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NCERT Class 11 Business Studies Chapter 3 Private, Public and Global Enterprises
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Private, Public and Global Enterprises
Chapter: 3
| PART – Ⅰ |
| EXERCISES |
Short Answer Questions:
1. Explain the concept of public sector and private sector.
Ans: Private sector: 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: 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: The various forms/types of organisation in the Private Sector are: sole proprietorship, partnership, joint Hindu family, cooperative and company.
3. What are the different kinds of organisations that come under the public sector?
Ans: The forms of organisation which a public enterprise may take are as follows:
(i) Departmental undertaking.
(ii) Statutory corporation.
(iii) Government company.
4. List the names of some enterprises under the public sector and classify them.
Ans: Following are the some enterprises under the public sector:
(i) Departmental Undertakings: This is the oldest and most traditional form of organising public enterprises. These enterprises are established as departments of the ministry and are considered part or 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.
(ii) 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.
(iii) Government Company: A government company is established under The Companies Act, 2013 and is registered and governed by the provisions of The Act. These are established for purely business purposes and in true spirit compete with companies in the private sector.
5. Why is the government company form of organisation preferred to other types in the public sector?
Ans: Government companies have certain characteristics which makes them distinct from other forms of organisations.
These are discussed as follows:
(i) It is an organisation created under the Companies Act, 2013 or any other previous Company Law.
(ii) The company can file a suit in a court of law against any third party and be sued.
(iii) The company can enter into a contract and can acquire property in its own name.
(iv) The management of the company is regulated by the provisions of the Companies Act, like any other public limited company.
(v) The employees of the company are appointed according to their own rules and regulations as contained in the Memorandum and Articles of Association of the company.
6. How does the government maintain a regional balance in the country?
Ans: The government is responsible for developing all regions and states in a balanced way and removing regional disparities. Development of backward regions so as to ensure a regional balance in the country is one of the major objectives of planned development. Therefore, the government had to locate new enterprises in backward areas and at the same time prevent the mushrooming growth of private sector units in already advanced areas.
7. State the meaning of public private partnership.
Ans: PPP is defined as a relationship between public and private entities in the context of infrastructure and other services. Under the PPP model, the public sector plays an important role and ensures that the social obligations are fulfilled and sector reforms and public investment are successfully met. The government’s contribution to PPP is 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.
Long Answer Questions:
1. Describe the Industrial Policy 1991, towards the public sector.
Ans: The government in its industrial policy resolutions, from time-to time, defines the area of activities in which the private sector and public sector are allowed to operate. In the Industrial Policy Resolution 1948, the Government India had specified the approach towards development of the industrial sector. The roles of the private and public sector were clearly defined and the government through various Acts and Regulations was overseeing the economic activities of both the private and public sector.
The public sector was given a lot of importance but at the same time mutual dependency of public and private sectors was emphasised. The 1991 industrial policy was radically different from all the earlier policies where the government was deliberating disinvestment of the public sector and allowing greater freedom to the private sector. The public sector has played a vital role in the development of the economy. The private sector is also quite capable of contributing substantially to the nation building process. Therefore, both the public sector and the private sector need to be viewed as mutually complementary parts of the national sector.
(i) Reduction in Public Sector Dominance: In the first Five Year Plan, the government had reserved seventeen industries for the public sector. This meant that only the government could operate in these industries, no private capital would be involved.
(ii) Disinvestment: India’s transformation began in 1991-92, with the disinvestment of 31 public sector undertakings. Disinvestment of public sector companies, transferring them to the private sector.
(iii) Encouraging Private Sector Participation: By developing good infrastructure which helps in smooth trading of goods and other products.The Industrial Policy of 1991 opened up sectors previously reserved for the public sector to private players, encouraging competition and reducing inefficiencies in the economy.
2. What was the role of the public sector before 1991?
Ans: Various committees were set up to study the working of inefficient public sector units with reports on how to improve their managerial efficiency and profitability. The role of public sector is definitely not what was envisaged in the early 1960s or 70s.
(i) Development of infrastructure: The development of infrastructure is a prerequisite for industrialisation in any country. In the pre-Independence period, basic infrastructure was not developed and therefore, industrialisation progressed at a very slow pace. The process of industrialisation cannot be sustained without adequate transportation and communication facilities, fuel and energy, and basic and heavy industries.
(a) Give infrastructure to the core sector, which requires huge capital investment, complex and upgraded technology, big and effective organisation structures like steel plants, power generation plants, civil aviation, railways, petroleum, state trading, coal, etc.
(b) Give a lead in investment to the core sector where private sector enterprises are not functioning in the desired direction, like fertilisers, pharmaceuticals, petro-chemicals, newsprint, medium and heavy engineering.
(c) Give direction to future investments like hotels, project management, consultancies, textiles, auto-mobiles, etc.
(ii) Regional balance: The government is responsible for developing all regions and states in a balanced way and removing regional disparities. Most of the industrial progress was limited to a few areas like the port towns in the pre-Independence period.
(iii) Economies of scale: Where large scale industries are required to be set up with huge capital outlay, the public sector had to step in to take advantage of economies of scale. Electric power plants, natural gas, petroleum and telephone industries are some examples of the public sector setting up large scale units. These units required a larger base to function economically which was only possible with government resources and mass scale production.
(iv) Check over concentration of economic power: The public sector acts as a check over the private sector. In the private sector there are very few industrial houses which would be willing to invest in heavy industries with the result that wealth is concentrated in a few hands and monopolistic practices are encouraged.This gives rise to inequalities in income, which is detrimental to society.
(v) Import substitution: During the second and third Five Year Plan period, India was aiming to be self-reliant in many spheres. Obtaining foreign exchange was also a problem and it was difficult to import heavy machinery required for a strong industrial base. At that time, public sector companies involved in heavy engineering which would help in import substitution were established.
3. Can the public sector companies compete with the private sector in terms of profits and efficiency? Give reasons for your answer.
Ans: It is difficult for a public sector undertaking to compete with a private sector, Here are the reason:
(i) Motive of the public sector is not profit: The Public sector works not for profit but for social welfare. They focus on providing essential services and ensuring equitable access to resources. Private sector Aims to generate profit and maximise shareholder value.
(ii) Public sector takes care of strategic industries: The public sector is entrusted with the responsibility of developing heavy and basic industries, social and economic infrastructure while the private sector is broadly given the right to develop consumer goods industries.The private sector is responsible for developing consumer goods industries.
(iii) Ownership: Public sector organisations are owned, controlled and managed by the government or other state-run bodies.Private sector organisations are owned by individuals or private companies.
(iv) Funding: Public sector funding comes from taxes, duties, bonds, and treasury bills. Private sector funding comes from owners or through loans, issuing shares, and debentures. While funding options for private companies are numerous, each choice comes with various stipulations.
(v) Accountability: Accountability is an essential concept in corporate finance. It is defined as an entity’s actions to take responsibility for their actions.Public sector accountability as “the appropriate people taking responsibility for working towards appropriately defined results.
(vi) Decision-making: Decision makers in private sector organisations have the latitude as well as the resources to use analysis.The decision making process consists of three basic elements. These factors are goals and standards, personality, and environment.
(vii) Risk-taking: Risk management in the public sector is an essential practice that safeguards resources, ensures the continuity of services, and upholds public trust.Risk-taking is the willingness to try new things, even though the results are uncertain. It involves accepting that there’s a chance of losing money, freedom, or reputation.
4. Why are global enterprises considered superior to other business organisations?
Ans: MultiNational Corporations have played an important role in the Indian economy. They have become a common feature of most developing economies in the world. MNCs, as is evident from what we see around us, are gigantic corporations which have their operations in a number of countries. They are characterised by their huge size, large number of products, advanced technology, marketing strategies and network of operations all over the world. Global enterprises thus are huge industrial organisations which extend their industrial and marketing operations through a network of their branches in several countries.
These corporations have distinct features which distinguish them from other private sector companies, public sector companies and public sector enterprises.
These are as follows:
(i) Huge capital resources: These enterprises are characterised by possessing huge financial resources and the ability to raise funds from different sources. They are able to tap funds from various sources. They may issue equity shares, debentures or bonds to the public. They are also in a position to borrow from financial institutions and international banks.
(ii) Foreign collaboration: Global enterprises usually enter into agreements with Indian companies pertaining to the sale of technology, production of goods, use of brand names for the final products, etc. These MNCs may collaborate with companies in the public and private sector. There are usually various restrictive clauses in the agreement relating to transfer of technology, pricing, dividend payments, tight control by foreign technicians, etc.
(iii) Advanced technology: These enterprises possess technological superiorities in their methods of production. They are able to conform to international standards and quality specifications. This leads to industrial progress of the country in which such corporations operate since they are able to optimally exploit local resources and raw materials.
(iv) Product innovation: These enterprises are characterised by having highly sophisticated research and development departments engaged in the task of developing new products and superior designs of existing products. Qualitative research requires huge investment which only global enterprises can afford.
(v) Marketing strategies: The marketing strategies of global companies are far more effective than other companies. They use aggressive marketing strategies in order to increase their sales in a short period. They possess a more reliable and up-to-date market information system. Their advertising and sales promotion techniques are normally very effective.
(vi) Expansion of market territory: Their operations and activities extend beyond the physical boundaries of their own countries. Their international image also builds up and their market territory expands enabling them to become international brands. They operate through a network of subsidiaries, branches and affiliates in host countries.
(vii) Centralised control: They have their headquarters in their home country and exercise control over all branches and subsidiaries. However, this control is limited to the broad policy framework of the parent company.
5. What are the benefits of entering into joint ventures and public private partnership?
Ans: Public Private Partnership: The Public Private Partnership model allocates tasks, obligations and risks among the public and private partners in an optimal manner. The public partners in PPP are Government entities, i.e., ministries, government departments, municipalities or state-owned enterprises. The private partners can be local or foreign (international) and include businesses or investors with technical or financial expertise relevant to the project. PPP also includes NGOs and/or community-based organisations who are the stakeholders directly affected by the project. PPP is, therefore, defined as a relationship between public and private entities in the context of infrastructure and other services. Under the PPP model, public sector plays an important role and ensures that the social obligations are fulfilled and sector reforms and public investment are successfully met.
Sectors in which PPPs have been completed worldwide include power generation and distribution, water and sanitation, refuse disposal, pipelines, hospitals, school buildings and teaching facilities, stadiums, air traffic control, prisons, railways, roads, billing and other information technology systems, and housing.
Joint ventures: When two businesses agree to join together for a common purpose and mutual benefit, it gives rise to a joint venture. Businesses of any size can use joint ventures to strengthen long-term relationships or to collaborate on short term projects. A joint venture can be flexible depending upon the party’s requirements. These need to be clearly stated in a joint venture agreement to avoid conflict at a later stage.
The major benefits of joint ventures are as follows:
(i) Increased resources and capacity: Joining hands with another or teaming up adds to existing resources and capacity enabling the joint venture company to grow and expand more quickly and efficiently. The new business pools in financial and human resources and is able to face market challenges and take advantage of new opportunities.
(ii) Access 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. For example, when foreign companies form joint venture companies in India they gain access to the vast Indian market. Their products which have reached saturation point in their home markets can be easily sold in new markets.
(iii) Access to technology: Technology is a major factor for most businesses 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. Especially foreign partners who can come up with innovative products because of new ideas and technology.
(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. India is becoming an important global source and extremely competitive in many products.
(vi) Established brand name: When two businesses enter into a joint venture, one of the parties benefits from the other’s goodwill which has already been established in the market. If the joint venture is in India and with an Indian company, the Indian company does not have to spend time or money in developing a brand name for the product or even a distribution system.
