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UNIT-3

PRIVATE,PUBLIC AND GLOBAL ENTERPRISES

 Private Sector & Public sector –
An Introduction
❑ Indian Economy is known as mixed economy as it consists of both privately
owned and government owned business enterprises.
❑ The government of India has opted for mixed economy.
❑ The economy has been classified into two sectors-Private and Public Sector
 PUBLIC SECTOR

❑ Public sector consist of various organization owned and managed by

government.
❑ They are partly or wholly owned by central or state government.
❑ They may be a part of ministry or come into existence by special act of
parliament.
❑ Roles of private and public sectors were clearly defined through various acts
and regulations.
❑ Industrial policy 1991was diff from all the earlier policies where the govt has
increased the role of pvt sector than public sector.
FORMS OF ORGANISING PUBLIC SECTOR ENTERPRISES

(A) DEPARTMENTAL UNDERTAKING

(B) STATUTORY CORPORATION

(C) GOVERNMENT COMPANIES

 DEPARTMENTAL UNDERTAKING
It is the oldest and traditional form of organizing public enterprises.
It is established as department of the ministry and is considered a part or an extension of
ministry.
The activities performed by them are an integral part of the functioning of the govt.
Examples: Indian railways, post and telegraph, All India Radio, Indian Defence, Doordarshan
FEATURES:
1. The funding of these enterprises directly comes from the government treasury and are an
annual appropriation from the budget of govt.
2. The revenue earned by them is also paid into the treasury.
3. Employees of the enterprises are govt employees, and their recruitment and conditions
are same that of govt employees.
4. They are headed by IAS and civil servants who are transferable to one ministry to another.
5. It is a major sub division of govt department, and is under the direct control of ministry.
6. They are accountable to the ministry since their management is directly under the
concerned ministry.
MERITS:
1. Facilitates parliament to exercise effective control over their operations.
2. Ensures a high degree of public accountability;
3. The revenue earned by the enterprise goes directly to the treasury and hence is
a source of income for the Government.
4. Where national security is concerned, this form is most suitable since it is under
the direct control and supervision of the concerned Ministry.
LIMITATIONS.
1. Departmental undertakings fail to provide flexibility, which is essential for the
smooth operation of business;
2. Employees are not allowed to take independent decisions without the approval
of the ministry hence delays in decisions making.
3. Problem of red tapism in day to day operation and hence no decisions can be
taken unless it goes through the proper channel .
4. Lot of political interference in the ministry.
5. This enterprise is generally insensitive to consumer needs and do not provide
adequate services.
 STATUTORY CORPORATION
It is a public enterprises brought into existence by special act of parliament.it
defines its powers and functions ,rules and regulations governing the employees
and its relationship with government.

It is created by legislature with defined powers and is financially independent

with a clear control over a specified area or a particular type of commercial
activity.

EXAMPLES: Reserve Bank of India(RBI),Life Insurance corporation(LIC),Food

corporation of India(FCI),Employees state insurance corporation(ESIC).
FEATURES:

1.Statutory corporation are set up under a special act of parliament and

are governed by the provisions of government. The act defines the
objects, power and privileges of it.
2.It is wholly owned by the state and has the ultimate financial
responsibility and bear the profit as well as loss.
3.It’s a corporate body, can sue and can be sued ,enter into contract
and can acquire property on its name.
4.Its is independently financed and obtains funds by borrowing from
govt or public through revenues.
5.The audit procedure of departmental undertaking is not applied here.
6.The employees here are not govt or civil servants and are not
governed by govt rules and regulations.
MERITS:
1. They enjoy independence in their functioning and has a high degree of
operational flexibility.
2. They are free from undesirable govt rules and regulations.
3. Since the funding does not come from central govt therefore govt do not
interfere in their financial matter including their income and receipt.
4. As they are the autonomous body they frame their own policies and procedures
within the power assigned to them.

LIMITATIONS:
1. In reality it doesn’t enjoy much operational flexibility as stated above. All
actions are subject to many rules and regulations.
2. Where there is an involvement of huge fund govt interference has been always
there.
3. Where there is dealing with public rampant corruption exist.
GOVERNMENT COMPANY
A Government company is established under the Indian Companies Act, 1956 and
is registered and governed by the provisions of the Indian Companies Act. These
are established for purely business purposes and in true spirit compete with
companies in the private sector.

According to the Indian 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.

The shares of the company are purchased in the name of the President of India.

EXAMPLES: HMT,Hindustan steel limited, Steel authority of India(SAIL),Bharat heavy electricals

limited(BHEL).
FEATURES

▪It is an organization created by the Indian Companies Act, 1956

▪The company can file a suit in a court of law against any third party and be sued.

▪The company can enter into a contract and can acquire property in its own name

▪ The management of the company is regulated by the provisions of the Companies Act, like any other public limited
company

▪ 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.

▪The Memorandum and Articles of Association are the main documents of the company, containing the objects of
the company and its rules and regulations

▪These companies are exempted from the accounting and audit rules and procedures

▪It can obtain funds from government shareholdings and other private shareholders. It is also permitted to raise
funds from the capital market.
MERITS:
• It can be established by fulfilling the requirement of the Indian companies act
.A separate act in the parliament is not required.
• It has separate legal entity apart from the govt.
• Its enjoys autonomy in the management decisions and takes actions according
to business prudence.
• By providing goods and services at reasonable prices are able to control the
market and avoid unhealthy business practices.
LIMITATIONS:
• Since government is only the shareholder in some of the companies act does
not have much relevance.
• It evades constitutional responsibility.
• The govt being the sole owner the mgmt. and administration rest in the hands
of the govt. The main purpose of the govt company ,registered like other
companies is defeated.
 GLOBAL ENTERPRISES - Concept
• Global enterprises or MNCs become a common feature of most developing economies in the world.
• Global enterprises thus are huge industrial organizations which extend their industrial and marketing
operations through a network of their branches in several countries.
• Their branches are also called Majority Owned Foreign Affiliates (MOFA)
• They do not aim at maximizing profits from one or two products but instead spread their branches all over
world.
• Examples: Unilever, Coca cola, Samsung etc.

FEATURES:
1. Huge capital resources: These enterprises are characterized by possessing huge financial resources and the
ability to raise funds from different 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.
2. 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.
3. 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
4. Product innovation: These enterprises are characterized 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.

5. Marketing strategies: these enterprises use aggressive marketing strategies in order to

increase their sales in a short period. They posses a more reliable and up-to-date market
information system. Their advertising and sales promotion techniques are normally very
effective.

6. Expansion of market territory: Their operations and activities extend beyond the physical
boundaries of their own countries. They operate through a network of subsidiaries, branches
and affiliates in host countries. Due to their giant size they occupy a dominant position in the
market.

7. Centralised control: They have their headquaters in their home country and exercise control
over all branches and subsidiaries
JOINT VENTURES – CONCEPT

When two businesses agree to join together for a common purpose and mutual benefit, it
gives rise to a joint venture.

A joint venture may also be the result of an agreement between two businesses in different
countries.

The reasons behind the joint venture often include business expansion, development of new
products or moving into new markets, particularly in another country.

In India, joint venture companies are the best way of doing business. There are no separate
laws for these joint ventures. The companies incorporated in India are treated the same as
domestic companies.

Examples: Vistara, Bharati-AXA General Insurance Co Ltd, Mahindra-Renault, Tata Global

Beverages
FEATURES:

1. Increased resources and capacity: Joint ventures enable the companies to grow ,expand ,diversify, face the
market challenges and take the advantage of new opportunities by pooling financial and human resources

2. Access to new markets and distribution networks: joint ventures enable foreign companies to enter the
domestic market and gain dominant market position.

3. 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.

4. Innovation; Joint ventures allow business to come up with something new and creative for the same market.
Specially foreign partners can come up with innovative products because of new ideas and technology.

5. Low cost of production: joining hands with the foreign companies help in reducing the cost of production. Low
cost of raw material, labour and technically qualified workforce helps in meeting the quality specifications that too
at low cost.

6. 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. There is a ready market waiting for the product
to be launched. A lot of investment is saved in the process.
PUBLIC PRIVATE PARTNERSHIP (PPP)
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 organizations 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.

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.
Examples: Mumbai Metro, L&T Hyderabad Metro Rail Pvt Ltd, NTPC Limited,GMR Hyderabad Airport.
FEATURES:

❑ PPPs are related to high priority Government, planned projects.

❑ PPP’s main objective is to combine the skills, expertise and experience of

both public and private sectors to deliver high quality services.

❑ PPPs divide the risk between public and private sector.

❑ The Govt, remains accountable for the quality and costs of the services.

❑ PPPs are used in the Govt, projects aimed at public benefit.

❑ PPPs projects lead to faster implementation and reduced life cycle.