Public Private and Global Enterprises Class 11 Notes

This chapter tells us in detail about the three enterprises: Public, Private, and Global Enterprises. Here are the Public Private and Global Enterprises class 11 notes.

Indian Economy has two sectors:

• Private Sector
• Public Sector

Private Sector

Business enterprises that are owned and managed by individuals or a group of individuals are called private enterprises.

Various forms of organization are sole proprietorship, partnership, joint Hindu family, cooperative, company, and multinational corporations.

Types of Private Sector

There are six types of private sector which are as follows:

1. Sole Proprietorship
2. Partnership
3. Joint Hindu Family
4. Cooperative
5. Company
6. Multinational Corporations

Public Sector

These are the business enterprises that are managed and owned by the government. These organizations may either be partly or wholly owned by the central or state government.

The forms of organization that a public enterprise may take are departmental undertaking, statutory corporation, and government company.

Types of Public Sector

• Departmental Undertakings
• Statutory Corporation
• Government Company

Difference between Private and Public Enterprises

Departmental Undertakings

This is the oldest and most traditional form of public sector enterprise. These enterprises are established as departments of the ministry and are considered part of 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: Indian Railways, Post and Telegraph, etc.

They have not been constituted as autonomous or independent institutions and as such are not independent legal entities. They act through the officers of the government and its employees are government employees.

Features of Departmental Undertakings

1) Funding

The funding of these enterprises comes directly from the government treasury. The revenue earned also belongs to the government and is paid to the government treasury.

2) Accounting and Audit Rules

These undertakings follow accounting rules framed by the Indian accounts department and the audit is also under the direct control of the government.

3) Service Conditions

The employees of these enterprises are government servants and they are headed by IAS officers and civil servants who are transferable from one ministry to another.

4) Accountability

They are accountable to the ministry since their management is directly under the concerned ministry.

Merits of Departmental Undertakings

1) Revenue is a Source of Income for the Government

Whatever revenue is earned by these enterprises is directly deposited into the government treasury, hence the revenue is an important source of income for the government.

2) Accountability

These undertakings are established for some specific work of the ministry. The government receives its work through government Audits. Hence, they provide a high degree of public accountability.

3) National Security

Where national security is concerned, this form is most suitable since it is under the direct control and supervision of the concerned ministry.

4) Effective Control

These undertakings ensure effective control over their operations by the parliament. The control of departmental undertaking is very effective as it is direct and centralized.

Demerits of Departmental Undertakings

1) Lack of Flexibility

Departmental undertakings fail to provide flexibility, which is essential for the smooth operation of business.

2) Delay in Decision-Making

These enterprises failed to make quick decisions because for every decision they have to obtain approval from the concerned ministry.

3) Political Interference

Political interference hinders the efficient working of these undertakings. Most of the time is spent attending a political meeting and implementing their recommendations.

4) Red Tapism

Departmental undertakings suffer from red tape in their day-to-day work. Actions can be taken only after following the proper channels of the authority.

5) Bureaucracy

These enterprises are not able to take full benefits of business opportunities. The bureaucratic and conservative approach of the concerned ministry hinders their initiative.

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 departments.

It is a corporate body created by the legislature with defined powers and functions and is financially independent with clear control over a specified area or a particular type of commercial activity.

For Example: Indian Airlines, Air India, State Bank of India, LIC (Life Insurance Corporation of India), etc.

Features of Statutory Corporations

1) Formation

Statutory corporations are set up under an act of parliament. The act defines the objects, powers, and privileges of a statutory corporation.

2) A Body Corporate

It has a separate legal entity, distinct from its members. Therefore, it can sell or purchase property, enter into contracts, can sue and be sued.

3) Independently Financed

Usually, these enterprises are independently financed by borrowings from the government from the public, or through revenue.

They earn from the sales of goods and services. These enterprises have the authority to use their revenues.

4) Own Service Conditions

The employees of these enterprises are not government employees. The conditions of recruitment and service of the employees are laid down by the legislation that creates them.

5) Independence from Government Accounting

Unlike government departments, enterprises are not bound to adopt government accounting or audit procedures. Even they are not dependent on the central budget of the government.

Merits of Statutory Corporations

1) Operation Flexibility

Statutory Corporations can enjoy a high degree of flexibility in their operations, as it is free from unnecessary government control and regulations.

2) Non-Interference by the Government

The government does not interfere in the financial matters of the organization because they are independently financed.

3) Valuable Instrument from Economic Growth

The enterprises are considered to be an effective instrument for economic development as they have the power of the government along with the initiative of private enterprises.

4) Autonomous Organizations

Statutory Corporations have the autonomy to frame their policies and procedures within the provided authority.

Demerits of Statutory Corporations

1) Corruption

Where it involves dealing with the public, corruption is inevitable. This corruption destroys the whole purpose of creating such enterprises.

2) Government Interference

In matters, related to some important decisions, there is always government and political interference.

3) Flexibility on Papers Only

All decisions of the enterprise are subjected to many rules and regulations by the government. Therefore, the operational flexibility is available on paper only.

Emerging Modes of Business Class 11 Notes

Government Company

According to the Companies Act 2013, a government company is any company in which at least 51 percent of the paid-up share capital is held by the central or state government.

For Example: Steel Authority of India (SAIL), State Trading Corporation, Hindustan Machine Tools, etc.

Features of Government Company

1) Created by the Companies Act

It is an organization created under the Companies Act, of 2013 or any other previous company law.

2) File a Suit

Being a separate legal entity, a government company can sue and be sued by a third party.

3) Enter into a Contract

The company has the authority to sell and purchase the property and to enter into contracts in its name.

4) Audit by Central Government

Audit of accounts is conducted by an auditor appointed by the central government. Its annual report is also laid in both houses of the parliament.

5) The Rules Contained in MOA and AOA

The memorandum and article of association lay down the rules and regulations for appointing the employees of the company.

Merits of Government Company

1) Ease Information

A separate act of parliament is not required for setting up a government company as it is established under the Companies Act 2013.

2) Autonomy

General company has full autonomy in doing its business operations and in all business decisions and takes action which it thinks necessary for the betterment.

3) Good Market Control

These companies by providing goods and services at reasonable prices can control the market and reduce unhealthy business practices.

4) Independent Status

The government company has its legal entity, separate from the government.

Demerits of Government Company

1) Provisions of the Companies Act not Relevant

Since, in a government company the government is the only shareholder and also the management in the hands of government. Hence, the provisions of the Companies Act do not have much relevance.

2) Evades Constitutional Responsibility

In some of the companies, the provision of the Companies Act does not have much relevance. The companies are not answerable to the parliament hence, they evade constitutional responsibility which an enterprise financed by the government should have.

3) Main Purpose Defeated

Being a government company, the whole management is in the hands of the government. Thus, the purpose of registering it under the Companies Act 2013 was defeated.

Difference between Departmental Undertaking, Statutory Corporation, and Government Company

Changing Role of Public Sector

1) Development of Infrastructure

The various facilities like transportation, communication, fuel, etc. require heavy investment. Initially, the private sector was unwilling to invest in these projects. So, it was only the government that provided huge funds for the development of infrastructure facilities.

2) Economies of Scale

It is an accepted principle that if we produce on a large scale, we may get the goods at cheaper rates. This is what is known as the economy of scales.

To achieve the benefits of the same large-scale industries requiring huge capital outlay had to be established.

3) Import Substitution

In the initial, second, and third five-year plans, our country aimed to be self-reliant in many spheres.

Public sector companies like STC, BHEL, HAL, etc. had a strong base for providing import substitution and they also helped in expanding exports of the country.

4) Regional Balance

During the pre-independence period, industrial progress was limited to only a few areas.

Thus, to ensure regional balance, many public sector enterprises were established in backward areas to increase the rate of economic growth and employment opportunities.

5) Check over-concentration of Economic Power

The concentration of economic power means the accumulation of wealth in the hands of a few. This leads to economic inequalities which are determined for any society.

The basic role of public sector enterprises was to check the concentration of economic power and monopolistic practices in the private sector.

6) Government Policies towards the Public Sector 1991

In its industrial policy resolutions, the government defines the area of activities in which the private and the public sector are allowed to work. This resolution gave more importance to the public sector.

The major developments regarding the role given to public sector enterprises are as follows:

• Reduction in the number of industries reserved for the public reserved
• Disinvestment of Shares
• Policy regarding sick units to be the same as that of the private sector
• Memorandum of Understanding

Joint Venture

When two or more organizations private, government-owned, or foreign companies agree to join together for a common purpose and mutual benefit, it gives rise to a joint venture. For Example Maruti Suzuki.

A joint venture is the pooling of resources and expertise by two or more businesses, to achieve a particular goal. The aim may be to start a new business or expansion of existing business.

Joint ventures are formed either for long-term or short-term projects. The basic purpose of the joint venture is to attain the top position for both enterprises.

Two types of Joint Ventures are as follows:

Benefits of Joint Ventures

1) Increased Resources and Capacity

A joint venture involves the pooling of human and financial resources. Thus, a joint venture enterprise can easily face market challenges and take advantage of new growth opportunities.

2) Access to Technology

Joint venture helps to use the latest and advanced technology of the world. Advanced technology helps in improving the quality of the products, saving time, cost, energy, etc.

3) Low Cost of Production

Joint venture helps in reducing the cost. Joining hands with others, especially with foreign companies helps in reducing the cost of production because of their good system, knowing qualified workforce and management of professionals, etc.

4) Established Brand Name

Joint ventures may prove very beneficial in developing and branding the name of the enterprises.

This is possible when two enterprises come into a joint venture both benefiting from each other’s name, fame, reputation goodwill, etc. already established in the market.

5) Innovation

Joint ventures enable business enterprises to come up with new ideas for products and services that help them meet the market demand. The joint venture also helps to create and tap demand for their new products.

Public Private Partnership (PPP)

PPP is defined as a relationship between public and private entities in the context of infrastructure and other services.

The cooperative venture between the public and private sectors is built on the expertise of each, through the allocation of each, through the allocation of resources, risks, and returns jointly.

Features of Public-Private Partnership

1) Allocation of Risk

Under public-private partnerships, projects are built through the joint distribution of resources. Hence, the risk and returns are jointly shared by both.

2) Ensures Economy, Effectiveness & Efficiency

Under this model, rewards and investments both are shared by the public and private sectors. Hence, the projects ensure that our resources are used most economically.

3) Faster Implementation

Under the public-private partnership, private sectors join hands with expertise and funds. So, they are always interested in recovering the benefits.