Privat Public Global Enterprises (Notes)
Category : 11th Class
Private, Public and Global Enterprises
Facts that Matter
- If we look around our neighborhood, we can find shops owned by sole proprietors or big retail organizations or partnership firms etc.
- Similarly, there can be privately owned businesses or government owned organizations. There may be organizations which operate in more than one nation. These are called global enterprises.
- Organizations owned by private people are a part of private sector. Organizations owned by government are included in public sector. Organizations operative in more than one nation are called global enterprises.
Private Sector and Public Sector
- The private sector consists of business owned by individuals or a group of individuals.
- Private sector includes sole proprietorship, partnership, Joint Hindu Family system, cooperative and company.
- Public sector consists of various organizations owned and managed by the government either wholly or partly by the central or the state government. These may be part of a ministry or come into existence by a special act of the Parliament.
- Till 1991, public sector had a leading role in India. Since then private sector has been given a major role.
- Since 1991, multinational corporations or global enterprises which operate in more than one nation gained entry into the Indian economy. Therefore, at present India has private sector, public sector and global enterprises.
Forms of Organizing Public Sector Enterprises
- Departmental undertakings.
- Statutory Corporation.
- Government Companies.
Forms of Organizing Private Sector Enterprises
- Sole proprietorship.
- Joint Hindu Family.
- Company - Private Limited and Public Limited.
- Multinational Corporations.
- These are the oldest and most traditional form of public sector enterprises which have been established by the Departments of the Ministry and are considered parts or an extension of ministry itself.
- They are not autonomous or independent legal institutions. They act through the government.
- Examples of these undertakings are Railways and Post and Telegraph Department.
- These undertakings are funded directly from the government treasury and are appropriated funds from annual budget of the government. The revenue earned by these enterprises also goes to the government treasury.
- All accounting and audit control which apply to other government activities are also applicable to them.
- Its employees are government employees and the conditions of their recruitment and services are same as that of government employees.
- These undertakings are headed by the Indian Administrative Services (IAS) and Civil Services.
- There is complete government control.
- These are answerable to Parliament.
- They are a source of income.
- They are suitable from national security point of view.
- There is lack of flexibility.
- There is delay in decision making.
- There is conservative approach.
- There is red tapism.
- There is undue government intervention.
- These undertakings do not pay attention to consumer needs.
- Statutory Corporations are Public Enterprises brought into existence by a special act of the Parliament. Its powers and functions, rules and regulations governing its employees and its relationship with government departments are defined by the Act/Statute.
- It is a corporate body created by the legislature with defined powers and functions and is financially independent. It has a clear control over a particular type of commercial activity or a specified area.
- It has a separate legal entity, i.e., in the eyes of law, it is a different person.
- Its examples are Reserve Bank of India, Life Insurance Corporation of India, Food Corporation of India, State Financial Corporation, Damodar Valley Corporation etc.
- These are formed by passing a special Act of Parliament.
- These are owned and controlled by the government.
- They have a separate legal entity.
- They have financial autonomy.
- These are not subject to government rules in accounting and audit procedures.
- They have their own staff and terms of service.
- They have operational flexibility.
- They have an autonomous set up.
- They are free from interference.
- They facilitate economic growth.
- Autonomy of these corporations is theoretical only. Practically, there is a lot of interference.
- Members of Board of Directors are appointed by the Government who are civil servants, politicians and professionals. They also face pressure from government bodies.
- There is always delay in action.
- The charter or constitution of corporation may be rigid and it may be very difficult to change it.
- According to Indian Companies Act, 1956, a Government Company means any company in which not less than 51% of the paid up share capital is held by the Central government or by any state government or partly by the central government and partly by one or more state governments.
- A government company is established under the Indian Companies Act, 1956 and is registered and governed by the provisions of Indian Companies Act, 1956.
- These are established for purely business purposes and compete with the companies in private sector in true spirit.
- Government has a control over the companies and the shares are purchased in the name of the President of India.
- Its examples include Hindustan Machine Tools, The Hindustan Steel Limited, State Trading Corporation of India, Coal India Limited, Hindustan Aircrafts Limited, etc.
- Minimum 51% capital is contributed by the government, central, state or both. It is registered under Companies Act, 1956.
- It has a separate legal entity.
- It is managed by Board of Directors nominated by the government.
- It is governed by the Memorandum and Articles of Association.
- No accounting and audit procedures except annual report are applicable to these companies.
- It is easy to form.
- There is operational autonomy.
- It has an independent status.
- It prevents unhealthy business practices.
- Freedom is for namesake only. Practically there is a lot of interference on behalf o different concerned government bodies.
- There is a lack of accountability.
Global Enterprises or Multinational Companies (MNC)
An MNC is a company whose business operations extend beyond the country in which it has been incorporated.
Features of Multinational Companies
- It has huge capital resources.
- It involves foreign collaboration.
- It uses advanced technology.
- It leads to product innovation.
- It makes use of marketing strategies.
- It leads to expansion of market territory.
- It makes use of centralized control.
Merits of Multinational Companies
- It creates employment opportunities.
- It uses advanced technology.
- It leads to inflow of foreign capital.
- It improves standard of living.
- It leads to growth of domestic firms.
- It leads to healthy competition.
- It helps in the growth of world economy.
Demerits of Multinational Companies
- It disregards national priority.
- It leads to creation of monopoly.
- It leads to depletion of natural resources.
- It leads to technology obsolete.
- It creates threat to national sovereignty.
- When two or more firms join together for a common purpose and mutual benefit, it is known as joint venture. For example, joint venture of Hero with Honda.
Formation of Joint Venture
A Joint Venture company can be formed in either of two ways:
- Transfer of business to new company;
- New Joint Venture Company;
- Collaboration of existing Indian company with other party.
Benefits of Joint Venture
- It leads to increased resources and capacity.
- It leads to access to new markets and distribution networks.
- It leads to access to technology.
- It leads to innovation.
- It leads to low cost of production.
- It has an established brand name.
Disadvantages of Joint Venture
- There is conflict of interest.
- There is risk of loss of trade secrets.
- There is lack of coordination.
Public Private Partnership
- It is a legally binding contract between government and private business firm for the provision of public assets and/or public services for the benefit of public. Features
- It is an arrangement with private sector entity.
- It refers to investments and/or management for a specified period.
- It refers to operations or management for a specified period.
- It leads to risk sharing with private sector.
- Performance linked payments prevail.
- Conformance to performance standards is essential.
Benefits of Public Private Partnership
- It leads to inflow of private investment.
- It leads to increased efficiency .x
- It leads to innovation.
- It leads to sharing of project risks.
- It leads to better viability.
Words that Matter
1. Private Sector: Private sector includes all those enterprises which are managed and owned by individuals or group of individuals.
2. Public Sector: Public sector includes all those enterprises which are managed and owned partly or wholly by the central or state government.
3. Departmental Undertaking: This is the oldest and traditional form of public enterprises. It is managed by government officials as one of the government departments. It is under the control of concerned Minister of the Department, who is answerable to government through Parliament.
4. Statutory Corporation: Statutory Corporation is a corporate body with a separate legal existence, set up under a special Act of Parliament or of the State Legislature.
5. Government Company: According to the Indian Companies Act 1956, a Government company means any company in which not less than 51 per cent of the paid up capital is held by the government or by any state government or partly by central government and partly by one or more state governments.
6. Disinvestment: Disinvestment refers to selling a part or the whole of shares of public sector enterprises (PSEs) to the private sector.
7. Global Enterprises: Global enterprises or MNC is a company whose business operations extend beyond the country in which it has been incorporated.
8. Joint Venture: When two or more firms join together for a common purpose and mutual benefit, it is known as Joint Venture.
9. Public Private Partnership: Public private partnership is a legally binding contract between government and private business firm for the provision of public assets and / or public services for the benefit of public.
10. Privatisation: It is a process whereby public sector enterprises are transferred to public sector so that ownership transfers from public sector to private sector.
11. Memorandum of Understanding: Improvement of performance through a MOU (Memorandum of Understanding) system by which management are to be granted autonomy but held accountable for specified results.