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Chapter-3
Private, Public and Global Enterprises
Since the Indian economy consists of both privately owned and
government owned business enterprises, it is known as a mixed
economy.
Indian Economy

Public Sector Private Sector Global Enterprises

Enterprises Enterprises Enterprises
1. Department 1. Sole Proprietorship 1. MNC’s
undertakings 2. Joint Hindu Family Ranbaxy, Lipton
Indian railways, Business 2. Joint Venture
Indian Post, Maruti Suzuki
3. Partnership
Doordarshan
4. Co-operative 3. PPP
2. Statutory
Societies
Corporation
LIC, FCI 5. Company
3. Govt. Company
Hindustan Tools Ltd.,
BHEL

Private sector Enterprises

It consist of business owned by individuals or a group of
individuals whose main objective is to earn profit and growth of
business. For example Reliance Industries limited, ITC limited, HDFC
Bank limited etc.

Public sector Enterprises

It consists of various organization owned, managed and
controlled by central or state of by both government. For example-
Indian Railway, Indian Post, Doordarshan, Bharat Heavy electricals
Limited (BHEL) etc. Its main objective is public welfare or service.

FORMS OF PUBLIC ENTERPRISES

1. Department Undertaking
These are established as departments of the ministry and are
financed, managed and controlled by either central govt. or state
govt. or jointly by both. For examples-Indian Railways, Post &

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Features
1) It is establish as department of concerned ministry under
central of State Govt.
2) No Separate Entity :- It has no Separate legal entity.
3) Finance :- It is financed by annual budget allocation of the
govt. and all its earnings go to govt. treasury.
4) Accounting & audit :- The Govt. rules relating to audit &
accounting are applicable to it.
5) Staffing :- Its employees are govt. employees & are
recruited & appointed as per govt. rules.
6) Accountability :- These are accountable to the concerned
ministry.

Merits
1) It is more effective in achieving the objective laid down by
govt. as it is under the direct control of govt.
2) It is a source of govt. income as its revenue goes to govt.
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.
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) These organization are usually insensitive to consumer
needs due to absence of competition and monopoly.
5) Such organization are managed by civil servants and govt.

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officials who may not have the necessary expertise and

experience in management.

Suitability :-
1) Where full Govt. control is needed.
2) Where secrecy is very important such as defence Industry.

Box -1

1) Air India Limited

2)
3) C.B.S.E.
4)
5)

1)
2)
3)
4)

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 teh special Act.
Examples :- Unit Trust of India. Life Insurance Corporation, GAIL, SCI,
FCI

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 govt. interference in day
to day functioning.

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4. It has its own staff, recruited and appointed as per the provisions
of act.
5. Its initial capital is provided by the govt.
This type of enterprise is usually independently financed. It
obtains funds by borrowing from govt. or form public or through
earnings.
6. It is not subject to same accounting & audit rules which are
applicable to govt. department.

Merits
1. Internal Autonomy :- It enjoys a good deal of autonomy in its
day to day operations and if free from political interference.
2. Quick decision :- It can take prompt decisions and quick actions
as it is tree from the prohibitory rules or govt.
3. Parliaments control :- Their performance is subject to
discussion in parliament which ensures proper use of public
money.
4. Efficient Management :- These are Independent in recruitment
and selection of their employees and Professionals. Experience
and specialists are appointed on important posts.

Demerits
1. In reality, there is not much operational flexibility. It suffers form
lot of political interference from minister, Govt. officials and
political parties.
2. Usually they enjoy monopoly in their field and do not have profit
motive due to which their working times out to be inefficient.
3. Where there is dealing with public, rampant occupation exists.
Thus public corp. is suitable for undertaking requiring monopoly
powers e.g. public utilizes.

Suitability : Public enterprise is suitable when :–

i) The enterprise requires special powers under on Act.
ii) The enterprise requires a huge amount of capital
investment.

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Government Company
A Government company is a company in which not less than
51% of the paid up share capital is held by teh central govt. or state
Govt. or jointly by both. It is registered as per company act, 1956.
Examples :- State Trading Corp. of India, Hindustan Machines
Tools.

Features
1. It is registered of Incorporated under companies Act, 1956
2. It has a separate legal entity.
3. Govt. has minimum 51% of paid up capital.
4. It is managed by board of director selected by Govt. 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 Govt. Co. obtains funds from govt. shareholdings and other
private shareholdings. It can also funds form capital market.

Merits
1. It can be easily formed as per the prevision of companies Act.
There is no need to pass special act in the parliament.
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 Govt. Official, ministers and
politicians.
2. It evades constitutional responsibility which a company financed
by the govt. 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.
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SUITABILITY :
i) Where the Govt. want to work along with private sector.
ii) Where projects need govt. planing and funds.
Box 2
Q. Identify the type of public sector enterprise in the following cases
where.
Govt. wishes to bring its own enterprise so that it can

Enterprise requires special powers to fulfill a particular

Enterprises is required to provide public utilities and to

Ans. a) b)
c)

Changing role of Public Sector

Public sector in India was created to achieve two types of
objective-
(1) to speed up the economic growth of the country and
(2) to achieve a more equitable distribution of income and
wealth among different sections of society.
The role and importance of public sector in the society has been
changing with time. Its role in the development of the country over a
period of time can be summarized as following :-
1. Development of Infrastructure :- At the time of
Independence, India suffered from acute shortage of heavy
industries such as transport, communication, Electricity,
Generation, iron and Steel, oil refineries, heavy engineering
etc. Because of huge investment requirement and long
gestation period, private sector was not willing to enter these
areas. The duty of development of basic infrastructure was
assigned to public sector which it discharged quite
efficiently.
2. Regional Balance :- Earlier private sector was hesitant to
establish industries in backward or remote areas due to lack
of infrastructure. To provide employment to the people and to
accurate the economic development of backward areas,
many new industries were set up by Govt. in these areas.
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3. Economies of scale :- In certain industries (like Eclectic
power plants. natural gas, petroleum etc.) huge capital and
large base are required to function economically. Such areas
were taken up by public sector.
4. Restricting Economics Concentration :- Only few
industrial houses in private sector had invested at large
scale, resulting in concentration of capital in few hands. As a
result, monopoly increased and leads to inequality of
income. To stop such practices, industries were established
in public sector so that large scale division of income and
money among workers and labour is done.
5. Import Substitution :- Firstly Public Enterprises were
established in production of capital equipments which were
earlier imported from other countries. And several
enterprises were also established to promote export of
goods. It increase the foreign currency reserves a lot. Very
important role was assigned to public sector but is
performance was far from satisfactory which forced govt. to
do rethinking on public enterprises.

Public Sector Reforms

In the industrial policy 1991, the govt, of India introduced four
major reforms in public sector.
i) Reduction in No. of Business reserved for public Sector from
17 to 8 and to 3 only in 2001. These three industries are
atomic energy, arms and rail transport.
ii) Memorandum of Understanding (MOU) :- Under this
public sector was provided with greater autonomy govt. lays
down performance target for the management and gives
greater autonomy these units to hold the management
accountable for the results.
iii) Disinvestment :- Equity Shares of some public sector
enterprises were sold to private sector and the public. It was
expected that this would lead to improved managerial
performance and better financial discipline.
iv) Re- structural and Revival :- All public sector sick units
were referred to Board of Industrial and financial RE-
Construction (BIFR). Units which were potentially viable
were restructured and which could not be reviewed were
closed down by the board.
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Multinational Companies/Global Enterprises

Multinational company may be defined of 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 :- MNS 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. and there is no interference 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 & 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 Strategic - MNCs use aggressive marketing
strategies. Their brands are well known and spend huge
amounts on advertising and sale promotion.

JOINT VENTURES
Meaning :- When two or more independent firms together
establish a new enterprise by pooling their capital, technology and
expertise, it is known as a joint venture.
Example :- Hero Cycle of India and Honda Motors Co. of Japan
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jointly established Hero Honda. Similarly Suzuki Motors of Japan and

Maruti of Govt. of India come together to form Maruti Udyog.

FEATURES
1. Capital is provided jointly by the Government and Private Sector
Entrepreneurs.
2. Management may be entrusted to the private entrepreneurs.
3. It combines both social and profit objectives.
4. It is responsible to the Government and the private investors.

BENEFITS
1. Greater resources and Capacity :- In a joint venture the
resources and capacity of two or more firms are combined which
enables it to grow quickly and efficiently.
2. Access to advanced technology :- It provides access to
advanced techniques of production which increases efficiency
and then helps in reduction in cost and improvement in quality of
product.
3. Access to New Markets and distribution network :- A foreign
co. gain access to the vast Indian market by entering into a joint
venture with Indian Co. It can also take advantage of the well
established distribution system of local firms.
4. Innovation :- Foreign partners in joint ventures have the idea
and technology to develop innovative products and service. As a
result, new products and their new uses come in the market.
5. Low cost of production :- Raw material and labour are
comparatively cheap in developing countries so if one partner is
form developing country they can be benefitted by the low cost of
production.
6. Well known Brand Names :- When one party has well
established brands & goodwill, the other party gets its benefits.
New products of such brands names can be easily launched in
the market.
7. Division of Risk :- Inherent risk of new project get divided
among partners of joint venture and it also increases the
competitive powers of small firms.

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Public Private Partnership (PPP)

It means an enterprise in which a project or service is finance 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 - Rad, Railway and Toll Bridge
2) Health - Hospital
3) Water - Collecting, Cleaning and Distributing
4) Education - School and University
Features of PPP
1. Facilities partnership between public sector and private sector.
2. Pertaining high priority project.
3. Suitable for big project (Capital intensive and heavy industries.)
4. Useful in public welfare projects example Delhi Metro Railway
Corporation.
5. Sharing revenue - Revenue is shared between public and
private enterprises in the agreed Ratio.

Box 3

Q. Identify the enterprises :-

a) Such enterprises brings in advance Technology form home
country.
b) Such enterprises helps in completing public utilities project

c) Such organization is formed by 2 or more business

organization, pooling their resources to achieve particular
goals.
d) In such organizations at least 51% capital is held by Govt.
Ans. a)
b)
c)
d) Government Company

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