Karnataka 1st PUC Business Studies Question Bank Chapter 3 Private, Public and Global Enterprises
One Mark Questions
Question 1.
What is the private sector?
Answer:
The private sector is the part of the economy which is run by private individuals or groups, usually as a means of enterprise for profit.
Question 2.
What is the public sector?
Answer:
A state-owned enterprise in India is called a Public Sector Undertaking (PSU) or a Public Sector Enterprise.
Question 3.
Mention any two forms of organizing public sector enterprises.
Answer:
The two types of form of organizing public sector enterprises are:
(a) Departmental undertaking.
(b) Statutory corporation.
Question 4.
Give an example for the departmental undertaking.
Answer:
One example of a departmental undertaking is Indian Railways.
Question 5.
Give an example for the statutory corporation. (March – N – 2019)
Answer:
Life Insurance Corporation (L1C) of India is an example of a statutory corporation.
Question 6.
State the minimum amount of capital held by the government companies.
Answer:
Not less than 51 percent of the paid-up capital is the minimum amount of capital held by companies.
Question 7.
Give an example for global enterprises.
Answer:
COCO COLA is an example for global enterprises.
Question 8.
State any one benefit of the joint venture.
Answer:
One benefit from the venture is access to technology.
Question 9.
Give an example for a Joint venture.
Answer:
HERO HONDA is an example of a joint venture.
Question 10.
Expand MOU.
Answer:
MOU = Memorandum of Understanding.
Question 11.
Expand MNCs.
Answer:
MNCs Multinational Companies.
Question 12.
Expand BIFR.
Answer:
BIFR Board of Industrial and Financial Reconstruction.
Question 13.
Name any two sectors working ¡n the Indian economy.
Answer:
The two sectors working in the Indian economy are:
(a) Public sector
(b) Private sector.
Question 14.
Mention any one feature of global enterprises. (March – N-2018)
Answer:
Huge capital resources are one feature/benefit of global enterprises.
Question 15.
State any one feature of Government Company.
Answer:
Formation: These companies are formed by the Indian Companies Act, 1956 012013.
Question 16.
State any one feature of a statutory corporation.
Answer:
Formation: Statutory corporations are set up under an Act of Parliament or state legislature.
Question 17.
State any one feature of the departmental undertaking.
Answer:
Formation: These enterprises are established as departments of the ministry and are considered part or an extension of the ministry itself.
Two Mark Questions
Question 1.
What arc departmental undertakings?
Answer:
The enterprises are established as departments of the ministry and are considered part or an extension of the ministry itself is called departmental undertakings.
Question 2.
State any two limitations of departmental undertakings.
Answer:
The two limitations of the departmental undertaking are :
(a) Departmental undertakings fail to provide flexibility, which is essential for the smooth operation of the business.
(b) There is a lot of political interference through the ministry.
Question 3.
Give the meaning of statutory corporation.
Answer:
Statutory corporations are public enterprises brought into existence by a Special Act of Parliament. The act defines its powers and functions, rules and regulations governing its employees, and its relationship with government departments.
Question 4.
State any two limitations of a statutory corporation.
Answer:
The two limitations of the statutory corporation:
(a) Government and political interference has always been there in major decisions or where huge funds are involved.
(b) A Statutory corporation does not enjoy as much operational flexibility as stated above. All actions are subject to many rules and regulations.
Question 5.
Give the meaning of government companies.
Answer:
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”.
Question 6.
State any two limitations of government companies.
Answer:
The two limitations of government are:
(a) Since the government is the only shareholder in some of the Companies, the provisions of the Companies Act do not have much relevance.
(b) The government is the sole shareholder, the management and administration rest in the hands of the government.
Question 7.
What is disinvestment in PSEs?
Answer:
The Government can sell its enterprises completely to the private sector or disinvest a part of its equity capital held by it to the private sector companies or in the open market is called disinvestment in PSEs
Question 8.
What do you mean by global enterprises?
Answer:
A global enterprise is one that is incorporated in one country (called the home country); but whose operations extend beyond the home country and which carries on business in other countries (called the host countries) in addition to the home country.
Question 9.
Give the meaning of joint venture.
Answer:
When two or more persons join together to carry out a specific business and share the profit predetermined basis, it is known as a joint venture.
Question 10.
State any two benefits of a Joint venture.
Answer:
The benefits of the joint venture are:
(a) Increased Resources and Capacity.
(b) Access to Technology.
Question 11.
State any two merits of government companies.
Answer:
The merits of government companies are:
(a) A government company can be established by fulfilling the requirements of the Indian Companies Act. A separate Act in Parliament is not required.
(b) It has a separate legal entity, apart from the government.
Question 12.
State any two benefits of departmental undertakings.
Answer:
The two benefits of departmental undertakings are:
(a) These ensure a high degree of public accountability.
(b) The revenue earned by the enterprise goes directly to the treasury and hence is a source of income for the government.
Question 13.
State any two merits of a statutory corporation.
Answer:
Two benefits or merits of the statutory corporation are:
(a) They enjoy independence in their functioning and a high degree of operational flexibility.
(b) Since the funds of these organizations do not come from the central budget, the government generally does not interfere in their financial matters.
Four Mark Questions
Question 1.
Briefly explain any four features of departmental undertakings.
Answer:
(a) Formation: These enterprises are established as departments of the ministry and are considered part or an extension of the ministry itself.
(b) Control: The administration of these undertakings is directly under the control of the concerned ministry or minister.
(c) Capital: The required capital is provided by the government in the annual budget.
(d) Income: The income of these departments should be deposited daily into the government treasury.
(e) Management: The employees of the enterprise are government servants and they are headed by Indian Administrative Service (IAS) officers and civil servants who are transferable from one ministry to another.
Question 2.
Briefly explain the merits of departmental undertakings.
Answer:
Departmental undertakings have certain advantages which are as follows:
(a) These undertakings facilitate the Parliament to exercise effective control over their operations.
(b) These ensure a high degree of public accountability.
(c) The revenue earned by the enterprise goes directly to the treasury and hence is a source of income for the government.
(d) Where national security is concerned, this form is most suitable since it is under the direct control and supervision of the concerned Ministry.
Question 3.
Briefly explain any four limitations of departmental undertakings.
Answer:
The limitations of the departmental undertaking are:
(a) Departmental undertakings fail to provide flexibility, Which is essential for the smooth operation of the business.
(b) The employees or heads of departments of such undertakings are not allowed to take independent decisions, without the approval of the ministry concerned. This leads to delays, in matters where prompt decisions are required.
(c) These enterprises are unable to take advantage of business opportunities. The bureaucrat’s over-cautious and conservative approval does not allow them to take risky ventures.
(d) There is red-tapism in day-to-day operations and no action can be taken unless it goes through the proper channels of authority.
Question 4.
Briefly explain any two merits and two limitations of Departmental undertakings.
Answer:
Merits:
(a) These undertakings facilitate the Parliament to exercise effective control over their operations.’
(b) These ensure a high degree of public accountability.
The limitations of the departmental undertaking are:
(a) Departmental undertakings fail to provide flexibility, which is essential for the smooth operation of the business.
(b) The employees or heads of departments of such undertakings are not allowed to take independent decisions, without the approval of the ministry concerned. This leads to delays, in matters where prompt decisions are required.
Question 5.
Briefly explain any four features of a statutory corporation.
Answer:
(a) Formation: Statutory corporations are set up under an Act of Parliament or state legislature. The objectives, powers, duties of these corporations are described in the act.
(b) Governmental control: This type of organization is wholly owned by the state. The government has the ultimate financial responsibility (i.e. liable for all profit or loss).
(c) Management: The day-to-day administration is looked after by the Board of Directors nominated by the government.
(d) Financial autonomy: This type of enterprise is usually independently financed. It obtains funds by borrowings from the government or from the public and other sources. They need not depend on budget allocation.
Question 6.
Briefly explain the limitations of statutory corporations.
Answer:
The limitations of the statutory corporation are:
(a) In reality, a statutory corporation does not enjoy as much operational flexibility as stated above. All actions are subject to many rules and regulations.
(b) Government and political interference has always been there in major decisions or where huge funds are involved.
(c) Where there is dealing with the public, rampant corruption exists.
(d) The government has & practice of appointing advisors to the Corporation Board. This curbs the freedom of the corporation in entering into contracts and other decisions.
(e) If there is any disagreement, the matter is referred to the government for final decisions. This further delays action.
Question 7.
Briefly explain any two merits and two limitations of statutory corporations.
Answer:
The benefits of the statutory corporation are:
(a) They enjoy independence in their functioning and a high degree of operational flexibility. They are free from undesirable government regulation and control.
(b) Since the funds of these organizations do not come from the central budget, the government generally does not interfere in their financial matters, including their income and receipts.
(c) Since they are autonomous organizations they frame their own policies and procedures within the powers assigned to them by the Act. The act may, however, provide a few issues/ matters which require prior approval of a particular ministry.
(d) A statutory corporation is a valuable instrument for economic development. It has the power of the government, combined with the initiative of private enterprises.
Limitations:
(a) In reality, a statutory corporation does not enjoy as much operational flexibility as stated above. All actions are subject to many rules and regulations.
(b) Government and political interference has always been there in major decisions or where huge funds are involved.
Question 8.
State any four features of government companies. (March – S – 2019)
Answer:
(a) Formation: These companies arc formed by the Indian Companies Act, 1956or2013.
(b) Ownership: The ownership of these companies is in the hands of the government’ In total capital, a major portion of the capital not less than 51% is contributed by the government.
(c) Separate entity: They have a separate legal entity, apart from the government.
(d) Government audit: These companies are exempted from the accounting and audit rules and procedures. An auditor is appointed by the central government
(e) Financial autonomy: The government company obtains its funds from government shareholdings and other private shareholders. It is also permitted to raise funds from the capital market.
Question 9.
State the merits of government companies.
Answer:
Merits:
(a) A government company can be established by fulfilling the requirements of the Indian Companies Act. A separate Act in Parliament is not required.
(b) It has a separate legal entity, apart from the government.
(c) It enjoys autonomy in all management decisions and takes actions according to business prudence.
(d) These companies by providing goods and services at reasonable prices are able to control the market and curb unhealthy business practices.
Question 10.
Briefly explain any two merits and two limitations government companies.
Answer:
Merits:
(a) A government company can be established by fulfilling the requirements of the Indian Companies Ack A separate Act in the Parliament is not required.
(b) It has a separate legal entity, Najjar from the government.
Limitation/demerits of government companies.
(a) Since the Government is the only shareholder in some of the companies, the provisions of the Companies Act do not have much relevance.
(b) It evades constitutional responsibility, which a company financed by the government should have. It is not answerable directly to the Parliament.
Question 11.
Briefly explain any four features of Global Enterprises. (March – (N)(S) – 2018)
Answer:
Features:
(a) Huge capital resources: These enterprises are characterized by possessing huge financial resources and the ability to raise funds from different sources. Because of their financial strength, they are able to survive under all circumstances.
(b) 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.
(c) 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 the industrial progress of the country.
(d) 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.
Question 12.
Briefly explain any four benefits of Joint ventures.
Answer:
When two businesses agree to join together for a common purpose and mutual benefit, it gives rise to a joint venture.
The major benefits of joint ventures are as follows:
(a) Increased resources and capacity: When two firms come together, it enables the joint venture company to grow and expand more quickly and efficiently as the new business pools in financial and human resources. It is able to face market challenges and capitalize on new opportunities more effectively.
(b) Access to new markets and distribution networks: When foreign companies form a joint venture with companies in a host country, they gain access to the market of the host country. They can also take advantage of the established distribution channels, i.e. the wholesale and retail outlets in different local markets which may be very expensive for them otherwise.
(c) Access to technology: Most businesses enter into joint ventures to get access to advanced technology which is not possible or economically feasible to be developed on their own. Technology adds to efficiency and effectiveness, thus leading to a reduction in costs and superior quality products.
(d) Innovation: Products become outdated after some time and demand for them starts falling. Consumers have become more demanding in terms of new and innovative products. Joint ventures enable companies to come up with innovative products because of new ideas and technology acquired from the partner in the joint venture.
(e) Low cost of production: When international corporations invest in developing countries through joint ventures, they are able to benefit from the low cost of raw materials and labor. The international partner is thus able to produce the products of required quality and specifications at a much lower cost than what is prevailing in the home country.
(f) Established brand name: When two businesses enter into a joint venture one of the parties benefits from the other’s goodwill already established in the market. In such cases, there is a ready market waiting for the product to be launched which saves expenditure on marketing activities otherwise required to launch a new product.
Question 13.
State any four features of a Joint venture.
Answer:
Features of the joint venture are:
(a) Joint venture is a special partnership without a firm name.
(b) The members of the joint ventures are known as co-ventures.
(c) Joint venture is a temporary business activity.
(d) In a joint venture, profits and losses are shared in an agreed proportion. If there is no agreement, ( Regarding the distribution of profit, they will share profit equally.
(f) Joint venture has no separate legal existence.
(g) Joint venture is usually formed to access new technology and to reach new customers.
(h) Joint venture is usually formed for the purpose of building the companies strength.
Eight Mark Questions
Question 1.
What is Global Enterprise? Explain their features.
Answer:
A global enterprise is one that is incorporated in one country (called the home country); but whose operations extend beyond the home country and which carries on business in other countries (called the host countries) in addition to the home country.
Features:
(a) Huge capital resources: These enterprises are characterized by possessing huge financial resources and the ability to raise funds from different sources. Because of their financial strength, they are able to survive under all circumstances.
(b) 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.
(c) 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 the industrial progress of the country.
(d) 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.
Question 2.
What do you mean by joint ventures? Explain their benefits.
Answer:
When two or more persons join together to carry out a specific business and share the profit predetermined basis, it is known as a joint venture.
When two businesses agree to join together for a common purpose and mutual benefit, it gives rise to a joint venture.
The major benefits of joint ventures are as follows:
(a) Increased resources and capacity: When two firms come together, it enables the joint venture company to grow and expand more quickly and efficiently as the new business pools in financial and human resources. It is able to face market challenges and capitalize on new opportunities more effectively.
(b) Access to new markets and distribution networks: When foreign companies form a joint venture with companies in a host country, they gain access to the market of the host country. They can also take advantage of the established distribution channels, i.e. the wholesale and retail outlets in different local markets which may be very expensive for them otherwise.
(c) Access to technology: Most businesses enter into joint ventures to get access to an advanced technology that is not possible or economically feasible to be developed on their own. Technology adds to efficiency and effectiveness, thus leading to a reduction in costs and superior quality products.
(d) Innovation: Products become outdated after some time and demand for them starts falling. Consumers have become more demanding in terms of new and innovative products. Joint ventures enable companies to come up with innovative products because of new ideas and technology acquired from the partner in the joint venture.
(e) Low cost of production: When international corporations invest in developing countries through joint ventures, they are able to benefit from the low cost of raw materials and labor. The international partner is thus able to produce the products of required quality and specifications at a much lower cost than what is prevailing in the home country.
(f) Established brand name: When two businesses enter into a joint venture one of the parties benefits from the other’s goodwill already established in the market. In such cases, there is a ready market waiting for the product to be launched which saves expenditure on marketing activities otherwise required to launch a new product.
Question 3.
Explain the changing role of the public sector.
Answer:
The public sector had a prominent role before 1991 as discussed below:
(a) Development of infrastructure and heavy industries: At the time of independence, basic infrastructure was not developed and hence industrialization was difficult due to lack of adequate transportation and communication facilities, fuel and energy, and basic and heavy industries. The private sector did not take initiative to invest in heavy industries and infrastructure due to heavy capital requirements and long gestation periods involved in these projects. Therefore, the government took the lead in these projects through public sector enterprises.
(b) Regional balance: After the inception of planning in 1951, the government started paying special attention to those regions which were lagging behind and public sector industries were deliberately set up in those backward regions. Four major steel plants were set up as public sector units in the backward areas to accelerate economic development, provide employment to the workforce and develop ancillary industries.
(c) Economies of scale: Average cost of production is lowered when the scale of production is large. But large scale industries require huge capital outlay and hence the public sector had to step in to take advantage of economies of scale. Units of electric power, natural gas, petroleum, etc. were set up in the public sector as these units required a larger base to function economically which was possible only with government resources and mass production.
(d) Concentration of economic power: At the time of independence, there were very few industrial houses that had the required capital to invest in heavy industries and if public sector units were not established, wealth could get concentrated in a few hands giving rise to monopolistic practices. The public sector ensures that the income and benefits that accrue are shared by a large number of employees and workers.
(e) Self-reliance: One of the major objectives of Five Year Plans was self-reliance. It was difficult to import heavy machinery required for a strong industrial base due to a shortage of foreign exchange. At that time, public sector companies involved in heavy engineering helped in import substitution. Simultaneously, public sector companies like STC and MMTC played an important role in expanding exports of the country.
Question 4.
Explain the government policy towards the public sector since 1991.
Answer:
The government of India introduced four major reforms in the public sector in its new Industrial Policy 1991, which are as follows:
(a) Abolition of industrial licensing: In a major move to liberalize the economy, the new industrial policy abolished all industrial licensing irrespective of the level of investment except for certain industries related to security and strategic concerns, and social reasons.
(b) De-reservation of industries for the public sector: In the 1956, Industrial Policy Resolution, 17 industries were reserved for the public sector. In 1991, only 8 industries were reserved for the public sector, they were restricted to the areas of atomic energy, arms and ammunition, defense, mining, and railways. This meant that the private sector could enter all areas except these eight (now three since 2001) giving competition to the public sector.
(c) Disinvestment of public sector enterprises: Disinvestment involves the sale of equity shares to the private sector and the public. This was done with an aim to raise funds and encourage wider participation of the general public and workers in the ownership of these enterprises. This was expected to result in improved managerial efficiency and financial discipline.
(d) Policy regarding sick units: All public sector units were referred to the Board of Industrial and Financial Reconstruction (BIFR) to decide whether a sick unit was to be restructured or closed down. A National Renewal Fund (NRF) was set up by the government to retrain or redeploy labor retrenched from a sick unit and to provide compensation to public sector employees seeking voluntary retirement.
(e) Memorandum of understanding: Management of public sector units was granted greater autonomy but held accountable for specified results through the signing of Memorandum of Understanding (MoU) between the particular public sector unit and their administrative ministries. Under this system, public sector units were given clear targets and operational autonomy for achieving those targets.
1st PUC Business Studies Private, Public and Global Enterprises Textbook Questions and Answers
Multiple Choice One Mark Questions
Question 1.
A government company is any company in which the paid-up capital held by the government is not less than (March – S – 2018), (March – S – 2019)
(a) 49 percent
(b) 51 percent
(c) 50 percent
(d) 25 percent
Answer:
(b) 51 percent.
Question 2.
Centralized control in MNCs implies control exercised by
(a) Branches
(b) Subsidiaries
(c) Headquarters
(d) Parliament
Answer:
(c) Headquarters
Question 3.
PSEs are organizations owned by
(a) Joint Hindu Family
(b) Government
(c) Foreign companies
(d) Private entrepreneurs
Answer:
(b) Government.
Question 4.
Reconstruction of sick public sector units is taken up by
(a) MOFA
(b) MoU
(c) BIFR
(d) None of the above
Answer:
(c) BIFR.
Question 5.
Disinvestments of PSEs implies
(a) Sale of equity shares to private sector/public
(b) Closing down operations
(c) Investing in new areas
(d) None of the above
Answer:
(a) Sale of equity shares to private sector/public.
Short Answer Questions
Question 1.
Explain the concept of the public sector and private sector.
Answer:
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 is therefore classified into two sectors viz., private sector and public sector.
(a) The 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, cooperative, and company.
(b) 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. State the various types of organizations in the private sector.
Question 2.
Stale the various types of organizations in the private sector.
Answer:
The various types of private sector organizations in India are:
- Sole proprietorship
- Partnership
- Company.
Question 3.
What are the different kinds of organizations that come under the public sector?
Answer:
The forms of organization that a public enterprise may take are as follows:
(a) 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.
(b) 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.
(c) Government company: According to the Indian Companies Act, 1956, a government company means any company in which at least 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.
Question 4.
List the names of some enterprises under the public sector and classify them.
Answer:
Some enterprises under the public sector are:
(a) Indian Railways: Departmental Undertaking.
(b) Indian Post and Telegraph: Departmental Undertaking.
(c) Bharat Heavy Electricals Limited (BHEL): Government Company.
(d) Hindustan Machine Tools Limited (HMT): Government Company.
(e) Bharat Electronics Limited (BEL): Government Company.
(f) Hindustan Aeronautic Limited (HAL): Government Company.
(g) Industrial Finance Corporation of India (IFCI): Statutory Corporation.
(h) Life Insurance Corporation (LIC) of India: Statutory Corporation.
(i) State Trading Corporation: Statutory Corporation.
(j) Karnataka State Financial Corporation (KSFC): Statutory Corporation.
Question 5.
Why is the government company form of organization preferred to other types in the public sector?
Answer:
The government company form of organization is preferred to other types in the public sector because of the following advantages it offers:
(a) 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.
(b) 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.
(c) 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.
(d) Competition: These companies pose a healthy competition to the private sector which ensures the availability of goods and services at reasonable prices and good quality.
Question 6.
How does the government maintain a regional balance in the country?
Answer:
One of the major objectives of planning in India has been that of removing regional disparities. During the pre-independence period, most of the industrial progress was limited to a few areas like the port towns.
After the inception of planning in 1951, the government started paying special attention to those regions which were lagging behind and public sector industries were deliberately set up in those backward regions. Four major steel plants were set up in the backward areas to accelerate economic development, provide employment to the workforce and develop ancillary industries, e.g. with the establishment of the Bhilai Steel Plant in Madhya Pradesh, several new small industries have come up in that state.
The private businessmen hesitate to establish their enterprises in the backward areas due to lack of infrastructure facilities, skilled workforce, etc. but these regions cannot be neglected in the public interest. Therefore, the government located new enterprises in backward areas and at the same time prevented the mushrooming of private sector units in already advanced areas.
Question 7.
State the meaning of public-private partnership.
Answer:
“A long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance”.
Long Answer Questions
Question 1.
Describe the Industrial Policy 1191, towards the public sector.
Answer:
The government of India introduced four major reforms in the public sector in its new Industrial Policy 1991, which are as follows:
(a) Abolition of industrial licensing: In a major move to liberalize the economy, the new industrial policy abolished all industrial licensing irrespective of the level of investment except for certain industries related to security and strategic concerns, and social reasons.
(b) De-reservation of industries for the public sector: In the 1956, Industrial Policy Resolution, 17 industries were reserved for the public sector. In 1991, only 8 industries were reserved for the public sector, they were restricted to the areas of atomic energy, arms and ammunition, defense, mining, and railways. This meant that the private sector could enter all areas except these eight (now three since 2001) giving competition to the public sector.
(c) Disinvestment of public sector enterprises: Disinvestment involves the sale of equity shares to the private sector and the public. This was done with an aim to raise funds and encourage wider participation of the general public and workers in the ownership of these enterprises. This was expected to result in improved managerial efficiency and financial discipline.
(d) Policy regarding sick units: All public sector units were referred to the Board of Industrial and Financial Reconstruction (BIFR) to decide whether a sick unit was to be restructured or closed down. A National Renewal Fund (NRF) was set up by the government to retrain or redeploy labor retrenched from a sick unit and to provide compensation to public sector employees seeking voluntary retirement.
(e) Memorandum of understanding: Management of public sector units was granted greater autonomy but held accountable for specified results through the signing of Memorandum of Understanding (MoU) between the particular public sector unit and their administrative ministries. Under this system, public sector units were given clear targets and operational autonomy for achieving those targets.
Question 2.
What was the role of the public sector before 1991?
Answer:
The public sector had a prominent role before 1991 as discussed below:
(a) Development of infrastructure and heavy industries: At the time of independence, basic infrastructure was not developed and hence industrialization was difficult due to lack of adequate transportation and communication facilities, fuel and energy, and basic and heavy industries. The private sector did not take initiative to invest in heavy industries and infrastructure due to heavy capital requirements and long gestation periods involved in these projects. Therefore, the government took the lead in these projects through public sector enterprises.
(b) Regional balance: After the inception of planning in 1951, the government started paying special attention to those regions which were lagging behind and public sector industries were deliberately set up in those backward regions. Four major steel plants were set up as public sector units in the backward areas to accelerate economic development, provide employment to the workforce and develop ancillary industries.
(c) Economies of scale: Average cost of production is lowered when the scale of production is large. But large scale industries require huge capital outlay and hence the public sector had to step into taking advantage of economies of scale. Units of electric power, natural gas, petroleum, etc. were set up in the public sector as these units required a larger base to function economically which was possible only with government resources and mass production.
(d) Concentration of economic power: At the time of independence, there were very few industrial houses that had the required capital to invest in heavy industries and if public sector units were not established, wealth could get concentrated in a few hands giving rise to monopolistic practices. The public sector ensures that the income and benefits that accrue are shared by a large number of employees and workers.
(e) Self-reliance: One of the major objectives of Five Year Plans was self-reliance. It was difficult to import heavy machinery required for a strong industrial base due to a shortage of foreign exchange. At that time, public sector companies involved in heavy engineering helped in import substitution. Simultaneously, public sector companies like STC and MMTC played an important role in expanding exports of the country.
Question 3.
Can the public sector companies compete with the private sector in terms of profits and efficiency? Clive reasons for your answer.
Answer:
It is difficult though not impossible for the public sector companies to compete with the private sector in terms of profits and efficiency due to the following reasons:
(a) Difference in objective: Private sector firms operate with the objective of profit maximization while public sector companies have social welfare as the prime objective and hence they cannot be completely profit-oriented.
(b) Difference in ownership: The government is the sole or major shareholder in public sector companies. The management and administration of these companies, therefore, rests in the hands of the government which may not make economically sound policies due to political considerations.
(c) Difference in management: Public sector companies are managed by government officials who may not be professionally trained while private sector companies are run and managed by professional managers. This leads to higher efficiency in the private sector.
(d) Difference in area of operation: Private sector operates in all areas with an adequate return on investment while the public sector operates mainly in basic and public utility sectors where returns are not very high.
Question 4.
Give the meaning of global organization. Why are global enterprises considered superior to other business organizations?
Answer:
Global enterprises are large industrial organizations that 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:
(a) 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.
(b) 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 the case of the joint venture.
(c) Advanced technology: Global enterprises conform to international standards and quality specifications as they possess superior technologies and methods of production.
(d) Research and development: 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.
(e) 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.
(f) 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.
Question 5.
What are the benefits of entering into joint ventures and public-private partnerships?
Answer:
The major benefits of joint ventures and public-private partnership are as follows:
(a) Increased resources and capacity: When two firms come together, it enables the joint venture company to grow and expand more quickly and efficiently as the new business pools in financial and human resources. It is able to face market challenges and capitalize on new opportunities more effectively.
(b) Access to new markets and distribution networks: When foreign companies form a joint venture with companies in a host country, they gain access to the market of the host country.
They can also take advantage of the established distribution channels i.e., the wholesale and retail outlets in different local markets which may be very expensive for them otherwise.
(c) Access to technology: Most businesses enter into joint ventures to get access to an ad¬vanced technology that is not possible or economically feasible to be developed on their own. Technology adds to efficiency and effectiveness, thus leading to a reduction in costs and superior quality products.
(d) Innovation: Products become outdated after some time and demand for them starts falling. Consumers have become more demanding in terms of new and innovative products. Joint ventures enable companies to come up with innovative products because of new ideas and technology acquired from the partner in the joint venture.
(e) Low cost of production: When international corporations invest in developing countries through joint ventures, they are able to benefit from the low cost of raw materials and labor. The international partner is thus able to produce the products of required quality and specifications at a much lower cost than what is prevailing in the home country.
(f) Established brand name: When two businesses enter into a joint venture one of the par¬ties’ benefits from the other’s goodwill already established in the market. In such cases, there is a ready market waiting for the product to be launched which saves expenditure on marketing activities otherwise required to launch a new product.