Chapter 3 Private, Public and Global Enterprises NCERT SOLUTION CLASS 11 Business Studies/ EDUGROWN NOTES

Short Answer Type Question:

Q.1 Explain the concept of public sector and private sector?

ANSWER: The private sector refers to the portion of the economy that is owned and controlled by people or businesses for the sole purpose of profit. To put it another way, it refers to all organisations that are not directly owned or run by the government. The private sector employs a substantial percentage of the workforce in most free economies (where the government plays a little role). 

The following are the many sorts of businesses that make up the private sector.

• Partnership
• Joint Hindu Family
• Cooperative societies
• Sole proprietorship

The public sector is made up of organisations that are owned and run directly by the government. Bharat Heavy Electricals Ltd, Oil India Ltd, and Life Insurance Corporation of India are examples of public sector enterprises that are partially or entirely controlled by the national or state government.

Q.2 State the various types of organisations in the private sector.

ANSWER: Commercial firms held by an individual or a group of individuals make up the private sector. Profitability is the primary goal of the private sector. Individual investments or shareholder contributions are used to raise funds. 

It mostly consists of:

• Sole Proprietorship: It is a type of business in which a single person owns the whole company. He is in charge of managing, controlling, and bearing all of the business’s risks.
• Partnership: A partnership is described as a group of two or more people who agree to run a business together, share the profits, and share the risks.
• Joint Hindu Family: This business is owned and operated by a Hindu Undivided Family that is regulated by Hindu Law.
• Company: A company is an artificial person that exists only in the eyes of the law, has perpetual succession, and has its own legal entity and common seal. It is divided into two categories: 
  • Private and 
  • Public.
• Multinational Corporations: Multinational corporations have operations in one or more countries other than their home country. Take, for example, Google.
  

Q.3 What are the different kinds of organisations that come under the public sector?

ANSWER: The public sector is made up of organisations that are owned and run directly by the government. These organisations are either completely or partially controlled by the government. 

The many types of public sector organisations are listed below:

• Departmental undertakings: These businesses are run as ministry divisions and are regarded as an extension of the ministry. These businesses might be run by the federal or state governments. Railways is an example under this.
• Statutory corporations: Statutory companies are public corporations created by a Special Act of Parliament that establishes their powers and functions. It is a legislatively constituted, financially independent corporate entity that has unambiguous authority over a certain region or kind of business activity.
• Government companies: A government company, according to the Companies Act of 1956, is one in which the Central Government, any State Government, or a combination of the Central Government and one or more State Governments owns at least 51 percent of the paid-up capital. These are just for the purpose of conducting business.
  

Q.4 List the name of some enterprises under the public sector and classify them.

ANSWER: Following are the lists of some enterprises under the public sector and their classifications:

• Departmental undertakings: Posts and Telegraphs, Indian Railways
• Government company: Bharat Heavy Electricals Ltd, Hindustan Machine Tools Ltd.
• Statutory corporations: Food Corporation of India (FCI), Life Insurance Corporation of India (LIC).
  

Q.5 Why is the government company form of organisation preferred to other types in the public sector?

ANSWER: A government business must have at least 51 percent of its shares owned by either the federal or state government. The Indian Companies Act of 1956 gave birth to this business structure. 

The following are the reasons why the government-company structure is chosen above alternative public-sector structures.

• In all management activities and decision-making procedures, a government firm has complete autonomy.
• It is not subjected to excessive intervention in its activities by the relevant department.
• It is a separate entity from the government, i.e., a government corporation is not the same as the government.
• It offers affordable prices for goods and services while also ensuring safe marketing practises.
  

Q.6 How does the government maintain a regional balance in the country?

ANSWER: The government maintains regional balance in the country by giving special attention to regions that are falling behind, and public sector companies have been purposefully established. This aids in the creation of job possibilities as well as the economic development and expansion of rural and underdeveloped areas. At the same time, the government works to limit the expansion of private-sector businesses in previously developed regions.

Q.7 State the meaning of public private partnership. 

ANSWER: Public- private partnership refers to the long term involvement and the participation of the private sector in the government based projects, wherein both, the public and private sector share costs, risks, finances, tasks, obligations, and technology with each other. However, normally the technical skills, and finances of the private sector are taken advantage of in the PPPs. 

In this, the public partners can be  ministries and government departments, whereas the private sector can be business, or investors with technical expertise.  Power generation, infrastructure, water, railways, hospitals, are some areas of PPPs.

Q.8 Describe the industrial policy 1991 , towards the public sector?

ANSWER: In terms of the public sector, the industrial policy of 1991 is as follows:

• Reduction in the number of industries reserved for the public sector: 17 industries were set aside for the public sector in a 1956 resolution on industrial policy. In 1991, industrial policy decreased this number to eight. A review of the programme was conducted in 2001, and just three industries are currently designated for the public sector. Only atomic energy, weapons, and rail transportation are now considered public goods.
• Disinvestment of shares of the selected public sector enterprises (PSEs): Disinvestment is the selling of equity shares to the private and public sectors. The goal was to collect funds and encourage broader involvement in the ownership of these businesses by the general public and workers. The government has decided to pull out of the industrial sector and cut its stake in all businesses. It was anticipated that this would result in improved management performance and budgetary discipline.
• Policy Regarding Sick Units: The PSUs were to be treated as if they were private businesses. A sick PSU was sent to BIFR, which had to decide whether or not the PSU should be restarted. Workers at firms that had to close down felt a great deal of anger. The government, on the other hand, devised appropriate measures for the rehabilitation and financial recompense of those workers.
• Memorandum of Understanding: New Memorandums of Understanding (MOUs) were signed between management and the ministries in question. These MOUs gave management more authority and set defined targets, allowing them to enhance performance.
  

Q.9 What was the role of the public sector before 1991 ?

ANSWER: The role of the public sector before 1991 are as followings:

• Development of Infrastructure: Communication, transportation, energy supply, and financial infrastructure are all essential for industrial development. The private sector showed little interest in investing in heavy industries or developing them in any way since they lacked the qualified personnel and financial resources to build heavy industries quickly, as the economy demanded. As a result, only the public sector was capable of mobilising the massive sums of money necessary. As a result, this sector has been tasked with constructing infrastructure.
• Maintaining Regional Balance: During the 1960s and 1970s, India had severe regional development inequalities. Some parts of the country were far more developed than others. The nation’s growth and development were hampered by regional inequalities. Public sector enterprises (PSEs) were established in backward and rural regions to achieve regional balance. These PSEs not only supplied jobs, but also aided the growth of supporting sectors in these regions, such as banking and transportation.
• Economies of Scale: Natural gas and petroleum sectors, for example, profit from economies of scale (benefits derived from them are greater when operated on a large scale). The private sector was not large enough to operate these large-scale businesses in the years after independence since they required substantial capital expenditures. Small-scale operation of these industries was not an option since it would have resulted in Losses. As a result, the government was forced to create and run these businesses.
• Import Substitution and Exports: One of the main goals of India’s economic planning was to achieve self-sufficiency. The goal was to limit imports while increasing exports at the same time. As a result, PSEs were formed to produce heavy machinery and engineering items in the country, limiting imports. Simultaneously, PSEs such as the Metals and Minerals Trading Corporation of India (MMITC) and the State Trading Corporation (STC) were created with the goal of increasing exports.
• Check Over Concentration of Economic Power: The public sector keeps the private sector in check. Due to the concentration of wealth in a few hands in the private sector, only a few industrial firms were ready to engage in heavy industries. Inequalities in income arise as a result of this. As a result, the public sector is able to establish huge businesses that need significant investment, and the resulting revenue and benefits are shared among a large number of employees and workers.
  

Q.10 Can the public sector companies compete with the private sector in terms of profits and efficiency? Give reasons for your answer.

ANSWER: Because of the following factors, it is extremely difficult for public sector companies to compete with the private sector in terms of profits and efficiency: 

• Difference in Objective: A private company’s primary goal is to make a profit, whereas public sector companies’ primary goal is to provide social welfare, and thus they cannot be completely profit oriented.
• Difference in Ownership: In public sector firms, the government is the single or primary shareholder. As a result, these firms’ management and administration are in the hands of the government, which may not implement economically effective policies owing to political concerns.
• Management Differences: Public-sector firms are run and managed by government officials who may or may not have had professional training, whereas private-sector companies are run and managed by professionals. In the private sector, this leads to increased efficiency.
• Operational Differences: The private sector operates in all areas with a reasonable return on investment, whereas the public sector mostly engages in the basic and public utility sectors, which have low returns.
  

Q.11 Why are global enterprises considered superior to other business organisations?

ANSWER: MNCs are regarded superior to other business organisations because they have:

• Huge Capital Resources: MNCs have enormous capital resources since they can generate capital from all over the world. They may borrow from worldwide banks and a big number of investors who are prepared to invest in them for significant profits because of their goodwill.
• International Collaborations: Multinational corporations (MNCs) typically join the market with the assistance of local private firms. This is mostly due to regulatory limitations put on them, as well as to capitalise on the Indian company’s brand image.
• Product Innovation: Multinational businesses have fine-tuned their research and development centres for new product creation. This enables them to remain competitive and keep their big customer base.
• Marketing Tactics: Global firms’ marketing strategies are considerably more successful than those of other companies. They employ aggressive marketing techniques to boost sales in a short amount of time. They have a more trustworthy and up-to-date market intelligence system, as well as more successful advertising and sales promotion tactics.
• Market Expansion: Their operations and activities extend beyond the physical borders of their respective countries. Their worldwide image improves, and their market region increases, allowing them to establish themselves as global brands.
• Centralised Control: They have a headquarters in their native nation and control all of its branches and subsidiaries. This control, however, is restricted to the parent company’s wide policy framework. There are no delays or disruptions in regular operations.
  

Q.12 What are the benefits of entering into joint ventures?

ANSWER: The following are some of the advantages of forming a joint venture:

• Increased Resources and Capacity: In a joint venture, the separate businesses’ resources and operational capacities are combined. A joint venture has a stronger ability to extend and flourish than a single firm.
• Access to New Markets and Distribution Networks: Forming a joint venture with a company in another location expands the market base for each of the companies involved.
• Technology Access: A joint venture allows a firm to obtain new and current technology with less money, time, and effort than it would be possible for individual businesses to do so on their own.
• Innovation: A joint venture, particularly one with a foreign partner, provides a company with fresh ideas and technology that aids in the development of new goods. In today’s complicated and competitive economy, these innovative tools help firms stay afloat.
• Cheap Cost of Production: In comparison to other nations, India’s raw material and labour prices are quite low. As a result, multinational firms who form joint ventures with Indian companies gain greatly.
• Established Brand Name: When two companies form a joint venture, one of them benefits from the goodwill of the other, which has already been established in the market.
  

Q.13 Make a list of Indian companies entering into joint ventures with foreign companies. Find out the apparent benefits derived out of such ventures.

ANSWER: The list of companies are:

• Tata Sons and Singapore Airlines joint venture into Vistara
• Bharti Enterprises (India) and French insurance major AXA, for the creation of Bharti AXA General Insurance Corporation Limited.
• Hindustan Aeronautics Limited
•  Network 19 Media and investments
• Brahmos Aerospace
• Green Gas Ltd
• Suntera Nigeria 205 Limited
• Tata Global Beverages
• Fratelli Wines
• Mahindra-Renault Ltd
• AirAsia India
  

The benefits derived from such ventures are:

• Risk and cost spread.
• Economies of scale
• Access to new, improved, high-end technology.
• Access to better, and innovative managerial practices.
• Competitive advantage
• Access to new markets.
• Access to new distribution channels
• Better utilization of resources that strengthen the firm.
• The firm gets advantage from the goodwill and reputation of the other firm in the joint venture.
• Better use of financial resources.
• Higher profitability and market position due to higher efficiency, better technology, low costs.

Long Answer Type Question:

Q.1 Describe the Industrial Policy 1991, towards the public sector.
Answer: Development of a country originates from industrial development. Industrially developed countries are also economically prosperous. The 2nd Five Year Plan also called the Mahalnobis Model lead to the promotion of heavy and key industries in India. The period 1950 onwards witnessed development of infrastructure, research and development, establishment of large scale along with many small scale industries, co-existence of public and private sector enterprises, growth of both consumer and capital goods industries. The industrial sector made a significant contribution to agriculture and trade.
The industrial policy plays a key role in influencing the foreign trade policy, fiscal policy, the monetary policy, the economic policy of the country. Government of India declared its 1st Industrial Policy Resolution (IPR) in 1948. It divided the industries into four categories.

1. Industries that were to be state monopolies. These were limited to atomic energy, arms and ammunition and railways (3 in all).
2. Basic industries in which the state would have the exclusive right to new investment- 6 industries were included in this – iron and steel, shipbuilding, mineral oils, coal, aircraft production and telecommunication equipments.
3. Industries of national importance that the state might regulate and license in consultation with state government. 18 industries were placed in this category.
4. All other industries would be opened to the private sector without constraints. IPR 1948 remained in force till 1956. Two developments had taken place. One; the first plan which was initiated in 1951 was completed. Second, Parliament accepted the socialistic pattern of society. This led to IPR 1956.

Special features of IPR 1956 were as follows:

1. Specific and all-important roles assigned to the public sector – all industries were classified into 3 groups. These groups were called schedules A,B,C.
   • Schedule A – Exclusive responsibility of state. There were 17 industries in this.
   • Schedule B – Progressively state-owned – 12 industries.
   • Schedule C – Generally left to private sector. The state reserved the right to enter this if need be.
2. Protection to cottage and small scale industries.
3. Cautious approach towards foreign capital.
   IPR 1956 remained the basis of industrial policy till 1991.

Q.2 What was the role of the public sector before 1991?
Answer: Before 1991, public sector was supposed to perform the following role in India:

1. Rapid Economic Development: It was required to make efforts so that the rate of economic development accelerates.
2. Provision of Infrastructure: Another expectation from public sector was to provide infrastructure in the form of better roads, more hospitals, more schools, better irrigation facilities etc.
3. Sound Industrial Base: We also needed public sector to develop a sound industrial base because Private Sector either did not have huge capital required for these or were not interested in this sector as they had a long gestation period.
4. Development of Backward Regions: Public sector also aimed at developing backward regions as it is necessary for the balanced development of a country. Private sector being profit minded does not take interest in investing in backward regions.
5. Generation of Surplus: Another expectation from public sector was to generate a surplus that could be used for investment in other sectors whereby the growth rate could be accelerated.
6. Creation of Employment Opportunities: Public sector also played its role in creating employment opportunities in organized sector so that poverty can be reduced and standard of living can be enhanced.
7. Control of Monopoly and Restrictive Trade Policies: Public sector also aimed at controlling monopoly and restrictive trade policies. Otherwise few private industrialists would have gained extreme economic power. It could be harmful for the nation as a whole.
8. Serving of Strategic National Interests: Public sector also plays its role in serving strategic national interests. They provide law and order, administrative services, police, defence, and many infrastructural facilities even when they are not given any profit as such in monetary terms.

Q.3 Can the public sector companies compete with the private sector in terms of profits and efficiency? Give reasons for your answer.
Answer: It is difficult for a public sector undertaking to compete with a private sector undertaking in terms of profits due to following reasons:

1. Motive of public sector is not profit: Public sector works not for profit but for social welfare. It gives first priority to social welfare then it is almost impossible for it to compete with private sector enterprise on the basis of profit which mainly works for profit only.
2. Public sector takes care of strategic industries: Public sector invests in strategic areas even when these industries have low return generating capacity and long gestation period. These industries do not give monetary returns but if we consider their return in development of our economy otherwise their return is really high.
3. Public sector provides many facilities free of fast to the weaker section of society:
   We can’t expect a government hospital or a government school to generate profits. Many public sector undertakings provide many facilities for free or at a very low cost due to the benefits that it gives to other sectors of the society.

It is difficult for a public sector undertaking to compete with a private sector undertaking in terms of efficiency due to following reasons:

1. Dependence on authorities for taking minor decisions: Public Sector undertakings follow a protocol for everything. It leads to delay in decision making and inefficiency in operations.
2. Job security: Workers of Public Sector enjoy job security. It reduces their performance as they know that in spite of bad performance there is no fear of losing job.
3. Red tapism and bureaucracy: In public sector undertakings there is red tapism and bureaucracy. It leads to inefficiency in operations.

Q.4 Why are global enterprises considered superior to other business organizations?
Answer: Global enterprises are considered superior to other business organizations because it
has following advantages which other business organizations may not have.

1. Huge capital resources: MNCs possess huge capital resources and they are able to raise lot of funds from various sources.
2. International operations: A MNC has production, marketing and other facilities in several countries.
3. Centralized control: MNCs have headquarters in their home countries from where they exercise their control over all branches and subsidiaries. It provides only broad policy, framework to them and there is no interference in their day to day operations.
4. Foreign collaboration: Usually they enter into agreements relating to sale of technology, production of goods, use of brand name etc. with local firms in the host country
5. Advanced technology: These organisations possess advanced and superior technology which enable them to provide world class products and services.
6. Product innovations: MNCs have highly sophisticated research and development departments. These are engaged in developing new products and superior design of existing products.
7.  Marketing strategies: MNCs use aggressive marketing strategies. Their brands are well known and spend huge amounts on advertising and sale promotion.

Q.5 What are the benefits of entering into joint ventures?
Answer: Benefits of joint ventures are as follows:

1. Greater resources and capacity: In a joint venture the resources and capacity of two or more firms are combined which enables it to grow quickly and efficiently.
2. Access to advanced technology: It provides access to advanced techniques of production which increases efficiency and then helps in reduction in cost and improvement in quality of product.
3.  Access to new markets and distribution network: A foreign company gains access to the vast Indian market by entering into a joint venture with Indian company. It can also take advantage of the well established distribution system of local firms.
4. Innovation: Foreign partners in joint ventures have the ideas and technology to develop innovative products and services. They have an advantage in highly competitive and demanding markets.
5. Low cost of Production: Raw materials and labour are comparatively cheap in developing countries so if one partner is from developing country they can be benefited by the low cost of production.
6. Well known brand names: When one party has well-established brands and goodwill, the other party gets its benefits. Products of such brand names can be easily launched in the market.