capital is contributed by the state and central government. The main objective of
such enterprises is the welfare of the public. It is possible to manage enterprises by the
government.

Forms of Public Enterprises

 Departmental Undertakings
 Statutory Corporations
 Government Companies
Departmental Undertakings

These businesses are set up as ministry departments and are regarded as an extension
or a part of the ministry. Government employees operate these. Such endeavours might
be governed by the federal or the state government, and the federal or state
government rules should apply. Some common examples of these are the Railway,
Telegraph and Post departments.

Features:

Such enterprises are directly funded by the budget of the government of India. It is
subjected to accounting and audit controls applicable to other government activities.
The enterprise employees are government employees, and their working conditions are
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very similar to that of other government employees. This department is under the direct
control of the ministry.

Pros:

1. To ensure that the Parliament is effectively controlling the operations.

2. A high degree of public accountability.
3. The enterprise’s revenue will be handed over directly to the treasury.
4. Considering the national security level, this is the best option as it is under the
direct supervision of the ministry.
Cons:

1. Lack of flexibility
2. Head of the departments cannot take individual decisions or work without the
ministry’s approval.
3. The conservative and cautious approval of the bureaucrats prevents any sort of
initiative.
4. No action can be taken until and unless the right authority approves.
5. A lot of political involvement is there in the ministry.
6. Any sort of consumer requirements is ignored.

Statutory Corporations

A special act of Parliament creates a statutory form of corporation. These are general
public enterprises. The act is meant to establish power and functions and the rules that
help govern the personnel and help in interaction with other government agencies.
They have the power of the government and some amount of private sector flexibility.

Features:

The statutory corporations are set up under the Parliament and governed by the act’s
provisions. A state entirely owns such corporations. The government takes financial
responsibility. They have the power to generate the desired profits. These entities can
get into contracts and take over legal properties by their name. They work by obtaining
funds from the public or government. The provisions themselves govern the service.

Pros:

1. They have the flexibility and independence in functioning.

2. The government does not control their finances, income or receipt.
3. The body created its policies and procedures.
4. They help in economic development.
Cons:

1. Operational flexibility is impossible.

2. Government interferes in the case of huge monetary transactions.
3. Corruption is pervasive wherever there is public interaction.
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4. Advisor accounting to the corporation board limits the ability to enter into
contracts or make decisions.

Government Company

As per section 2(45) of the companies act 2013, a government company is partly or
wholly government by the central and state governments. One holds around 51 per
cent of the paid-up capital. There are certain restrictions regarding the appointment and
retirement of senior management professionals. The company’s shares are issued in the
name of India’s president. The government is the majority stakeholder and has
authority over the business administration.

Features

Under the Companies Act of 2013, the government company was formed. A third person
can sue the company. It is possible to make real estate purchases by entering a
contract. A corporation can make real estate purchases. The company management
works as per the regulations. The companies acting like other public limited companies,
take care of the management. The government appoints the auditor, and employees
are hired based on company rules and regulations. The funds are collected from
stakeholders.

Pros:

1. The business operates as per the Indian Companies Act.

2. It has its own legal body.
3. It takes management decisions by itself.
4. Companies can control the market and disrupt the goods and services.
Cons:

1. The government is the sole stakeholder in some enterprises.

2. It avoids the constitutional duty that a government-funded enterprise should
have.
3. The government is in charge of management and administration.

Changing Role of Public Sector

In India the public sector was primarily created to achieve two objectives:

 To boost the economic growth of the country

 To achieve equal distribution of wealth and income among people
The role and importance of the public sector also changed with time, like:

 Development of Infrastructure
 Regional balance
 Economies of scale
 Control of Monopoly and Restrictive Trade Practices
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 Import Substitution

Public Sector Reforms

In the industrial policy of 1991, the government of India launched four major reforms in
the public sector:

1. Limiting the number of industries reserved for the public sector

2. Memorandum of Understanding (MOU)
3. Disinvestment
4. Restructural and Revival

Multinational Companies/Global Enterprises

A company with its business operations in several countries through its factories,
branches or offices in those countries, but headquartered in one country is called a
multinational company. For Example, PHILIPS, Coca-Cola, Nestle, Microsoft, etc.

Joint Ventures

When two or more independent firms join together to form a new enterprise by merging
their technology, capital and expertise, this is referred to as a joint venture. For
example, Hero Cycle from India and Honda Motors Co. from Japan jointly established
Hero Honda.

Public-private Partnership (PPP):

An enterprise in which a project or a service is financed and operated through a

partnership of government and private enterprises.

QUICK REVISION OF THE CHAPTER

 The Indian economy includes both private and public sector
businesses.
 Private sector businesses are owned by individuals or groups.
 Public sector organisations are owned and managed by the
government, either fully or partially, and may be part of a
ministry or created by a Parliamentary Act.
 The Industrial Policy Resolution of 1948 outlined India's approach
to economic development.
 The Industrial Policy Resolution of 1956 aimed to boost expansion
and industrialisation through public sector goals.
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 The 1991 industrial policy marked a shift by encouraging

disinvestment in the public sector and granting more freedom to
the private sector.
 Foreign companies were also invited to invest in India.
 In the Indian economy, public sector units, private firms, and
multinational corporations coexist.

IMPORTANT QUESTIONS

Question 1

What are the different types of PSEs?

Answer: The different types of Public Sector Enterprises or PSEs are:

 Statutory Corporation
 Departmental Undertaking
 Statutory Corporation
Question 2

Mention the types of business enterprise which operates in more than one
nation.

Answer: Companies that operate a business in more than one nation are
called Multinational Companies (MNCs). However, such companies have their
headquarters in one country where all the primary business activities take
place. For instance, Capgemini, Amazon, etc.,

Question 3

What are the objectives of a public sector enterprise?

Answer:

 To accomplish rapid economic enhancement through industrial growth

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 To prevent the development of monopoly and concentration of the economic

power in the private hands
Question 4

Provide 2 features of a public-private partnership.

Answer:

 The private sector’s role in the partnership is to make maximum use of its skills
in managing tasks, innovation and operations to run the business effectively.
 The public partners in a public-private partnership (PPP) are the government
organisations, i.e., municipalities, government departments, ministries or state-
owned enterprises. The private partners can be either local or international and
include businesses or investors with financial or technical skills that are relevant
to the project.
Question 5

What are the features of an MNC?

Answer:

 Product innovation
 Foreign collaboration
 Advanced technology
 Huge capital resources
Question 6

What is a Joint venture?

Answer: A joint venture is a business arrangement in which two or more

persons give their consent to pooling their resources for the purpose of
completing a particular task. This task can either be a new project or any
other business pursuit. In a joint venture (JV), each of the participants is
accountable for profits, losses and costs related to it.

Question 7

What is a departmental undertaking?

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Answer: Departmental undertaking is a form of organisation in the public

sector where a public enterprise is allowed to function as a full-fledged
division. It is maintained, organised and financed by the government. For
e.g. India Posts functions as a department within the Ministry of
Communication.

MULTIPLE CHOICE QUESTIONS

1. The forms of organisation which a public enterprise may take are
_________.

a. Departmental undertaking

b. Cooperative

c. Statutory corporation

d. Government company

(a) Only a, b, and c

(b) Only a, c and d

(c) Only b, c and d

(d) Only a, b and d

Answer: (b) Only a, c and d

2. Which of the following has the power of the government and the
considerable amount of operating flexibility of private enterprises?

(a) Departmental Undertakings

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(b) Statutory Corporations

(c) Government companies

(d) All of the above

Answer: (b) Statutory Corporations

3. Which of the following roles are played by the public sector in the
economy?

a. Regional balance

b. Economies of scale

c. Check over-concentration of economic power

d. Import substitution

e. Development of infrastructure

(a) Only a, b and d

(b) Only a, c, d, and e

(c) Only a, b, c, and e

(d) Only b, c, d, and e

(e) All of these

Answer: (e) All of these

4. Centralised control in MNC’s implies control exercised by _____.

(a) Branches

(b) Subsidiaries
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(c) Headquarters

(d) Parliament

Answer: (c) Headquarters

5. Which of the following is true about statutory corporations?

(a) Statutory corporations are public enterprises that come into existence by
a special act of the parliament

(b) Statutory corporations are subject to the same accounting and audit
procedures as are applicable to government departments

(c) Statutory enterprises are funded directly by the government treasury

(d) The employees of statutory enterprises are civil servants

Answer: a) Statutory corporations are public enterprises that come

into existence by a special act of the parliament

6. The funding of which of the following enterprises comes directly from the
government treasury, is under an annual appropriation from the budget of
the government, and the revenue earned by it is also paid into the treasury?

(a) Departmental undertaking

(b) Statutory corporation

(c) Government company

(d) Cooperatives

Answer: (a) Departmental undertaking

7. Which of the following enterprises may benefit the most from an

established brand name at the time of incorporation?
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(a) Departmental Undertaking

(b) Government Company

(c) Statutory corporations

(d) Joint Venture

Answer: (d) Joint Venture

8. Disinvestments of PSE’s ( Public Sector Enterprises) imply _____.

(a) Sale of equity shares to private sector/public

(b) Closing down operations

(c) Investing in new areas

(d) Buying shares of PSE’s

Answer: (a) Sale of equity shares to private sector/public

9. A government company is any company in which the paid-up capital held

by the government is not less than _____.

(a) 49 percent

(b) 51 percent

(c) 50 percent

(d) 25 percent

Answer: (b) 51 percent

10. Which of the following types of organisations has the capability of

expanding the market territory and operating through a network of
subsidiaries, branches, and affiliates?
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(a) MOFA – Ministry of Foreign Affairs

(b) MNC – Multinational Companies

(c) Public Sector Enterprises

(d) Private Sector Enterprises

Answer: (b) MNC- Multinational companies

11. Which of the following statements regarding recent Government policy

measures towards the public sector is/are true?

a. Restructuring and reviving potentially viable PSUs.

b. Closing down of those PSUs that cannot be revived.

c. Bringing down government equity in all non-strategic PSUs to 50 per cent

or lower.

d. Fully protecting the interest of workers.

(a) Only a, b, and c

(b) Only a, c, and d

(c) Only a, b, and d

(d) Only b, c, and d

Answer: (c) Only a, b and d

12. In the 2001 resolution on industrial policy, the number of industries

exclusively reserved for the public sector was brought down. This means that
the private sector can now enter all areas except these, and the public
sector would have to compete with them. Which of the following areas are
now exclusive to the public sector?
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a. Atomic energy

b. Arms

c. Communication

d. Railways

(a) Only a, b, and c

(b) Only a, c, and d

(c) Only a, b, and d

(d) Only b, c, and d

Answer: (c) Only a, b and d

13. The public sector enterprises are to invest and operate in certain
spheres. Which of the following is not one of these core sectors?

(a) Civil aviation

(b) Power generation plants

(c) Pharmaceuticals

(d) Project management consultancies

Answer: (c) Pharmaceuticals

14. The shares of a Government Company are purchased in the name of

which of the following?

(a) The Indian Government

(b) The President of India

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(c) The Chief Minister of the state, where the head office of the company lies

(d) The Managing Director of the company

Answer: (b) The President of India

15. Which of the following is/are the correct way(s) of forming a joint venture
company?

a. Two parties can incorporate a company in India, and the business of both
parties can be transferred directly to the new company

b. The above two parties can subscribe to the shares of the joint venture
company in agreed proportion, in cash, and start a new business

c. Promoter shareholder of an existing Indian company and another party

may jointly collaborate to jointly carry on the business of that company

(a) Only a

(b) Only b

(c) Only c

(d) Only a and b

(e) Only b and c

Answer: (e) Only b and c