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Chapter 3: Private Public and Global Enterprises
You must have come across all types of business organizations in your daily life. In your neighborhood market, there are shops owned by sole proprietors or big retail organizations run by a company.
Then there are people providing you services like legal services, and medical services are owned by more than one person i.e., partnership firms.
These are all privately owned organizations. Similarly, there are other offices or places of business that may be owned by the government.
For example, Railways is an organization wholly owned and managed by the government.
The post office, in your locality, is owned by the Post and Telegraph Department, Government of India, through our dependence on their postal services, particularly in cities and towns has been greatly reduced.
This is because of plenty of private courier services firms operating in bigger towns. Then there are businesses that operate in more than one country known as global enterprises.
Therefore, you may have observed that all types of organizations are doing business in the country whether they are public, private, or global.
The private sector consists of businesses owned by individuals or a group of individuals, as you have learned in the previous chapter.
The various forms of organization are sole proprietorship, partnership, joint Hindu family, cooperative, and company.
The public sector consists of various organizations owned and managed by the government.
These organizations may either be partly or wholly owned by the central or state government. They may also be a part of the ministry or come into existence by a Special Act of the Parliament.
The government, through these enterprises, participates in the economic activities of the country.
The government in its industrial policy resolutions, from time to time, defines the area of activities in which the private sector and public sector are allowed to operate.
In the Industrial Policy Resolution 1948, the Government of India specified the approach toward the development of the industrial sector.
The roles of the private and public sectors were clearly defined and the government through various Acts and Regulations was overseeing the economic activities of both the private and public sectors.
The Industrial Policy Resolution, of 1956 also laid down certain objectives for the public sector to follow so as to accelerate the rate of growth and industrialization.
The public sector was given a lot of importance but at the same time, mutual dependency of public and private sectors was emphasized. The 1991 industrial policy was radically different from all the earlier policies where the government was deliberating disinvestment of the public sector and allowing greater freedom to the private sector.
At the same time, foreign direct investment was invited from business houses outside India. Thus, multinational corporations or global enterprises which operate in more than one country gained entry into the Indian economy.
Thus, we have public sector units, private sector enterprises, and global enterprises coexisting in the Indian economy.
3.3 Forms of Organising Public Sector Enterprises Government’s participation in the business and economic sectors of the country needs some kind of organizational framework to function.
You have studied the forms of business organization in the private sector viz., sole proprietorship, partnership, Hindu undivided family, cooperative, and company.
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NCERT Solutions Class 11 Business Studies Chapter 3 Private Public and Global Enterprises
1. Describe the industrial policy of 1991, towards the public sector?
Following reforms were introduced in the Industrial Policy, 1991 for the public sector.
1. Dereservation: In 1991, only 8 industries were reserved for the public sector which included arms and ammunition, defense, atomic energy, mining and railways. All other sectors were opened for the private sector to participate in.
2. Disinvestment of Public Sector Enterprises: This process involved selling a portion of equity or controlling stock to the general public and private sector.
The motive behind such a decision was to encourage the participation of private enterprises and the general public for ownership of the public enterprises.
3. Policy to deal with Sick units: This policy dealt mainly with restructuring or closing of the sick public sector units.
For determining which units should be restructured and which one to close down, they were referred to the Board of Industrial and Financial Reconstruction (BIFR), and a National Renewal Fund (NRF) was created by the government to help retrain or deploy a workforce that is retrenched from a sick unit and also to provide compensation to employees seeking voluntary retirement.
4. Memorandum of Understanding: This process helped grant more autonomy to the public sector units and also made them accountable for the results produced. The MoU was signed between the public sector unit and the related ministries. The public sector units were given clearly defined targets and a fully operational autonomy to achieve that target.
2. What was the role of the public sector before 1991?
Following was the role of the public sector before 1991:
1. Developing Heavy Industries and Infrastructure: The infrastructure of the country had not developed before 1991. There were fewer industries and also a lack of heavy industries. The government in form of public sector industries took the initiative to start such projects.
2. Maintaining Regional Balance: After setting up the planning commission, the government started concentrating on development of rural and backward areas and as result four steel plants were setup in rural areas to encourage economic growth of the region and provide employment to the population.
3. Maintaining economies of scale: The cost of production will be low when it is produced in bulk, but bulk production requires a huge amount of capital. Electricity, natural gas, and petroleum were the industries chosen by the government for mass production. it helped balance the economies of scale.
4. Economic Power: After independence few industries existed and starting a new venture required huge capital, in this stage if public sector units were not established, then the wealth would have become concentrated in few hands which would have given rise. The public sector ensured that benefits should be enjoyed by a large number of people.
5. Self-Reliance: Heavy machinery was required for a strong industrial base. The government selected enterprises like STC helped in efforts of expansion and creation of heavy machinery and metal industries domestically. It drastically reduced the imports and created a self-reliance for goods.
3. Can the public sector companies compete with the private sector in terms of profit and efficiency? Give reasons for your answer.
Public sector and private sector operate differently and hence it will be difficult for public sector to match up in profit and efficiency due to the following reasons:
1. Public sector operate for social welfare whereas private sector operate for profit maximisation, hence it will be tough to compete
2. As the ownership rests with the government, many of the decisions will be taken based on political considerations instead of getting more profit.
3. Employees are less efficient in public sectors as there involves many rules and regulations, while it is more performance oriented in private sector.
4. Public sector are slower to embrace new technologies while private sector is a fast mover.
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