CHAPTER 3
PRIVATE, PUBLIC AND GLOBAL
ENTERPRISES
Introduction:- There are all kinds of business organisation - small or
large, industrial or trading, privately owned or government owned
existing in our country.
The Indian economy opted for a mixed economy where both private and
government enterprises are allowed to operate.
Indian Economy
Public Sector Private Sector Global Enterprises
Enterprises Enterprises Enterprises
1. Department undertakings 1. Sole Proprietorship 1. MNC's
Indian railways, Indian Post, 2. Joint Hindu Family Ranbaxy,
Doordarshan Business Lipton
2. Statutory 3. Partnership 2. Joint Venture
Corporation 4. Co-operative Maruti
LIC, FCI Societies Suzuki
3. Govt. Company Hindustan 5. Company 3. PPP
Tools Ltd., BHEL
Business owned by individuals or a group of
individuals
Private Sector Main objective is to earn profit and growth of
Enterprises business.
For example Reliance Industries Limited, ITC
Limited, HDFC Bank Limited etc.
Owned, managed and controlled by central or
state of by both government
Public Sector Main objective is public welfare or service
Enterprises
For example - Indian Railway, Indian Post,
Doordarshan, Bharat Heavy Electricals
Limited (BHEL) etc.
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FORMS OF PUBLIC ENTERPRISES
I. Department Undertaking
These are established as departments of the ministry and are
financed, managed and controlled by either central government
or state government or jointly by both. For example- Indian
Railways, Post & Telegraph, Doordarshan, Prasar Bharti.
Features
1) Establishment :- It is established as department of
concerned ministry under central or State government.
2) No Separate Entity :- It has no Separate legal entity.
3) Finance :- It is financed by annual budget allocation of the
government and all its earnings go to government treasury.
4) Accounting and audit :- The government rules relating to
audit and accounting are applicable to it.
5) Staffing :- Its employees are government employees and
are recruited and appointed as per government rules.
6) Accountability :- It is accountable to the concerned
ministry.
Merits
1) It is more effective in achieving the objective laid down by
government as it is under the direct control of government.
2) It is a source of government income as its revenue goes to
government treasury.
3) It is accountable to parliament for all its actions which
ensures proper utilization of funds.
4) Due to budgetary, Accounting and audit controls, risk of
misuse of public funds is less.
5) It is suitable for activities where secrecy and strict control is
require like defence production.
Demerits
1) It lacks flexibility which is essential for smooth operation of
business.
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2) It suffers from political interference in their day to day
working.
3) It suffers from red tapism in day to day work and any
required action is taken after completion of proper process.
4) This organization is usually insensitive to consumer needs
due to absence of competition and monopoly.
5) Such organizations are managed by civil servants and
government officials who may not have the necessary
expertise and experience in management.
Suitability :-
1) Where full government control is needed.
2) Where secrecy is very important such as defence Industry.
Box -1
Following Departmental undertakings come under which ministers :-
(1) Air India Limited
(2) Coal Indian Limited
(3) C.B.S.E.
(4) Kendriya Vidyalaya Sangathan
(5) National Highway Authory of India.
[Hints :]
(1) Ministry of Civil Aviation
(2) Ministry of Coal
(3) & (4) Ministry of Education
(5) Ministry of Road Transport & Highways
II. Statutory Corporations
It is established under a special Act passed in parliament or state
legislative assembly. Its objectives, powers and functions are
clearly defined in the special Act.
Examples :- Unit Trust of India, Life Insurance Corporation,
GAIL, SCI, FCI
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Features
1. It is established under a special act which defines its objects,
powers and functions.
2. It has a separate legal entity.
3. Its management is vested in a Board of directors appointed or
nominated by government. There is no government interference
in day to day functioning.
4. It has its own staff, recruited and appointed as per the provisions
of act.
5. Its initial capital is provided by the government
This type of enterprise is usually independently financed. It
obtains funds by borrowing from government or form public or
through earnings.
6. It is not subject to same accounting & audit rules which are
applicable to government department.
Merits
1. Internal Autonomy :- It enjoys a good deal of autonomy in its
day to day operations and is free from political interference.
2. Quick Decision :- It can take prompt decisions and quick
actions as it is free from the prohibitory rules of government
3. Parliament’s Control :- Its performance is subject to discussion
in parliament which ensures proper use of public money.
4. Efficient Management :- It is Independent in recruitment and
selection of their employees and professionals. Experienced
specialists are appointed on important posts.
Demerits
1. In reality, there is not much operational flexibility. It suffers form
lot of political interference from ministers, government officials
and political parties.
2. Usually it enjoy monopoly in their field and do not have profit
motive due to which its working seems to be inefficient.
3. Where there is dealing with public, rampant occupation exists.
Thus public corporation is suitable for undertaking which
requires monopoly powers e.g. public utilities.
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Suitability : Public enterprise is suitable when :–
i) The enterprise requires special powers under an Act.
ii) The enterprise requires a huge amount of capital
investment.
III. Government Company
è Established under the Indian Companies Act, /2013.
è Registered and governed by the provisions of the Indian
Companies Act.
è Not less than 51% paid up capital is held by central govt. or
by any state government or partly by central government
and partly by one or more state governments.
è The shares of the company are purchased in the name of
the president of India.
è Examples - State Trading Corporation of India, NTPC,
Hindustan Machines Tools.
Features
1. It is registered of Incorporated under companies Act, /2013.
2. It has a separate legal entity.
3. Government has minimum 51% of paid up capital.
4. It is managed by board of directors selected by government and
other shareholders.
5. Employees are recruited and appointed as per the rules and
regulations contained in its Memorandum and Articles or
Association.
6. The government company obtains funds from government
shareholdings and other private shareholdings. It can also raise
funds from capital market.
Merits
1. It can be easily formed as per the provision of companies Act.
There is no need to pass special act in the parliament.
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2. It enjoys full autonomy in management decisions and flexibility in
day to day working.
3. It can appoint professional managers on high salaries.
Limitations
1. It suffers from interference from government officials, ministers
and politicians.
2. It evades constitutional responsibility which a company financed
by the government should have, as it is not directly answerable to
parliament.
3. The board usually consists of the politicians and civil servants
who are interested more in pleasing their political bosses than in
efficient operation of the company.
SUITABILITY :
i) Where the government want to work along with private
sector.
ii) Where projects need government planning and funds.
Box 2
Q. Identify the type of public sector enterprise in the following cases
where.
a) government wishes to bring its own enterprise so that it can
compete with the private sector.
b) Enterprise requires special powers to fulfill a particular
purpose for social cause.
c) Enterprises is required to provide public utilities and to
control the monopoly of private sector in public interest.
Ans. a) Government Company
b) Statutory Corporation
c) Departmental Undertaking
Q. Name the following:
a) A corporation established under a special law of
parliament.
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b) An organisation runs by a department of the government.
c) A company who 51% paid up capital is held by the
government.
Multinational Companies / Global Enterprises
Multinational company may be defined as a company that has
business operation in several countries by having its factories,
branches or office in those countries. But it has its headquarter in that
country where it is incorporated. Examples :- Coca Cola, Sony, Reebok
etc.
Features
1. Huge capital Resources :- MNCs posses huge capital
resources and they are able to raise lot of funds from various
sources.
2. International Operations :- MNCs do business in several
countries. For this, it has business, factories and offices in
several countries.
3. Centralized Control:- MNCs have headquarters in their
home countries from where they exercise control over all
branches and subsidiaries. There is no interference in their day
to day operations.
4. Foreign Collaboration :- Usually they enter- into agreements
relating to sale of technology, production of goods, use of brand
name etc. with local firms in the host country.
5. Advanced Technology :- These organisations possess
advanced and superior technology which enable them to provide
world class products and 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 spend huge
amounts on advertising and sale promotion.
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Q. Name any two Indian multinational and two foreign multinational
company.
Public Private Partnership (PPP)
It means an enterprise in which a project or service is financed
and operated through a partnership of public and private
enterprise. PPP is a long term partnership between public and
private sector. PPP model is being used in following areas :-
1) Transport - Road, Railway and Toll Bridge
2) Health - Hospital
3) Water - Collecting, Cleaning and Distributing
4) Education - School and University
Features of PPP
1. The public private partnership model allocates tasks, obligations
and risk among the public and private partners in optimal
manner.
2. It facilitates partnership between public sector and private
sector.
3. It pertains high priority project.
4. The public partners in PPP are government entities i.e.
ministries, govt. departments, municipalities or state owned
enterprise.
5. The private partner can be local or foreign business with
technical or financial expertise.
Box 3
Q. Identify the enterprises :-
a) Such enterprises brings in advance technology from home
country.
b) Such enterprises helps in completing public utilities project
at much higher speed, with the help of private sector.
c) The sector where business enterprise is owned jointly by
the government and private entrepreneurs.
d) This sector is exempted from accounting and audit rules
and procedures. An auditor is appointed by the central
government.
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Ans. a) Global Enterprises (MNCs)
b) Public Private Partnership
c) Public Private Parternship
d) Government Company
Points to be remembered
1. Private Sector's Business are owned by private individuals or
groups-Reliance Industries, Airtel, LG, Samsung.
2. Public Sector Business are owned by the State.
3. Departmental undertakings are run as a part of govt. dept under
the direction of the minister concerned.
4. Public corporation is created by a Special Act of Parliament or
State Legislature.
5. Govt. Company is a Public Enterprises which has a minimum
51% of the paid up capital in the name of the Central Govt. or
State Govt.
6. Global Enterprise are those companies which run in more than
one Country.
7. PPP-Public Private Partnership-refers to the investment of
private sector in the govt projects aimed at Public Benefit.
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