Chapter 3

Topics to be studied

​

• Forms of public enterprises

• Role of public sector

​

• Global Enterprises

​

• Joint venture

Concept

• INDIA is a mixed economy
• In mixed economy both private & public sector are there
• Private sector involve business owned by individuals or group of individuals
• Public sector involve organisations owned and operated by government

�Various Forms of public enterprises �

​

• Departmental Undertakings

​

• Statutory Corporations

​

• Government Company

�Departmental Undertakings �

• These organisations are departments established under a ministry

​

• They are under the control of state or central government

​

• Eg :- indian railway , postel dept , dooradarshan , All india radio , etc....

Features

• Fund allocated through budget ,profit goes to treasury

​

• Accounting & audit by government

​

• Employees are government servants

​

• They are under direct control of ministry

​

• Responsible to concerned ministry

Merits

• Parliamentary control

​

• High public responsibility

​

• Source of income to government

​

• Helps to national security

Limitations

• They are not flexible , because of rigid rules & regulations
• Delay in decision making
• Political pressure
• Do not give importance to consumer needs
• Red tapism [ all activities are done through proper channel only ,it leads to no action for long period]

Statutory Corporations

• They are established by a special Act in parliament

​

• There power , rules and regulations all are involved in that act

​

• Eg:- RBI ,Airport authority of India , LIC , SBI, ONGC , KSRTC , BSNL ..........

Features

• Formed by a special act
• They can purchase properties , file cases , enter into contracts [ separate legal entity ]
• They can collect fund from govt & public
• Not same accounting & audit procedure of govt departments
• Employees are not govt servants , they are appointed under this act
• Autonomy in operations
• Responsibility of profit & loss goes to government

Merits

• High operational flexibility & free from strict govt control

​

• No govt interference in financial matters

​

• They can make there policies and plans

​

• They are a tool for economic development

Limitations

• In reality they are subject to many rules & regulations

​

• Govt and political interference

​

• Chance for corruption

​

• Appointment of advisors by Govt will leads to delay in decision making

Government Company

• Govt company means company in which not less than 51 % of paid up capital held by state / central or both of them

​

• Public can also purchase shares

​

• Shares are in the name of president of India

​

• Because of majority in shares Govt can control the management of company

Features

• It is an organisation created by Indian companies act 1956
• Company have separate legal entity
• Management are regulated by companies act
• Employees are appointed As per Memorandum of association and articles of association of company
• Exemption from govt auditing & accounting rules and regulations relating to govt departments
• They can Collect fund from govt and capital market

Merits

• A separate act in parliament is not required

​

• Separate legal entity

​

• Easy chance for getting loans

​

• Freedom in management decisions

• They can control unhealthy practices in market by providing quality goods

Limitations

• Do not give more importance to companies act because Govt is the major share holder

​

• Not directly responsible to parliament

​

• Directors are appointed by Govt so chance for political pressure

​

• interest of small shareholders may be rejected

​

Changing Role of public sector

• Development of infrastructure

​

infrastructure means basic facilities needed for development like transportation , communication facilities , rail , road etc....

​

Public sector mainly concentrate on the development of basic infrastructure

Regional balance

• It is the responsibility of Govt to develop all regions of a country equally
• By forming Public sector organisation in backward areas our country attaining all round development
• Also provide employment to persons who live there

Economies of scale

• It means benefits of large scale business
• Because of huge financial resource government can form big organisations simply

​

Prevention of private monopolies

• Public sector act as a control device for private monopolies

​

• Some large scale business are not open to private sector only public sector can start them

​

• Profits of public sector given to society at large but profits of private sector taken by owners only

Import substitution

• It means producing in our country what we needed

​

• Self sufficiency

​

• without importing Public sector organisations are producing many products for meeting our country needs

Creation of employment opportunities ��facilitate social development ��protection and promotion of small scale industries

Limitations of public sector

• Huge expenditure
• More employees
• Under utilisation of capacity
• Ineffective management
• Inadequate profit
• Slow growth
• Lack of coordination

​

Public sector Reforms

• Reduction in number of industries reserved for public sector

​

only 3 sectors are reserved for public sector alone they are

atomic energy , arms and rail transport

​

Memorandum of understanding

• It is a system in which the management of public sector unit gives more freedom by concerned ministry for improving public sector performance

​

• But they are responsible for results

Disinvestment

• Sale of public sector shares to private sector and general public

​

• It’s objective is to raise adequate fund to govt and give wide participation to public

Restructure and revival

• Sick public sector units are transferred to BIFR for converting them into profitable or closing

​

• BIFR [ Board of industrial and financial reconstruction ]

Some important terms

• BIFR :- Board of industrial and financial Reconstruction

Is a govt organisation , they take loss making Govt companies and restructure them or close them

National Renewal fund

these fund used for giving compensation to public sector employees who are voluntary retiring in loss making public sector units

Global Enterprises / Multinational companies

• They are huge industrial organisation which operate in more than one country through there different branches
• There branches are called as Majority Owned Foreign Affiliates [ MOFA ]
• They have advanced production technologies and marketing strategies
• Also called trans national corporations , world enterprises , global giant , international enterprise.
• Eg: - Pepsi , Nestle , Nokia etc....

​

Features

• Huge capital resources

These organisations can easily get more amount of cash from different sources like shares , bank loan etc...

​

Foreign collaboration

• Global enterprises will collaborate with other companies for there working with strict rules & regulations

Advanced technology

• They use most modern equipments and machines for production & distribution of goods

Product innovation

• These companies continuously conduct research activities and they will develop new products

​

• They have a separate department for Research & Development

Marketing strategies

• They use aggressive marketing strategies

​

• They give Huge advertisements and sales promotional activities

Expansion of market

• They can grow internationally
• There activities are not limited to home country

Centralised control

• Controlled by headquarters situated in home country

​

• But they will not interfere in day to day activities of there branches

Professional management

​

​

• Because of large amount involved and huge size these companies are managed by skilled and qualified managers

Joint venture

• Joining of two or more organisation for a specific business
• It may be between private , govt owned and foreign company
• An agreement between companies is necessary
• Profit and loss must be shared
• Joint venture may be for business expansion , development of new product , getting new market etc.............
• It become a separate legal entity

Increased resources and capacity

• Resources of more than one organisation are there , so they can make more profit

Access to new market

• Each company can enter into one another market for conducting business

Access to technology

if one partner have an advanced technology another partner can also get benefit

Advanced technologies will increase profit and reduce cost of production

Innovation

• Joint venture give more new products into market
• If a foreign partner is there , they can produce many product varieties into market

Low cost of production

• If a partner country can produce products with low cost each other can benefit from it

​

• Eg: if an American & Indian company started a joint venture , they can procure and produce all products from India because in India material cost is minimum

Established brand name

• If one parties brand name in joint venture is very famous the other partner can use it without any cost

End