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The government is responsible for developing all regions of a country. Earlier, most of the development was limited to few areas like port towns. For providing employment to the people and for accelerating the economic development of backward areas many industries were set up by public sector in those areas. 

1. Four major steel plants “were set up in the backward areas to accelerate economic development. 

2. The government also makes efforts to prevent mushrooming growth of private sector units in already advanced regions. 

3. Government provided many incentives to private sector like tax concessions, loan at cheap rate of interest etc. to motivate them to set up industries in backward regions.

Private sector consists of business owned by individuals or a group of individuals. Examples of private sector include sole proprietorship, partnership, Joint Hindu Family system, cooperative and company. On the other hand, the public sector consists of various organizations owned and managed by the government, owned 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. 

Public sector works for social welfare while private sector works for profit motive. Public sector organizations may take form of departmental undertaking, statutory corporation and a government company. Private sector may take form of sole proprietorship, partnership, Joint Hindu Family, company or a cooperative.

(a) Life Insurance Corporation Limited 

Following are the different kinds of organizations that come under the private sector. 

1. 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. 

2. 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. 

3. 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.

Various types of organizations in the private sector include: 

1. Sole Proprietorship: Sole proprietorship refers to a form of business organization which is owned, managed and controlled by an individual who is the recipient of all profits and bearer of all risks. 

2. Hindu Undivided Family Business: It refers to a form of organization wherein the business is owned and carried by the members of the Hindu Undivided Family (HUF). 

3. Partnership: Partnership is the relation between persons who have agreed to share the profit of the business carried on by all or any one of them acting for all. 

4. Cooperative Society: Cooperative society is a voluntary association of persons, who join together with the motive of welfare of the members. 

5. Joint Stock Company: A company is an association of persons formed for carrying out business activities and has a legal status independent of its members. 

6. Multinational Corporations: An MNC is a company whose business operations extend beyond the country in which it has been incorporated.

(c) Headquarters 

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, ship building, 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 that 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 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 schedule 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.

Multinational Company may be defined as a company that has business operations in several countries by having its factories, branches or offices in those countries. But it has its head quarter in one country in which it is incorporated. Example: GEC, IBM, PHILIPS, COCACOLA etc.

Features

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. Centralised control: MNCs have headquarters in their home countries from where they exercise 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.

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.

(b) Board of Industrial and Financial Reconstruction 

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.

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.

The role and importance of public sector changed with passage of time. 

1. Development of infrastructure: At the time of independence, India suffered from an acute shortage of heavy industries such as engineering, iron and steel, oil refineries, heavy machineries, etc. Because of huge investment requirement and long gestation period, private sector was not willing to enter these areas. The duty of development of basic infrastructure was assigned to public sector which it discharged quite efficiently. 

2. Regional balance: Earlier, most of the development was limited to a few areas like port towns. For providing employment to the people and for accelerating the economic development of backward areas many industries were set up by public sector in those areas. 

3. Economics of scale: In certain industries (like electric power plants, natural gas, petroleum, etc) huge capital and large base are required to function economically. Such areas were taken up by public sector. 

4. Control of monopoly and restrictive trade practices: These enterprises were also established to provide completion to private sector and to check their monopolies and restrictive trade practices. 

5. Import substitution: Public enterprises were also engaged in production of capital equipments which were earlier imported from other countries. At the same time public sector companies like STC and MMTC have played an important role in expanding exports of the country. Very important role was assigned to public sector but its performance was far from satisfactory which forced government to do rethinking on public enterprises.

Yes, I agree that Multinational Companies have done more harm than good. It is clear from the following disadvantages which it is creating for the economy. 

1. It disregards national priorities. 

2. It leads to creation of monopoly. 

3. It leads to depletion of natural resources. 

4. It leads to technology obsolete . 

5. It creates threat to national sovereignty.

MNC’s are in a position to exercise massive control on an economy because of the following reasons:

• MNC’s are characterised by possessing huge financial resources. These huge financial resources give them economic power in the economy. They can afford to survive even during losses as well. 
• MNCs possess technological superiorities and are capable of conform to international standards and quality specifications. 
• They make use of aggressive marketing strategies for their products. 
• They have an established brand image in the market.

Reconstruction of sick public sector units is taken up by (c) BIER

The statement is absolutely correct that global enterprises are giant both in size and operations. 

1. It has huge capital resources. 

2. It involves foreign collaboration. 

3. It uses advanced technology. 

4. It leads to product innovation. 

5. It makes use of marketing strategies. 

6. It leads to expansion of market territory. 

7. It makes use of centralized control.

The changing role of public sector is clear from the following trends: 

1. Restricting the role of public sector only to critical areas: The reservation of industries exclusively for the public sector has been reduced from 17 to 8 and further to 3 only. 

2. Performance improvement through Memorandum of Understanding (MOU): Under this government lays down performance targets for the management and givesgreater autonomy to hold the management accountable for the results. 

3. Disinvestment: Equity shares of public sector enterprises were sold to private sector and the public. It was expected that this would lead to improved managerial performance and better financial discipline. 

4. Restructure and Revival: All public sector sick units were referred to Board of Industrial and Financial Reconstruction (BIFR). Units which were potentially viable were restructured and which could not be revived were closed down by the board.

(c) Statutory Corporation

In 1991 brought a drastic change in the role of public sector in India.

(c) 1991

In the industrial policy 1991, the Government of India introduced four major reforms in public sector. 

1. Reduction in number of industries reserved for public sector: This number is reduced from 17 to 8 and to 3 industries only in 2001. These three industries are atomic energy, arms and rail transport. 

2. Memorandum of Understanding (MOU): Under this govt, lays down performance targets for the management and gives greater autonomy to hold the management accountable for the results. 

3. Disinvestment: Equity shares of public sector enterprises were sold to private sector and the public. It was expected that this would lead to improved managerial performance and better financial discipline. 

4. Restructure and revival: All public sectors, sick units were referred to Board of Industrial and Financial Reconstruction (BIFR). Units which were potentially viable were restructured and which could not be revived were closed down by the board.

(b) Joint Venture 

A Government Company is a company in which not less than 51% of the paid up share capital is held by the central government; or state government or jointly by both. Hindustan Insecticides Ltd., State Trading Corporation of India, Hindustan Cables Ltd.etc are some of the examples.

Features

• It is registered or incorporated under Companies Act. 
• It has a separate legal entity. 
• Management is regulated by the provision of Companies Act. 
• Employees are recruited and appointed as per the rules and regulations contained in 
• Memorandum and Articles of Association. 
• The Government Company obtains its funds from government shareholdings and other private shareholdings. It can also raise funds from capital market.

Merits

• It can be easily formed as per the provision of Companies Act. Only an executive decision of government is required. 
• It enjoys autonomy in management decisions and flexibility in day to day working. 
• It can appoint professional managers on high salaries.

Limitations

• It suffers from interference from government officials, ministers and politicians. 
• It evades constitutional responsibility, which a company financed by the government should have, as it is not directly answerable to Parliament. 
• The board usually consists of the politicians and civil servants who are interested more in pleasing their political bosses than in efficient operation of the company.

(a) Departmental Undertaking 

(b) Government Company 

(b) Government Company 

Correct Answer is: d. All the above

Correct Answer is: d. Airports Authority of India

Correct Answer is: (c)BIFR

According to A.H Hanse, “Public enterprises mean state ownership and operation of industrial, agricultural, financial and commercial undertakings”.

Indian Economy consists of 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. 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, co-operative and company.

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. The government participates in the economic activities of the country through public sector. Industrial policy resolutions announced by the government from time-to-time define the area of activities in which the private sector and public sector are allowed to operate.

Correct Answer is: (a) Sale of equity shares to private sector/public

Private sector enterprises refer to enterprises owned and managed by private entrepreneurs.

Correct Answer is: c. both

The various types of organizations in private sector are:

(i) Sole Proprietorship It refers to the form of organization where business is owned, managed and controlled by a single individual who bears all the risks and enjoys the whole profit.

(ii) Partnership It defined as an association of two or more persons who agree to carry the business together and share the profit as well as bear risks collectively. 

(iii) Joint Hindu Family This business is owned and carried on by the member of a Hindu Undivided family which is governed by the Hindu Law. 

(iv) Company It may be defined as an artificial person existing only in the eyes of law with perpetual succession, having a separate legal entity and common seal. It’s of two types-Private and Public. 

(v) Multinational Corporations . They are huge industrial organizations which extend their industrial and marketing operations through a network of their branches in several countries.

A statutory or public corporation is a body corporate created by special Act of the parliament to carry on a particular business.

The three features of global enterprises are: 

1. It operates in a certain minimum number of countries, say, at least in six countries. 

2. It produces rather than just distributes goods at home and abroad. 

3. It occupies a dominant position in the world market due to its great size.

When two or more individuals or firms join together, establish a new enterprise, contribute the required equity capital and participate in’ its business operations, the venture, business or enterprise is called a joint venture.

A statutory or public corporation is a body corporate created by special Act of the parliament to carry on a particular business. 

The features of statutory corporation are:

1. It is a modern form of state enterprise. 

2. It is free from budgetary, accounting and audit controls applicable to a departmental organisation. 

3. It is responsible to the parliament for its performance. 

4. Service, and not profit, is its main motive. 

5. It is a body corporate. It has a separate legal entity.

According to A.H Hanse, “Public enterprises mean state ownership and operation of industrial, agricultural, financial and commercial undertakings”.

Features of public enterprises: 

1. A public enterprise is organized for the benefit of the public at large. 

2. A public enterprise is usually large in size. 

3. A public enterprise is not does not enjoy flexibility of operations.

Private sector enterprises refer to enterprises owned and managed by private entrepreneurs.

Features of private enterprises:

1. Ownership and Management: Private sector enterprises are owned and managed by private entrepreneurs. 

2. Profit Motive: The main objective of private sector enterprises is to earn profit instead of rendering services to the society. 

3. Independent Management: These enterprises are managed by the owners themselves or through their elected representatives. There is no interference by the Government in internal management.

The three demerits of A public corporation are:

1. Though it has autonomy in administrative matters, in practice, it is subject to ’ interference by the ministers, political leaders and government officials; As a result, the smooth working of the corporation is disturbed. 

2. Its formation takes a long time, as it requires the passing of a special act in the parliament.

3. The board of directors of the corporation consists of persons with different interest. This disturbs the working of the corporation.

There are many differences between a private enterprise and s state enterprise. The main differences are:

The merits of statutory corporations are: 

1. It has accountability to the parliament. 

2. As a public corporation has independence in administrative matters, it can take quick decisions and prompt action independently. 

3. A public corporation has administrative autonomy. So, it can change its policies and practices according to the circumstances, Thus, it enjoys flexibility of operations.

The demerits of public corporation are: 

1. Though it has autonomy in administrative matters, in practice, it is subject to interference by the ministers, political leaders and government officials; as a result, the smooth working of the corporation is disturbed. 

2. Its formation takes a long time, as it requires the passing of a special act in the parliament. 

3. The board of directors of the corporation consists of persons with different interest. This disturbs the working of the corporation.

The merits of departmental undertaking are: 

1. The government enjoys full control over the departmental undertaking. 

2. The risk of misuse of public funds is comparatively less in the case of a departmental undertaking, as it is subject to budgetary, accounting and audit controls. 

3. It has greater accountability to the parliament.

The demerits of departmental undertaking are:

1. A departmental undertaking is subject to interference by the ministers, members of political parties and chief Government officials. Therefore, the smooth working of a departmental undertaking is disturbed. 

2. Business losses are not taken seriously by a departmental organisation. 

3. A department undertaking suffers from the absence of continuity of policies because of frequent change of government officials and ministers and change of government.

A Government company is a company which is registered under the Companies Act and in which not less than 51% of the paid up capital is held by the Government. 

The features of Government Company are: 

1. It is run purely on commercial principles. 

2. It is free from budgetary, accounting and audit controls. 

3. Its accountability to the parliament relatively less. 

4. It can borrow funds from the public. 

5. It provides for mixed ownership.

The features of departmental undertakings are:

1. A departmental undertaking is the oldest form of state enterprise. 

2. It is established by a ministry. 

3. It does not have a separate legal entity. 

4. It is not run on commercial lines. 

5. It is answerable to the parliament for its performance.

Suitability: The departmental form of organisation is not suitable for those undertakings which are required to be run on business lines. It is suitable only for those industries where strict control and secrecy are required, e.g., defence industries.

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 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 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.

The merits of joint venture are:

1. Joint venture provides access to advanced technology, i.e., advance technique of production. Advanced technology contributes to the efficiency of the joint venture, enhancement of the quality of products and cost reduction. 

2. In a joint venture, the financial resources and physical facilities and capabilities of two or more firms are combined for a specific business. As a result, the joint business or joint venture can grow more, quickly and more efficiently. 

3. Because of the pooling of resources and capabilities, an joint venture is able to face challenges and take advantage of new opportunities.

The demerits of joint venture are:

1. There are also legal restrictions on foreign investment. For instance, the foreign Exchange Regulation Act has laid down the limit of permissible foreign shareholders in Indian companies. 

2. Joint ventures between unequal partners often amount to quasi-mergers and attract antimonopoly regulations. 

3. Lack of proper co-ordination among the parties to the joint venture may adversely affect the efficient functioning of the joint venture.

The merits of global enterprises are:

1. They help to equalize the cost of factors of production around the world. 

2. Through capital investment, multinational companies help to increase the investment level in host countries. 

3. Multinational corporations help in the transfer of technology, especially to the developing countries.

The demerits of global enterprises are:

1. The technology of multinational corporations is designed for profit maximization, and not for the developmental needs of host countries. 

2. Multinational corporations may destroy competition and acquire monopoly powers in host countries. 

3. Multinational corporations have been accused of not respecting human rights.