Detailed, Step-by-Step NCERT Solutions for 11 Business Studies Chapter 3 Private, Public and Global Enterprises Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.
Private, Public and Global Enterprises NCERT Solutions for Class 11 Business Studies Chapter 3
Private, Public and Global Enterprises Questions and Answers Class 11 Business Studies Chapter 3
Tick the appropriate answer:
A government company is any company in which the paid-up capital held by the government is not less than
Centralised control in MNC’s implies control exercised by
PSE’s (Public Sector Enterprises) are organizations owned by
(a) Joint Hindu Family
(c) Foreign Company
(d) Private Entrepreneurs
(a) Joint Hindu Family
Reconstruction of sick public sector units is taken up by
Disinvestment of PSE’s implies
(a) Sale of equity shares to
(b) Closing down operations private sector/public sector
(c) Investing in new areas
(d) Buying shares PSE’s
(a) Sale of equity shares to
Short Answer Questions
Explain the concept of the public sector and private sector.
Indian Economy consists of a mixed economy. A mixed economy refers to an Economic system where both private and government enterprises co-exist. The economy therefore classified into two sectors viz., private sector and public sector, file private sector consists of business enterprises owned by individuals or a group of individuals.
The various forms of organization are sole proprietorship, partnership, joint Hindu Family. Co-operative and company. The public sector consists of business enterprises owned and managed by the government. These organizations may either be partly or wholly owned by the Central or State Government with an equity stake of at least 51 % with the government.
They may also be a part of the ministry or might have come into existence by a special Act of the Parliament. The government participates in the economic activities of the country through the public sector. Industrial policy resolutions announced by the government from time – to – time define the area of activities in which the private sector and public sector are allowed to operate.
State the various types/forms of organizations in the private sector.
Forms of Private Sector Enterprises – Following forms covered by Private Sector Enterprises:
(1) Sole Proprietorship – He is a person who carries on business exclusively by and for himself. He is the provider of capital and management to the business. He does not share the business profits with anybody. He himself is responsible for all the business activities.
(2) Joint Hindu Family – The business of a Hindu is inherited by his heirs under the Hindu Law. Such a business is known as Joint Hindu Family Business. The head of the family, known as Karta, manages the affairs of the business. The other male members of the Hindu family are known as coparceners. This business is governed by the provisions of Hindu Law.
(3) Partnership Firms-Partnership is a relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. An A-partnership firm comes into existence when two or more persons enter into an agreement to carry lawful business and share its profits and losses. The maximum number of members of a partnership shall not exceed twenty.
(4) Joint Stock Company – It is an artificial person created by law (Companies Act, 1956). It is invisible, and intangible person and exists only in the eyes of law. Being created by law, it possesses only those characteristics which the charter of its creation known as Memorandum of Association confers upon it. It acts according to the Companies Act 1956.
(5) Cooperative Society – It is also a body corporate. It is formed and registered under the Cooperative Societies Act, 1912. It is a voluntary organisation of its members. Its success depends upon the cooperation among its members formed the cooperative society.
What are the different kinds of organizations that come under the public sector?
The forms of organization which a public enterprise may take are as follows:
(i) Departmental Undertaking:
These enterprises are established as departments of the ministry and are considered as part of an extension of the ministry itself. These undertakings may be under the Central or the State Government. Examples: Railways and Post and Telegraph Department.
(ii) Statutory Corporation:
Statutory corporations are public enterprises brought into existence by a Special Act of the Parliament, which defines its powers and functions. It is a financially independent corporate body created by the legislature and has clear control over a specified area or a particular type of commercial activity.
(iii) Government Company:
According to the Companies Act, 1956, a government company means any company in which not less than 51 percent of the paid-up capital is held by the Central Government, or by any State Government or partly by Central Government and partly by one or more State Governments. These are established purely for business purposes.
List the names of some enterprises under the public sector and classify them.
Followings are the undertaking covered by public enterprises :
Departmental Undertaking – A departmental enterprise 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. Examples of such departments are :
- Posts and Telegraphs Works
- Indian Railways
- The Integral Coach Factory, Perambur
- The Diesel Locomotive Works Varanasi
- National Instruments Factory, Calcutta
- Precision Instruments Factory, Kolkata
- U.P. Cement Factory.
Statutory Corporation – A statutory or public corporation is an autonomous business enterprise created by law to conduct the activities assigned to it. It is a body corporate set up under a special act passed by the Central or State Legislature. Thus, it is known as a statutory corporation as it is created by statute. The statute defines its objects, powers, and functions.
Some important examples of statutory corporations are:
- Life Insurance Corporation of India
- Air India International Corporation
- Indian Airlines Corporation
- Food Corporation of India
- Employees’ State Insurance Corporation
- Central Warehousing Corporation
- State Financial Corporations
- State Bank of India.
Government Company – A government company is a company in which not less than 51 percent of the paid up share capital is held by the Central Government or by one or more State Governments or both. The remaining amount of paid-up capital of a government company can be subscribed to by private individuals or institutions.
It is formed and registered under the Companies Act, 1956 which contains special provisions relating to the government companies. But the Central Government has been empowered to direct through a notification in the Official Gazette that any of the provisions of the Companies Act as may be specified therein shall not apply to any government company or shall apply with certain exceptions, modifications, and approvals.
Some of the examples of government companies are :
- Bharat Heavy Electricals Ltd.
- Hindustan Steels Ltd.
- Hindustan Insecticides Ltd.
- Hindustan Cables Ltd.
- Hindustan Shipyard Ltd.
- Sindri Fertilizers Ltd.
- Indian Oil corporation.
Why is the Government Company form of organization preferred to-other type in the Public Sector?
The government company form of organization is preferred to other types in the public sector because of the following advantages it offers:
(i) Simple Procedure of Establishment:
A government company can be easily formed as compared to other public enterprises. There is no need to get a bill passed by the Parliament or State Legislature. It can be formed simply by following the procedure laid down by the Companies Act.
(ii) Working on Business Principles:
The government company works on business principles. It is independent in financial and administrative matters. Its Board of Directors usually consists of professionals and persons of repute.
(iii) Efficient Management:
The management of a government company ensures efficiency in managing the business as it is more accountable than other forms of public enterprises because the annual report of the government company is placed before both the House of Parliament.
These companies pose a healthy competition to the private sector which ensures the availability of goods and services at reasonable prices and good quality.
How does the government maintain; a regional balance in the country?
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. After 1951, the government laid down in its five-year plans, that particular attention would be paid to those sectors and regions which were lagging behind and public sector industries were deliberately set up.
Four major steel plants were set up in the backward areas to accelerate economic development, provide employment to the workforce and develop ancillary industries. This was achieved to some extent but there is scope for a lot more.
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.
Private sectors are not keen to set up industries in remote and backward regions because they lack infrastructural facilities such as electricity, transport, banks, communications, etc. As a result, these areas remain underdeveloped and industries get concentrated in urban areas. Public sectors should set up in backward areas to remove ’ regional disparities in development and to ensure balanced development in different parts of the country.
Long Answer Questions
Describe the Industrial Policy 1991, towards the public sector.
Public sector in India was created to achieve the objectives of speeding up economic growth and more equitable distribution of income and wealth. The New Industrial Policy 1991 fay certain conditions to streamline public sector.
Public Sector and New Industrial Policy of 1991 – The government of India announced ‘New Industrial Policy’ in July, 1991. The important decisions have been taken in this policy with regards to public sector enterprises, which are as under:
(i) Sick public sector enterprises will be subject to the adoption of same policy as adopted by private sector enterprises.
(ii) Public sector enterprises will be made more efficient and : accountable through the medium of memorandum of understanding executed between these enterprises.
(iii) Share of public sector enterprises wi 11 be is in vested, that is sold to the ownership of public sector enterprises.
(iv) Only four industries have been reserved exclusively for public sector in place of 17 industries at present.
Recent Changes in the Role of Public Sector – U.S.S.R. was the firstcountry governed by socialism. Its disintegration shattered the concept of socialism. No country is prepared to accept socialism in its old form. It is a hard fact that economic growth at faster rate cannot be achieved without the active participation of private sector.
Simultaneously with the Public Sector – Previously in the fifty’s and sixty’s every developing country felt that, public sector should play dominant and major role in the economic growth of a country’s economy. It was felt during these years that the private sector has more interested in profit motive. It will result unbalanced growth of economy, ft will create wide gap between haves and the have-not.
After more than fifty years of independence it was seriously felt that the public sector has got its own drawbacks and limitations, ft can never be taken as the remedy of all economic evils. It was also seen that more capitalistic economies have flourishing economic growth.
Therefore, it was decided that public sector units running on losses should be closed. Importance should be given to private sector. Public sector should have narrow growth in areas of strategic defence works and infrastructure sector. Therefore, the slogan for privatisation has become the order of the day.
We cannot and should not dispense with the valuable contribution of public sector, but its unplanned expansion should be checked. There should be proper balancing between the public sectorand private sector.
It should be taken as granted that both public and private sectors are the two blade of a scissor, and both of them will be required to operate optimally. It will not be out of place to mention that no economy in the world is completely
socialisti corcapitalistic. In the light of above experiences, the government adopted a new approach to public enterprises. The important steps in the field of public enterprises are as follows :
(1) Industries Reserved for Public Sector – Since 1956-91, 17 industries had been reserved for the public sector. Private sector was not granted licences for the establishment of these, industries, so the public sector controlled these 17 industries. These industries were reduced in 1991 and further 5 industries reduced in 1993. At present only four industries have been reserved for public sector.
Since 1970 the licensing policy has been liberalised and simplified. Industrialists can also expand and develop their industries according to their wishes and this has had a very favourable effect on industrialisation in the country. As a result, industrialists now have complete freedom to establish any industry by obtaining licence easily and in case of some industries, even obtaining licence is not required.
List of Industries Reserved for the Public Sector
Private Sector will not be granted licences for under-mentioned industries
- Atomic energy
- Railway transport
- The subsistences specified in the schedule to the Notification Number S.0.212(E) dated March 15,1995 of the Government of India in the Department of Atomic Energy.
- Arms and ammunition and allied items of defence equipment, defence aircraft and warships etc.
(2) Financial Restructuring – Financial requirements of public sector can be met through mutual funds, financial institutions, general public and workers.
(3) Provision of National Renewal Fund – Provision of funds through National Renewal Fund (NRF) was also made to protect the interest of public sector workers. National Renewal Fund was set up on 1 February 1992 to assist the employees in retraining, re-employment and counselling in case a public sector units is liquidated or dissolved.
(4) Redwelling through BIFR- Board for Industrial and Financial Reconstruction (BIFR) is established for the formation of rehabilitation schemes by which residential facilities can be provided to the workers of public sector enterprises.
(5) Privatization – The government of India has also experienced capitalised economy, where producing units are operated under private ownership. Though the speed of privatization is slow and clumsy but it will pick up soon by making a simple procedural mechanism, transparent, and stating the disinvestment Objectives clearly in each case.
The following table shows the disinvestment in public sector enterprises:
(1) Growth of subsidiary industries – Growth of subsidiary industries owes to the growth of public enterprises. Public enterprises provide more opportunities to the subsidiary industries. Moreover, 500 cottage industries are selling their products to public enterprises. During 1998-99, goods worth more than Rs. 1,230 crores were purchased from the subsidiary industries.
(2) Employment opportunities – The employment opportunities are also generated by the public sector enterprises. The average welfare expenditure incurred on the public sector employees is estimated to be Rs. 2,030 per annum and average income of public enterprises employees increased from 5,920 in 1970-71 to Rs. 78,841 in 1999-00. During the period of 1999-00 the public enterprises offered employment to 20.6 lakh of people. The government has set up public enterprises in various regions to provide employment.
(3) Capital formation – In India, the spread of public enterprises has stimulated capital formation. During first five year plan the share of public sector enterprises in gross capital formation stood at 84%; during second plan, it was 56%; during third plan, it was 59% and so on.
(4) Basic industries- Public sector laid sound foundation for basic, huge investment and defense and strategic importance industries in India. The public sector also established large-scale industries such as atomic energy, fertilizers, iron and steel, arms and ammunition, heavy machines etc. The contribution of public sector in attaining self-sustained growth cannot be over-emphasized and this sector is now striving for the growth of consumer industries along with basic and heavy industries.
(5) Resources of economic development-India is a less developed country, so it needs a lot of resources for economic development, but the small percentage of profit in the private sector is reinvested, the rest is distributed as dividend among the shareholders. The surplus of the public sector enterprises is largely reinvested on development of enterprises or on the economic progress of the country. Thus, the Government of India generates resources for the development of public enterprises. In order to speed up the process of economic development, the direct participation of Government is necessary.
(6) Progress of Infrastructure – The expenditure on the development of infrastructure is known as “social overhead costs” which are generally very high and beyond the means of private sector. The progress of infrastructure comprising of power, capital goods, basic industries, transport, communication etc. is a precondition of growth.
The private sector is reluctant to undertake the projects which do not involve high profits, their development is possible only in the public sector. Many of the public sector enterprises are extremely helpful in creating infrastructure for development.
(7) Establishment of socialistic pattern of society – Indian industrial policy of 1956 aims at establishing the socialistic pattern of society. In such system inequality of distribution is kept within the stipulated limits and public enterprises are expected to generate the much needed surplus for growth.
Investment in public sector would serve as a hand stock of check on the private sector. The government can sell essential goods to the poor at cheaper rates by adopting the policy of price discrimination. Public sector enterprises may set a trend for the socialistic pattern of the society and thus, wages of the low-paid employees can be raised to a reasonable standard.
(8) Development of backward regions- Public sector enterprises is set up to provide industries in the least or undeveloped regions in order to maintain regional balances in the area of industrial development This is done to create infrastructure and employment opportunities in economically backward regions.
(9) Taking over of sick industrial units – Public sector enterprises also formed to take over or merged the sick industrial undertakings so that wastage of social resources and loss of employment may be checked. National Textile Corporation establishment is an example of setting up of such enterprise.
Can the public sector companies compete with the private sector in terms of profits and efficiency? Give reasons for your answer.
The profitability and efficiency of any enterprise can be measured with the help of certain indicators of revenue or surplus obtained and developmental activities operated by that enterprise. The profitability of Public Enterprises – Profitability is not the sole motivating force of development programme in case of public enterprises.
|1. Investment (machinery & equipments)||1,73,292||1,78,628||2,23,050|
|2. Sales (Gross Revenue)||—.||—||2,53,371|
|3. Net Profit (after tax)||7,187||9,878||13,725|
|4. Percentage of profit after paying tax on capital employed||4.4||5.2||6.2|
|5. Employment (in lakhs)||22||20||19.6|
(Source : Economic Survey 2000) Reasons for Low Profitability in Public Sector- The main reasons of low profitability of public sector enterprises are given below:
Profit plays an important role. Profitability also measures the efficiency of management shown with the help of the following Table:
(1) Industrial Disputes – Public sector workers oftenly indulge in industrial disputes. The role of profit remains low due to the disputes between workers and management. It adversely affects production and efficiency resulting in low output and high cost which ultimately lower down the profits.
(2) Idle Capacity – Public sector enterprises operate at less than their full production capacity. Hence, the cost of production per unit remains high and the rate of profit low. The idle capacity is one of the most important cause of less profitability of public sector enterprises.
(3) Heavy expenditure on construction-Public sector enterprises have a lot of expenditure incurred on the construction of residential houses for the workers and managers. About Rs. 108 crores have been spent through public enterprises on the construction of houses and related welfare projects. It is not possible to cover the interest rate involved in the investment of construction, such investments miserably reduce the profits.
(4) Location effect – Private sector enterprises are located at places that suits the objectives of profit maximization. On the other hand, public enterprises are located in backward areas with a view to avoid regional imbalances. These places fail to offer developed and economically viable environment. As a result,cost factor is pushed up and profitability reduced.
(5) Lack of efficiency – Public enterprises generally have low efficiency, because of lack of professionalism of management and organisers. The managers of public enterprises are generally evasive of their responsibilities.Late Prime Minister Rajiv Gandhi held the view that in efficient management the fundamental weakness of public enterprises. Their delay-delaying tactics takes long time. This adversely affects the efficiency. These enterprises suffer from red-tapism syndrome.
(6) Inefficient management – Public enterprises fail to achieve their objectives due to the lack of good and professional management. Generally retired bureaucrats or defeated politicians in elections are appointed on managerial posts of the public enterprises. These politicians use public enterprises as a means to train the management staff of public enterprises to improve the quality of management by which the government can achieve its objectives.
Attempts are being made to improve the efficiency and profitability of public enterprises which are considered necessary. Staff strength and labour costs are being reduced through a freeze on new recruitment and voluntary retirement schemes. Professionalisation of management, functional autonomy and improvement in work culture are being made to improve the efficiency and profitability of the public sector.
Why are global enterprises considered superior to other business organizations?
Global enterprises are industrial organizations which extend their industrial and marketing operations through a network of their branches or subsidiaries in several countries, these enterprises are considered superior to other private sector companies and public sector enterprises because of certain features which are as follows:
(i) Availability of Funds:
These enterprises can survive in crises and register higher growth as they possess huge financial resources as they have the ability to raise funds from different sources such as equity shares, debentures or bonds. They are also in a position to borrow from financial institutions and international banks as they have high credibility.
(ii) Diversification of Risk:
Global enterprises usually operate in different countries and enter into joint ventures with domestic firms of the host country. Thus, losses in one country may be compensated by profits in another country. Risk is also shared by-the domestic partner in case of the joint venture.
(iii) Advanced Technology:
Global enterprises conform to international standards and quality specifications as they possess superior technologies and methods of production.
(iv) Research and Development (R&D):
High-quality research involves huge expenditure which only global enterprises can afford. Therefore, these enterprises have highly sophisticated research and development departments which regularly come up with a product as well as process innovations making these firms globally competitive.
(v) Marketing Strategies:
Global companies use aggressive marketing strategies in order to increase their sales. Their market information systems are reliable and up-to-date leading to effective advertising and sales promotion. They manage their brands effectively as they have global brand equity.
(vi) Wider Market Access:
The operations and marketing of global companies extend to many countries in which they operate through a network of subsidiaries, branches, and affiliates. Due to this, they enjoy far wider market access than domestic firms.
What are the benefits of entering into joint ventures?
Businesses can achieve unexpected gains through joint ventures with a partner. Joint ventures can prove to be extremely beneficial for both parties involved. One party may have strong potential for growth and innovative ideas but is still likely to benefit from entering into a joint venture because it enhances its capacity, resources, and technical expertise.
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.
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 may prove to be very expensive. .
(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 save 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 a reduction in costs.
The markets are increasingly becoming more demanding in terms of new and innovative products. Joint ventures allow businesses to come up with something new and creative for the same market. Especially foreign partners 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.
There are many reasons for this, lowcost of raw materials and labour, technically qualified workforce management professionals, excellent manpower in different cadres like lawyers, chartered accountants, engineers, scientists. The international partner thus gets the products of required quality Mid specifications at a much lower cost than what is prevailing in the home country.
(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. There is a ready market waiting for the product to be launched. A lot of investment is saved in the process.