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NIOS Class 12 Business Studies Chapter 7 Public Sector Enterprises
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Public Sector Enterprises
Chapter: 7
Module – 2 : BUSINESS ORGANISATIONS
INTEXT QUESTIONS 7.1
Q. 1. What is meant by public sector?
Ans: It refers to economic and social activities undertaken by public authorities.
Q. 2. State whether the following statements are true or false and correct the statements if needed.
(a) The objective of private sector enterprises is welfare of the customers.
Ans: False – The objective of public sector enterprises is welfare of the customer.
(b) The public sector enterprises are managed by professional managers.
Ans: False – The public sector enterprises are managed by the Government.
(c) The private sector enterprises concentrate on area of public utility services.
Ans: False – The public sector enterprises concentrate on area of public utility service.
(d) The private sector enterprises are owned and managed by private individuals.
Ans: True.
(e) The public enterprises are totally funded by the public.
Ans: False – The public enterprises are financed from government funds and sometimes through pubic issues.
INTEXT QUESTIONS 7.2
Q. 1. List any three services that are being taken care of by Departmental Undertakings.
Ans: (a) Railways.
(b) Postal Services. and
(c) Broadcasting.
Q. 2. Identify the following and categorise them into Departmental Undertakings, Statutory Corporations and Government Companies.
(a) Business Organisation established by the government and controlled by the Ministry concerned.
Ans: Departmental undertaking.
(b) Organisations incorporated under a special Act of Parliament or state legislature.
Ans: Statutory corporation.
(c) It is managed by the government and is subject to budgetary, accounting and audit control.
Ans: Government company,
(d) Organisation established by the government and registered under the companies Act.
Ans: Government company.
Q. 3. Identify the Merits and Limitations of the departmental undertakings. Put their number in the boxes given below.
(a) The organisation fulfills the social and economic objectives of the government.
(b) Lack of flexibility, hence cannot take quick decision.
(c) The possibility of misuse of funds is limited.
(d) The organisation suffers due to inefficient and incompetent staff.
(e) The organisation is responsible to the public through the parliament.
Ans. Merits—
(a) The organisation fulfills the social and economic objectives of the government.
(c) The possibility of misuse of funds is limited.
(e) The organisation is responsible to the public through the parliament.
And, Limitations—
(b) Lack of flexibility, hence cannot take quick decision.
(d) The organisation suffers due to inefficient and incompetent staff.
INTEXT QUESTIONS 7.3
Q. 1. State the features of statutory corporation mentioning its
(a) Incorporation.
(b) Management.
Ans: (a) It is incorporated under a special Act of Parliament or State Legislature.
(b) It is managed by a Board of Directors which is composed of individuals who are trained and experienced.
Q. 2. Rectify the errors (if any) in the following sentences and write the correct sentence in the specified space:
(a) Statutory Corporations are autonomous organisations.
Ans: No change.
(b) Statutory Corporations are registered under the Companies Act.
Ans: Statutory corporations are incorporated under special Act of Parliament or state assemblies.
(c) Statutory Corporations are motivated by profit.
Ans: Statutory corporation are not motivated by profit.
(d) The internal management of the Statutory Corporations is controlled by the Government.
Ans: The internal management of the statutory corporation is free from government control.
(e) The capital of Statutory Corporation is provided by private industrialists.
Ans: The capital of statutory corporation is provided by the government.
INTEXT QUESTIONS 7.4
Q. 1. The main objectives of establishing Government Companies are to ensure:
(a) Managerial autonomy
(b) _____________________________
Ans: Operational efficiency.
(c) ______________________________
Ans: Competition to private sector.
Q. 2. Classify the following statements as merit or limitation of Government Companies and put the respective numbers in the boxes given below:
(a) Its formation is simple and it is governed by Companies Act, 1956.
(b) It creates healthy competition in private sector.
(c) The Government Companies make delay in taking timely decisions.
(d) A change in Government leads to change in rules, policies and procedure of Government Company.
(e) It has financial and administrative autonomy.
Ans: Merits— (a), (b), (e) and
Limitations— (c), (d).
INTEXT QUESTIONS 7.5
Q. 1. Enumerate the major goals achieved through public sector enterprises.
(a) ____________________________
Ans: Public welfare.
(b) _____________________________
Ans: Planned economic development of the country
(c) _____________________________
Ans: Regional balance
(d) ____________________________
Ans: Import substitution
(e) ____________________________
Ans: Checking concentration of economic power.
Q. 2. (a) Expand the following:
(i) BHEL
Ans: BHEL – Bharat Heavy Electricals Limited.
(ii) BPCL
Ans: BPCL – Bharat Petroleum Corporation Limited.
(iii) GAIL
Ans: GAIL – Gas Authority of India Limited.
(iv) HPCL
Ans: HPCL – Hindustan Petroleum Corporation Limited.
(v) IOCL
Ans: IOCL – Indian Oil Corporation Limited.
(vi) MTNL
Ans: MTNL – Mahanagar Telephone Nigam Limited.
(vii) NTPC
Ans: NTPC – National Thermal Power Corporation.
(viii) ONGC
Ans: ONGC – Oil and Natural Gas Corporation Ltd.
(ix) SAIL
Ans: SAIL – Steel Authority of India Limited.
(b) Under which category are all the above public sector enterprises placed by the Central Government.
Ans. Navaratna.
TERMINAL EXERCISE
Very Short Answer Type Questions:
Q. 1. Define Public Sector Enterprise.
Ans: A pubic sector enterprise may be defined as any commercial or industrial undertaking owned and managed by the government with a view to maximise social welfare and uphold the public interest.
Q. 2. What is meant by Public Corporation?
Ans: The public sector refers to such organisations which are in corporated under the special act of the parliament/ state legilative assemblies its management, power, function areas of activity, rules and its relationship with department (govt.) are specified in the concerned act.
Q. 3. State the meaning of Departmental Undertaking.
Ans: Departmental undertakings are the oldest among the public enterprises. A departmental undertaking is organised, managed and financed by the Government. It is controlled by a specific department of the government. Each such department is headed by a minister. All policy matters and other important decisions are taken by the controlling ministry. The Parliament lays down the general policy for such undertakings.
Q. 4. What is a Government Company?
Ans: A company in which 51% or more of its capital is held by central and/or state government is regarded as a Government Company.
Q. 5. Name any two important goals to be achieved through public enterprises.
Ans: 1. Public welfare.
2. Public Utility Services.
Short Answer Type Questions:
Q. 6. Give any four features of Departmental Undertakings.
Ans: Features of Departmental Undertakings:
The main features of departmental undertakings are as follows:
(a) It is established by the government and its overall control rests with the minister.
(b) It is a part of the government and is managed like any other government department.
(c) It is financed through government funds.
(d) It is subject to budgetary, accounting and audit control.
(e) Its policy is laid down by the government and it is accountable to the legislature.
Q. 7. Distinguish between private sector and public sector enterprises (by giving any two points of distinction).
Ans:
| Basis of difference | Private sector enterprises | Public sector enterprises |
| 1. Objective | Maximisation of profit. | Maximise socialwelfare economic and ensure balanced development. |
| 2. Ownership | Owned byindividuals. | Owned by Government. |
| 3. Management | Managed by owner and professionalmanagers. | Managed by Government. |
| 4. Capital | Raised by owners through loans, private sources and public issues. | Raised from Government funds and sometimes through public issues. |
Q. 8. Explain
(a) Fulfillment of social objectives. and
(b) Control over economic activities as merits of Departmental Undertakings.
Ans: (a) Fulfillment of Social Objectives: The government has total control over these undertakings. As such it can fulfill its social and economic objectives. For example, opening of post offices in far off places, broadcasting and telecasting programmes, which may lead to the social, economic and intellectual development of the people are the social objectives that the departmental undertakings try to fulfill
(b) Control Over Economic Activities: It helps the government to exercise control over the specialised economic activities and can act as instrument of making social and economic policy.
Q. 9. How do public enterprises helps in reducing the economic inequalities in the country?
Ans: Current Scenario: At the commencement of first five-year plan Government’s investment was? 29 crores in five central public sector enterprises. Now it has increased to Rs 3,93,057 crores in 239 enterprises as on 31 March, 2006. The public enterprises have played a significant role in Indian economy. But the overall performance of most of the public sector enterprises is not satisfactory. The government is taking every step to revive and restructure the public sector enterprises to improve their performance, productivity and profitability. Major emphasis has been given on the sick and chronically loss making enterprises, which are capable of being revived. On 24 July, 1991 the Government of India announced its Industrial policy to improve the performance and portfolio of public sector enterprises. The new economic policies also emphasised on liberalisation, privatisation and globalisation. The role of public sector was redefined. To grant autonomy and delegation of financial power to some of the profit making public sector enterprises Government has given them the status of Navaratnas and Miniratnas.
Q. 10. Explain any two limitations of Statutory Corporations.
Ans: The following limitations are observed in statutory corporations:
(a) Government Interference: It is true that the greatest advantage of statutory corporation is its independence and flexibility, but it is found only on paper. In reality, there is excessive government interference in most of the matters.
(b) Rigidity: The amendments to their activities and rights can be made only by the Parliament. This results in several impediments in business of the corporations to respond to the changing conditions and take bold decisions.
(c) Ignoring Commercial Approach: The statutory corporations usually face little competition and lack motivation for good performance. Hence, they suffer from ignorance of commercial principles in managing their affairs.
Long Answer Type Questions:
Q. 11. What is meant by public sector enterprises? State in brief its features?
Ans: Public sector enterprises are the enterprises which are owned and controlled by the government or public authorities. Public sector undertaking owned by central government, state government and/or municipal corporation. It examples are Hindustan Machine Tools, Gas authority of India Air India etc.
Looking at the nature of the public enterprises, their basic characteristics can be summarised as follows:
(a) Government Ownership and Management: The public enterprises are owned and managed by the central or state government, or by the local authority. The government may either wholly own the public enterprises or the ownership may partly be with the government and partly with the private industrialists and the public. In any case the control, management and ownership remains primarily with the government. For example, National Thermal Power Corporation (NTPC) is an industrial organisation established by the Central Government and part of its share capital is provided by the public.
(b) Financed from Government Funds: The public enterprises get their capital from Government Funds and the government has to make provision for their capital in its budget.
(c) Public Welfare: Public enterprises are not guided by profit motive. Their major focus is on providing the service or commodity at reasonable prices. Take the case of Indian Oil Corporation or GAIL India Limited. They provide petroleum and gas at subsidised prices to the public.
(d) Public Utility Services: Public sector enterprises concentrate on providing public utility services like transport, electricity, telecommunication etc.
(e) Public Accountability: Public enterprises are governed by public policies formulated by the government and are accountable to the legislature.
(f) Excessive Formalities: The government rules and regulations force the public enterprises to observe excessive formalities in their operations. This makes the task of management very sensitive and cumbersome.
Q. 12. How are the public sector enterprises helping in the balanced development of the Indian Economy and promoting public welfare in the country?
Ans: Public sector enterprises occupy important place in the Indian economy. At the time of an independence, the Indian economy was basically agrarian with a weak industrial base. There were very few public sector enterprises in our country. The Indian Railways, the Posts and Telegraphs, the Port Trust, Government Salt Factories were the prominent public sector enterprises. After getting independence, the government felt that if the country needs to speed up its economic growth, then state’s intervention in all sectors of the economy is inevitable.At the commencement of the first five-year plan Government’s investment was Rs 29 crores in five central public sector enterprises. Now it has increased to Rs 3,93,057 crores in 239 enterprises as on 31 March, 2006. The public sector enterprises have been making substantial contribution to augment the resource of central government. During 2004-05 their contribution to the central exchequer was Rs 1,10,599 crores. There is no doubt that public enterprises have played a significant role in the India Economy.
But the overall performance of most of the public sector enterprises is not satisfactory. The rate of return on capital investment is very low. Most of them suffer from the limitations. To improve the performance of the public enterprise, Government of India has taken several measures. On 24 July, 1991 the Government of India announced its Industrial policy to improve the performance and portfolio of public sector enterprises. The new economic policies also emphasised on liberalisation, privatisation and globalisation of Indian economy. The role of public Sector was redefined. In July 1997, Government identified nine central public sector enterprises as “Navaratnas”. They are BHEL, BPCL, GAIL, HPCL, IOC, MTNL, NTPC, ONGC, SAIL. These public sector enterprises have been given autonomy for capital investment, to enter into joint ventures, to raise capital from domestic and international market etc. In October 1997, the Government granted enhanced autonomy and delegation of financial power to some other profit making public sector enterprises and categorised them as ‘Miniratnas’.
Presently there are 45 Miniratna Public Sector Enterprises functioning in India. The Government has taken every step to revive and restructure the public sector enterprises to improve their performance, productivity and profitability. Major emphasishas been laid on the sick and chronically loss making enterprises, which are capable of being revived. These enterprises are referred to Board for Industrial and Financial Reconstruction (BIFR) to prepare appropriate revival or rehabilitation package. The government has set up a Board for Reconstruction of Public Sector Enterprises (BRPSE), which considers and advises the Government on the proposal of restructuring/ revival of sick and loss making units including the proposal for disinvestment or closure or sale. BRPSE has made recommendations in respect of 31 central public sector enterprises so far and out of cases till 30 March, 2006.
Q. 13. What is a Government Company? How is it different from Statutory Corporation? Give any five such distinctions.
Ans. Government Companies: As per the provisions of the Companies Act, a company in which 51% or more of its capital is held by central and/or state government is regarded as a Government Company. These companies are registered under Companies Act, 1956 and follow all those rules and regulations as are applicable to any other registered company. The Government of India has organised and registered a number of its undertakings as government companies for ensuring managerial autonomy. operational efficiency and provide competition to private sector.
| S. No. | Public Corporations | Government Companies |
| 1. Establishment | By the Parliament under a special Act | By a Ministry with or without private participation |
| 2. Legal Status | Separate entity to sue and be sued | Separate corporate existence |
| 3. Capital | Provided wholly by the Government | Part of it may be provided by private entrepreneurs |
| 4. Management | By expertand experienced Board of Directors | Board of Directors may include private individuals |
| 5. Control and | Parliament | Government Ministry concerned |
Q. 14. Explain the merits of a Statutory Corporation over a Departmental Undertaking.
Ans: Following are the merits statutary corporations over a Departmental Undertaking:
(a) Expert Management: It has the advantages of both the departmental and private undertakings. These enterprises are run on business principles under the guidance of expert and experienced Directors.
(b) Internal Autonomy: Government has no direct interference in the day-to-day management of these corporations. Decisions can be taken promptly without any hindrance.
(c) Responsible to Parliament: Statutory organisations are responsible to Parliament. Their activities are watched by the press and the public. As such they have to maintain a high level of efficiency and accountability.
(d) Flexibility: As these are independent in matters of management and finance, they enjoy adequate flexibility in their operation. This helps in ensuring good performance and operational results.
(e) Promotion of National Interests: Statutory Corporations protect and promote national interests. The government is authorised to give policy directions to the statutory corporations under the provisions of the Acts governing them.
(f) Easy to Raise Funds: Being government owned statutory bodies, they can easily get the required funds by issuing bonds etc.
Q. 15. In a democracy like India, can we eliminate the public sector and give all the rights to the private sector? Give suitable arguments.
Ans: All enterprises in our country are not public enterprises. There is mixed economy in our country and the private as well as the public sector contribute to the development of our economy. However, there are only some selected areas in which the government establishes its enterprises for a balanced development of the economy and promote public welfare. There are several areas where huge investment of capitalis necessary but the margin of profit is either meager or it can be obtained only after a long period as in case of generation and supply of electricity, machine building, construction of dams, etc. The private businessmen hesitate to establish their enterprises in these areas but they cannot be neglected in public interest. As such these enterprises are established and run by the government. Similarly the public enterprises also help in balanced regional development by promoting industries in every part of the country. For example, with the establishment of Bhilai Steel Plant in Madhya Pradesh, several new small industries have come up in that state.
Industrial progress is of utmost importance for the development of the country and for this, it is necessary that some basic industries like oil, coal, gas, iron. steel, production of heavy electrical goods, etc., are to be fully developed. Public enterprises give impetus to the development of these basic industries and also help in the development of the private sector with their products and services. There are some industries which require heavy capital investment on account o technical reasons. Electricity, power, production of gas, heavy machinery tools, production of telephone etc., are such industries.
The development of public enterprises also prevents concentration of economic power in the hands of an individual, or a group of individuals. Not only that, in our country Public seconomic inequalities are increasing. Poor are becoming poorer and the rich more rich. The public enterprises can help in reducing inequalities with the help of various policies like utilising the earned profits in public welfare activities and by selling raw material to the small scale industries at lower prices.It is also necessary for the economic progress of the country that industries which can decrease imports and increase exports are only promoted. Public enterprises also ensure promotion of such industries.
There is an old belief that the benefits derived from the nature should be made available to all without any distinction. The public enterprises ensure that land, oil, coal, gas, water, electricity and other necessary resources are made available to all at fair prices.
The security of the country is supreme. There should be no compromise in ensuring this. The production of fighter aeroplanes, arms and ammunition etc, connected with the security of the country is put under the domain of Public Enterprises for the purpose. Thus, public welfare, planned economic development of the country, regional balance, import substitution and checking concentration of economic powers are the major goals achieved through public enterprises.
