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Class 11 Business Studies Chapter 3 Private, Public and Global Enterprises
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Private, Public and Global Enterprises
Chapter: 3
VERY SHORT TYPE QUESTIONS ANSWERS (1 MARK EACH)
1. A government company is every 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.
Ans: (b) 51 percent.
2. Centralised control in MNC’s implies control exercised by.
(a) Branches.
(b) Subsidiaries.
(c) Headquarters.
(d) Parliament.
Ans: (c) Headquarters.
3. Reconstruction of sick public sector units is taken up by.
(a) MOFA.
(b) MOU.
(c) BIFR.
(d) NKF.
Ans: (c) BIFR.
5. Disinvestments of PSE’s implies
(a) Sale of equity shares to private sector / public.
(b) Closing down operations.
(c) Investing in new areas.
(d) Buying shares PSE’s.
Ans: (a) Sale of equity shares to private sector / Public.
Short Answer Questions
1. Explain the concept of public sector and private sector.
Ans: The private sector consists of business owned by Individuals or a group of individuals.
The public sector consists of various organisations owned and managed by the government. These organisations may either be partly or wholly owned by the Central or State Government. They may also be a part of the ministry or come into existence by a special Act of the Parliament.
2. State the various types of organisations in the private sector.
Ans: These undertakings may have any one of the following type of organisations:
(i) Sale proprietorship.
(ii) Partnership.
(iii) Joint Hindu Family business.
(iv) Joint stock company.
3. What are the different kinds of organisations that come under the public sector?
Ans: (i) Departmental organisation.
(ii) Public Corporations.
(iii) Government Companies.
4. List the name of some enterprises under the public sector and classify them.
Ans: (i) Assam State Electricity Board – Board
(ii) Assam State Transport Corporation – statutory Corporation
(ii) Assam Industrial Development Corporation Ltd.- Govt company
(iv) Nagaon Co-operative Sugar Mill-co-operative firm.
5. Why is the government company form of organisation preferred to other types in the public sector?
Ans: Because of the following advantages:
(i) Flexibility in management
(ii) Run on commercial lines
(iii) Healthy competition
(iv) Financial autonomy.
(v) Helpful in developing neglected sectors.
(vi) Providing industrial environment.
6. How does the government maintain a regional balance in the country?
Ans: The government of India has been laying emphasis on the balanced regional development of the country various industrial policy statements and five year plans emphasised the development of all regions in a planned way. Balanced regional development implies uniform distribution of planned investment among different regions of the country. The investments should be so planned that regional growth rates should be equal. To develop underdeveloped areas, the rate of growth should be more at those places so that disparities are removed. The balanced economic growth of a country is possible only when all the areas are developed in a planned way. The entrepreneurs can play an important role in bringing about the balanced development. The Government can play an important role in overcoming this problem. The govt. can play the role of entrepreneur by setting up public sector units in underdeveloped regions. It can also play the role of a promoter by extending various incentives to those who set up units at less developed regions.
Long Answer Questions
1. Describe the Industrial Policy 1991, towards the public sector.
Ans: The 1991, Industrial Policy adopted a new approach to public enterprises. The priority areas for growth of public enterprises in the future would be the following.
(i) Essential infrastructure goods and services.
(ii) Exploration and exploitation of oil and mineral resources.
(iii) Technology development and building of manufacturing capabilities, in areas, which are crucial in the long term development of the economy and where private sector investment is inadequate.
(iv) Manufacture of products where strategic considerations predominate such as defence equipment.
Government would strengthen those public enterprises which fall in the reserved areas of operation or are in high priority areas or are generating good or reasonable profits. Such enterprises will be provided a much greater degree of management autonomy through the system of memoranda of Competition will also be induced in these areas by inviting private sector participation. In the case of selected enterprises, part of govt holdings into equity share capital of these enterprises will be disinvested in order to provide further market discipline to the performance of public enterprises.
There are a large number of chronically sick public enterprises incurring heavy losses, operating in a competitive market and serving little or no public purpose.
The following measures are being adopted:
(i) Portfolio of public sector investments will be reviewed with a view to focus the public sector on strategic, high tech and essential infrastructure. Whereas some reservation for the public sector is being retained. Some areas would be opened up to the private sector selectively. Similarly, the public sector would also be allowed entry in areas not reserved for it.
(ii) Public enterprises which are chronically sick and which are unlikely to be turned around would, be referred to the Board for Industrial and financial Reconstruction (BIFR) for formulation of revival – rehabilitation schemes. A social security mechanism is to be created to protect the interests of workers likely to be affected by such Government would strengthen those public enterprises which fall in the reserved areas of operation or are in high priority areas or are generating good or reasonable profits. Such enterprises will be provided a much greater degree of management autonomy through the system of memoranda of undertaking. Competition will also be induced in these areas by inviting private sector participation. In the case of selected enterprises, part of govt holdings in the equity share capital of these enterprises will be disinvested in order to provide further market discipline to the performance of public enterprises.
There are a large number of chronically sick public enterprises incurring heavy losses, operating in a competitive market and serving little or no public purpose..
The following measures are being adopted
(iii) Portfolio of public sector investments will be reviewed with a view to focus the public sector on strategic, high tech and essential infrastructure. Whereas some reservation for the public sector is being retained. Some areas would be opened up to the private sector selectively. Similarly, the public sector would also be allowed entry is areas not reserved for it.
(iv) Public enterprises which are chronically sick and which are unlikely to be turned around would be referred to the Board for Industrial and Financial Reconstruction (BIFR) for formulation of revival/ rehabilitation schemes. A social security mechanism is to be created to protect the interests of workers likely to be affected by such rehabilitation packages.
(v) In order to raise resources and encourage wider public participation, a part of the government’s share holding in the public sector would be offered to mutual funds, financial institutions, the general public and workers.
(vi) Boards of public sector companies would be made more professional and given greater powers.
(vii) There would be a greater thrust on performance improvement and managements of understanding (MOLLS) and would be held accountable.
2. What was the role of the public sector before 1991?
Ans: Before 1991, the role of public sector are follows:
(i) Helping all round industrialisation.
(ii) Establishing enterprises.
(iii) To provide necessities.
(iv) For balanced economic growth.
(v) For avoiding concentration of economic power.
(vi) For establishing socialistic pattern of society.
(vii) To run monopoly sectors.
(viii) Exploitation of natural resources.
(ix) Helping in implementing Government plans:
(x) To increase Government resources.
(xi) To provide healthy competition to private sector.
3. Can the public sector companies compute with the private sector in terms of profits and efficiency? Give reasons for you answer.
Ans: The public sector companies can not compete with private sector in terms of profits and efficiency because of the following reasons as drawbacks of public sector companies –
(i) Delay in completion: Public enterprises take long period for completion. The delay may be due to non-release of funds in time, too much time taken in completing etc. This delay escalates cost estimates and difficulties crop up in completing these units. The benefits expected from such units are also delayed and it upsets various calculations on demand and supply side.
(ii) Faulty Evaluation: Public enterprises are sometimes set up on political consideration. There are no clear cut objectives to be formed and everything is done in a hurry. The projects are not properly evaluated on sound industrial principles. Faulty evaluation of projects results in their failure and wastage of national resources.
(iii) Heavy Overhead costs: Public enterprises spend heavy amounts on unproductive expenses. Large amounts are first spent on providing housing facilities and other amenities to employees even before the unit starts production. This takes away a large chunk of investments and the project suffers from financial difficulties. Though such investments are useful for the employees but these should come out of profit/supplies from the units.
(iv) Inadequate Returns: The past experience in India shows that public enterprises have failed to earn a fair return on investments. In Spite of many privileges enjoyed by these units many of them are either running into losses or are earning inadequate returns on compared to investments.
(v) Political Interference: There is frequent interference in the working of such units from politicians: The members, of party in power try to influence the policies of public enterprises. These units are not allowed to be run on sound business policies.
(vi) Inefficient Management: The important posts in public enterprises are occupied by those who have no business experience but have political support. Such leaders are not able to inspire and motivate employees in improving their performance.
(vii) Lack of manpower Planning: Public sector units employ persons disproportionate to their needs. The jobs are created to fulfil employment needs of the govt and not as per the needs of the organisation. Over staffing of those units brings inefficiency and lethargy.
(viii) More Labour Problems: Public sector enterprises face more labour problems as compared to private sector units. The main reason is more expectations of employees from govt. run units. The employees expect frequent wage hikes and resort to strikes for achieving their goals. Their job safety in these units makes them militants in pursuing their aims.
4. Why are global enterprises considered superior to other business organisations?
Ans: Global enterprises as Multinational Companies are considered superior to other business organisations because of their following advantages –
(i) MNCs help increase the investment level and thereby the income and employment in host company.
(ii) The transactional corporative have become vehicles for the transfer of technology, especially to the developing countries.
(iii) The MNCs enable the host countries to increase their exports and decrease their import requirements.
(iv) They work to equalise the cost of factors of production around the world.
(v) MNCs provide an efficient means of integrating national economics.
(vi) MNCs also stimulate domestic enterprises because to support their own operations. The MNCs may encourage and assist domestic suppliers.
(vii) MNCs help increase competition and break domestic monopolies.
(viii) They make a commendable contribution to inventions and innovations.
5. What are the benefits of entering into joint ventures?
Ans: Following are the benefits of entering into joint ventures.
(i) Increased resources and capacity: Joining hands with another or teaching up adds to existing resources and capacity enabling the joint venture company to grow and expand more quickly and efficiently.
(ii) Across to new markets and distribution networks: When a business enters into a joint venture with a partner from another country. It opens up a vast growing market.
They can also take advantage of the established distribution channels i.e., the retail, outlets in different local markets. Otherwise establishing their own retail outlets way prove to be very expensive.
(iii) Access to technology: Technology is a major factor for most business to enter into joint ventures Advanced techniques of production leading to superior quality products saves a lot of time, energy and investment as they do not have to develop their own technology. Technology also adds to efficiency and effectiveness, thus leading to reduction in costs.
(iv) Innovation: The markets are increasingly becoming more demanding in terms of new and innovative products Joint ventures allow business to come up with something new and creative for the same market.
(v) Low cost of production: When international corporations invest in India, they benefit immensely due to the lower cost of production. They are able to get quality products for their global requirements.
(vi) Established brand name: When two business enter into a joint venture one of the parties benefits from the other’s goodwill which has already been establishing in the market.
ADDITIONAL QUESTIONS & ANSWERS
A. Fill up the blanks:
(i) A public enterprise is an undertaking owned and controlled by _______.
Ans: Government.
(ii) Public Corporations are created by _______ of central or state govt .
Ans: Special status.
(iii) In a govt. company at least _______ shares owned by the govt.
Ans: 51 percent.
B. State whether following statement are true or false:
(i) A public enterprise is financed by the government.
Ans: True.
(ii) Railway are managed under departmental form of organisation.
Ans: True.
(iii) Public corporations are set up under companies act.
Ans: True.
(iv) In public corporations govt funds must exceed 25% of total funds.
Ans: True.
(v) Government companies can be registered as private limited companies also.
Ans: False.
(vi) A joint sector is that where private and public sector co- operate.
Ans: False.
(vii) Public utilities are profit earning organisations.
Ans: True.
Short Type Question & Answers
1. Mention five characteristics of public enterprises.
Ans: (i) Financed by the Government.
(ii) Government management.
(iii) Financially independent.
(iv) Public service.
(v) Useful for various sectors.
2. Give five arguments against public Enterprises.
Ans: (i) Delay of competition.
(ii) Faulty Evaluation.
(iii) Heavy Overhead.
(iv) Inadequate Returns.
(v) Political Interference.
3. Write five objectives of public enterprises.
Ans: (i) Helping all round.
(ii) Establishing enterprises requiring heavy investments.
(iii) To provide necessities.
(iv) For balanced economic growth.
(v) For avoiding concentration of economic power.
4. Write five characteristics of departmental form of public enterprises.
Ans: (i) The undertakings are wholly dependent on govt for finances state treasure provides finances and surplus money (profits) is deposited in the treasury.
(ii) The management is in the hands of the govt. The enterprise is managed and controlled by the civil servants of the department.
(iii) The budget of the department is passed by the parliament and or by the state legislature.
(iv) The accounting and audit control applicable to other government departments are applicable to state enterprises also.
(v) The department enjoys legal immunity. Governmental sanction is necessary for suing the undertakings.
5. Mention five advantages of departmental form of public enterprises.
Ans: (i) Useful for specific industries.
(ii) Help in Implementing Government policies.
(iii) Complete Government Control.
(iv) Legislative control.
(v) Sources of Income for government.
6. Mention five disadvantages of departmental form of public enterprises.
Ans: (i) Excessive Government Interference.
(ii) Shortages of competent staff.
(iii) Centralisation of powers.
(iv) Red Tapism.
(v) Inefficiency.
7. Write five characteristics of public corporations.
Ans: (i) Separate legal Entity.
(ii) Government cases investments.
(iii) Financial Autonomy.
(iv) Government Appointed management.
(v) Services Motive.
(8) Mention five advantages of public corporation.
Ans: (i) Internal Autonomy.
(ii) Flexibility.
(iii) Free from Government Interference.
(iv) Employment of Competent persons.
(v) Run on Business lines.
9. Mention five disadvantages of Government Company organisation.
Ans: (i) Sickness in Management.
(ii) Political Interference.
(iii) Red- Tapism.
(iv) Limited Autonomy.
(v) Official domination.
10. Give five Rational of Privatisation.
Ans: (i) Need for more Investments.
(ii) Professional Management.
(iii) No Interference in Decision making.
(iv) Use of Resources Properly.
(v) Personal Touch.
Long Type Question & Answers
1. Explain the various problems of public enterpriser.
Ans: State enterprises suffer from a number of problems. Some of the problems relate to their day-to-day working and others relate to policy matters and control.
Problems of state enterprises are discussed below:
(i) Form of Organisation: This is one of the important problems of state enterprises. In any undertaking favour of organisation is very important. The working of the undertaking entirely depends upon the form of its organisation at number of forms such as departmental form. Public corporations, joint stock companies are used for managing state undertakings. Departmental form is used for strategic industries and public utilities. Public Corporations are useful for managing big undertakings and joint stock companies may be useful for running concerns on commercial lines.
Before taking a decision regarding the form of an enterprise, the nature of work to be undertaken, capital required, requirements of managerial personnel and state policy should be taken into consideration.
(ii) Managerial Autonomy: How much autonomy should be allowed to the management is another important factor. In theory, state enterprises are managed by independent managements, but in practice, state interference always, remains. In departmental undertakings, managerial autonomy is minimum. Civil servants occupy all important. Positions and these persons are directly undue government control. Public corporations and government companies also have civil servants on the important positions. The managements of these enterprises should be given a free hand to take their own decision as warranted by the situation.
(iii) Public Accountability: State enterprises are financed by public money and they are primarily formed for public service. Public should be aware of the working of these enterprises nothing should be concealed from the public. Government should present all facts about the working of state enterprises to the state legislatures to the parliament. These legislative bodies have representatives of the public and government is accountable to these houses.
(iv) Pricing Policy: Pricing policy of public enterprises has always remained a topics of controversy. Whether these undertakings should take profits or should work on no-profit no-loss basis, has always been debated. A sound pricing policy should aim at earning some profit so that these units become economically viable units. Moreover, those undertakings should finance their own growth.
(v) Working Conditions: The working conditions of the staff concerning acquirements, fixation of wages. Salaries and rules for incentives etc. should be made similar in all public undertakings. Moreover, working conditions should be similar in all public and private sector undertakings. This will help govt concerns to use the services of qualified and competent persons. If working conditions are better in private sector units, then qualified persons will join private sector instead of public sector.
(vi) Industrial Relations: Industrial relations have become a significant factor in Industrial environment. There should be some machinery for setting employee – management disputes. The workers should be given incentives for raising their output. A proper care should be taken of selecting and training of workers. Various incentive schemes should be devised to prompt the workers for raising their output.
(vii) Research Schemes: Public undertakings should always aim at providing better services and good quality products to the public. It requires constant research and development plans to devise new and better methods of production. Public sector undertakings are generally monopoly concerns and they do not give much attention towards improvement of their working. This tendency should not be there. Lack of competition should not mean lethargy and insufficiency. These undertakings should pay proper attention towards improving their working and should try to serve consumers in a better way.
2. Discuss the objectives of public Enterprises
Ans: State enterprises are established to implement economic policies of the governments. The primary objective of the State enterprises is serve the people and help in creating an environment of Industrial activity.
Main objectives of state enterprises are as follows:
(i) Helping all-round Industrialisation: Govt, wants to develops all types of industries whether they are profitable or not private entrepreneurs invest only in those industries. Where profit earning chances are more. They will not invest in an undertaking where profits are low irrespective of its utility for the people. State enterprises are necessary for those lines where private sector is hesitant to invest. It helps in all round industrialisation of the country.
(ii) Establishing Enterprises Requiring Heavy Investment: Some undertakings need heavy investment and their gestation period may also be longer. Private industrialists cannot afford to make huge investments. govt. has large finances and it enters these fields where private entrepreneurs cannot afford to invest. In case of railways, ship-building, energy producing concerns, very huge investments are required and it is beyond the means of private investors to enter these field. Those sectors are very important from the country’s point of view, so, govt. enters these fields and establishes its own undertakings.
(iii) To provide necessities: Govt. undertakes to provide various necessities like electricity, coal, gas, transport and water facilities to the people. The aim is not only to provide these basic amenities but they should also be provided at cheap rates. Private sector cannot be relied upon to provide these services. The chances of public exploitation are more in these services. So, public utilities are provided by government undertakings.
(iv) For Balanced Economic Growth: The aim of industrialisation is to develop all industries necessary for the country secondary various regions of the country should be equally developed. Private entrepreneurs with aim more at profitability and not on balanced economic and regional development. Public sector takes up all those. Industries where private investors do not invest. The development of different areas is also considered by the government while setting up new units.
(v) For Avoiding Concentration of Economic power: If private sector is given a free hand industrialisation will lead to exploitation of consumers. Private entrepreneurs will try to maximise their profits. It will ultimately lead to concentration of economic power in fewer hands. The existence of public sector will be a check on the private sector.
3. Explain the changing role of public sector enterprises.
Ans: It is becoming apparent every day that the role of the public sector is changing, and quite substantially. Private enterprise seems to be making inroads into the realm of public enterprise. Public sector investment under the five year plans has dropped to 50 percent of the total. Much of the public sector is commonly acknowledged as not pulling its weight. The public sector appears to have failed to “occupy of commanding position in the economy. A new distribution of the role of the public sector is called for, and the trends justify this demand. For example, in the sixth plan, public sector investment was about 53 percent of the total. By the time, the seventh plan was finalised, it was recognised that the private sector would have a higher level of investment than the public sectors investment of 48 percent of the total seventh plan investments, Well below the peak of 60 percent reached in 1970.
The development of basic and infrastructural sector was left to the public sector by the 1956 policy statement. This also seems to have received a setback, because most of the major investments in steel, furor the joint sector, Even in power generation the inability of the public sector to keep pace with the growing energy needs of the economy has promoted the govt. to allow private sector participation in the power generation and distribution. Privatisation appears to have been encouraged in an indirect manner, namely, by setting up additional capacity in private and joint sectors without of course, privatising individual public sector units.
The factors which have weakened the base of the public sector in recent years and are likely to stand in the way of its future growth may be summarised as follows.
The principal contributing factor that has brought down the public sector from its commanding position before the 1980’s is the ‘poisoned environment in which the public sector has to function today”. The environment is poisoned by hostile public opinion because of the poor performance of some of the Central Government enterprises and almost all of the State enterprises resulting in huge losses. And the Government has failed to highlight the successful working of others. With the result that only the “dark side of public enterprise is exposed. Had the govt. not taken over sick textile mills, main marks, and applied its mind seriously to remove obstacles and corrected its policies concerning public sector, the target set up by the planning commission of an enterprise earning a surplus of 10 percent could have been achieved.
The second cause is the setting up of enterprises in directions of industrial activity including consumer industries and even in law investment areas without giving adequate attention to detailed scientific project planning.
The third factor is the induction of people having political clout into the management cadre in place of dynamic and competent as well as experienced managers. Further, the Boards of directors are packed with persons who are prone to create problems rather than solve them. On top of this, the top management posts are often left unfilled for long periods of time.
Another factor which is militating against the further growth of public sector is the strong lobby that is building up in favour of ‘Privatisation’.
4. What do you mean by Global Industry?
Ans: Global industries are huge industrial and marketing operations through a network of their branches in several countries.
5. Write a short note on Statutory Corporation.
Ans: A statutory corporation is an autonomous corporate body set up under a special Act of Parliament or state legislature. The Act creating the Public corporation also preserves its aims, objects, power, duties etc. in the form of management and its relationship to established departments and minastrin. Examples of statutory Corporation are RBI, SBI, LICI, FCI etc.
6. What is Govt. Company? Mention two Characteristics.
Ans: A Government Company, according to Section 617 of the Companies Act. 1956, is that in which not less than 51% of the Paid up share Capital is held by the central government or by any state government or government or party by the central government and party by one or more states governments and includes a company which is a subsidiary of government company.
Features:
(i) Government ownership: A government company may be wholly or Partly owned by the govt.
(ii) Management: The govt. companies are managed by independent governing boards.
7. Write three features of Government Company?
Ans: The features of government company are given below :
(i) Ownership: At atleast 51% of the paid up share capital of government company is help by the government. The rest of the share capital may be contributed by the private sector firms.
(ii) Accountability: Annual report on the working of a government company is required to be presented to the parliament or state legislative as the caste may be.
(iii) Separate Entity: A government company has a separate legal entity. It has a perpetual succession and a common seal. It can sue, enter into contracts, and acquires property in its own name.
8. Distinguish between Public company and Private Company.
9. What is Departmental Undertaking?
Ans: A departmental undertaking is organised, financed and controlled in as much the same way as any Government department. It may be run either by the central government or by a state government.
10. What is the minimum numbers of members in private company?
Ans: Two members.
11. What is Global Enterprise?
Ans: A global enterprise has its headquarters in one country but it procures material, recruits labour, manufacturers products and carry on sales in a large number of countries. The major part of its revenue is generated through operations in countries other than where its headquarters are located. Thus, it has a global influence.
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