Chapter 3 Private Public and Global Enterprises Solutions
Question - 1 : - Explain the concept of private sector and public sector?
Answer - 1 : -
Private Sector: The private sector comprises of businesses that are owned by one or a group of individuals. The sole purpose of a private sector enterprise is to earn profit. There are many types of organisations under private sector and they are:
1. Sole proprietorship
2. Partnership
3. Joint Hindu Family
4. Cooperative societies
5. Company (LLP, LLC)
Public Sector: The public sector comprises of organisations that are partly or wholly owned by government. The government may have a 51% controlling stake in the organisation. These types of organisations might have come into existence by some special act of the Parliament. By involvement with public sector, the government participates in the economic activities of the country.
Question - 2 : - State the various types of organisations in the private sector.
Answer - 2 : -
The sole purpose of a private sector enterprise is to earn profit. There are many types of organisations under private sector and they are:
1. Sole proprietorship
2. Partnership
3. Joint Hindu Family
4. Cooperative societies
5. Company (LLP, LLC)
Question - 3 : - What are the different kinds of organisations that come under the public sector?
Answer - 3 : -
The public sector consists of organisations that are either wholly or partially under government control. The following are the various forms of public sector organisations.
1. Public corporations or statutory corporations
2. Departmental undertakings
3. Government company
Question - 4 : - List the name of some enterprises under the public sector and classify them.
Answer - 4 : -
1. Departmental Undertaking: Indian Post and Telegraph
2. Government Company: Steel Authority of India Limited (SAIL)
3. Statutory Corporation: Life Insurance Corporation (LIC) of India
Question - 5 : - Why is the government company form of organisation preferred to other types in public sector?
Answer - 5 : -
Government company form of organisation is preferred because of the following benefits it offers:
1. A government company can be formed easily as there is no requirement of passing a bill in Parliament. It is created by following the procedure as mentioned in Indian Companies Act, 1956.
2. There is maximum autonomy in the way all the decision making is done in a government company
3. There is more efficiency in managing the business as the government company is more accountable than other public enterprise forms and the annual report gets presented in both houses of parliament.
4. Provides a good competition to the private sector businesses and thereby ensuring that goods are available at reasonable prices.
Question - 6 : - How does the government maintain a regional balance in the country?
Answer - 6 : -
Government maintains regional balance in the following ways:
1. The Indian Government established major steel plants in rural areas with the vision of developing the backward areas and make the people living there earn a source of employment.
2. Similar to steel plants, many other industries are setup which provide employment opportunities
3. The development of industries also led to the development of other sectors associated with which helped in bringing prosperity to the country.
4. The direct impact of setting up industries was the development of the region which resulted better roads, infrastructure development, bridges and rail connectivity, thereby connecting all parts of India.
Question - 7 : - State the meaning of public private partnership.
Answer - 7 : -
It refers to an arrangement where partnership forms between public sector and private sector. In such a partnership the obligations, responsibility, tasks and risks are allocated between public and private sector. The public partner includes government departments, organisations and the private partner may include local business houses or foreign organisations.
Question - 8 : - Describe the industrial policy 1991, towards the public sector?
Answer - 8 : -
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, defence, 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 the selling a portion of equity or controlling stock to the general public and private sector. The motive behind such a decision was to encourage participation of private enterprises and 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 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 clear defined targets and a fully operational autonomy to achieve that target.
Question - 9 : - What was the role of the public sector before 1991?
Answer - 9 : -
Following were the role of public sector before 1991:
1. Developing Heavy Industries and Infrastructure: Theinfrastructure of the country had not developed before 1991. There were lessindustries and also lack of heavy industries. The government in form of publicsector industries took the initiative to start such projects.
2. Maintaining Regional Balance: After setting up planningcommission, the government started concentrating on development of rural andbackward areas and as result four steel plants were setup in rural areas toencourage economic growth of the region and provide employment to thepopulation.
3. Maintaining economies of scale: The cost of production willbe low when it is produced in bulk, but bulk production requires huge amount ofcapital. Electricity, natural gas and petroleum were the industries chosen bygovernment for mass production. it helped balance the economies of scale.
4. Economic Power: After independence few industries existed andstarting a new venture required huge capital, in this stage if public sectorunits were not established, then the wealth would have become concentrated infew hands which would have given rise. The public sector ensured that benefitsshould be enjoyed by a large number of people.
5. Self-Reliance: Heavy machinery was required for a strongindustrial base. The government selected enterprises like STC helped in effortsof expansion and creation of heavy machinery and metal industries domestically.It drastically reduced the imports and created a self-reliance for goods.
Question - 10 : - Can the public sector companies compete with the private sector in terms of profit and efficiency? Give reasons for your answer.
Answer - 10 : -
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.