Ch.3 - Public Enterprises

Chapter 3
PUBLIC, PRIVATE AND

GLOBAL ENTERPRISES
INDIAN ECONOMY
• Mixed- Privately owned and Government owned
enterprises.
• Private Sector Enterprises:
• Owned, managed and controlled by individuals
or group of individuals. Main objective- Profit.
• Various forms of organisation- Sole
proprietorship, Partnership, Joint Hindu Family
Business, Cooperative Societies, Joint Stock
Companies, Multi- National Corporations
(MNCs)
• Public Sector Enterprises:
• Owned, managed and controlled by the
government,
• May be partly or wholly owned by Central or
State government. May also be a part of a
ministry or may have come into existence by an
act of the parliament.
• PSU/PSEs – formed by government – to
participate in the economic activities. Purpose-
reasonable profit-while serving the society.
• Forms of organisation:
Departmental undertakings, statutory corporations
and government companies
DIFFERENCE BETWEEN PRIVATE AND PUBLIC
SECTOR ENTERPRISES
Basis Private Sector Public Sector Enterprise
Enterprise
Management Private individuals State Govt., Central Govt.
or Both
Objective Maximisation of profits Promoting public welfare
Accountability Accountable to the Accountable to the public

owners through parliament
Political Less political More political interference

interfernce interference
Enterprise
Ownership By professional By bureaucrats ; hence
managers; hence inefficient
efficient
Financial Limited; less scope for Huge; greater scope for
Resources expansion growth and expansion
Social Not very important To achieve development of

Objectives backward region, creation
of employment
opportunities etc.
Forms of Sole proprietorship, Departmental undertaking,

Organisation partnership, Joint stock Statutory corporation,
company etc. Government company
Enterprise
Government Not subject to strict Subject to strict financial
control financial control by the control by the government
government
Distribution of Concentration of Equitable distribution of
income wealth in few hands income
Types of Public Sector Enterprises
Departmental Undertaking
Statutory Corporation
Government Company
DEPARTMENTAL UNDERTAKING
• Oldest & Traditional form of Public enterprises.

• Government functions through these departments and
activities performed by them are a part of functioning of the
government.
• Suitable for:
• Atomic Energy, Defence, Telecommunication- where
utmost secrecy is required.
• Public Distribution system for economic controls
• Post and Telegraph, telephone, broadcasting – for
operation of public utilities.
• Railways - for generation of revenue
Features-Departmental Undertakings
• Under direct control of the ministry- Established as

departments of the Ministry.
• Act through officers of the government and its
employees are government employees- headed by IAS
officers and civil servants.
• Under Central or State Government
• Funding through Government treasury.
• Revenues earned are paid into the treasury
• Accountable to the Ministry as the management is
directly under the Ministry.
Merits-Departmental Undertakings
Effective Control: Direct and centralised control by the

Parliament over its operations.
Accountability: Ensures high degree of public

accountability
Revenue: A source of income for the government, as the

revenue earned goes directly to the Treasury
National Security: It is suitable for the national security

where direct control and supervision is required.
Limitations-Departmental Undertakings
Rigid : Fails to provide flexibility for smooth operation of
business.
Delay in Decisions: Employees are not allowed to take

independent decisions without approvals which leads to
delay in decision making.
Red Tapism: There is red tapism in day to day operations
and no action can be taken unless it is through proper
channel.
Not Agile: Over-cautious and conservative approach does
not allow risky ventures which leads to inability to take
advantage of business opportunities.
Political Interference: Through Ministry

STATUTORY CORPORATION
• Public enterprises brought into existence by a Special Act

of the Parliament.
• Act defines its powers and functions, rules and regulations
governing its employees and its relationship with
government departments.
• Examples:
• Air India
• Life Insurance Corporation of India
• Unit Trust of India
• Reserve Bank of India
• Industrial Development Bank of India
• Food Corporation of India
Features-Statutory Corporation
• Set up under an act of Parliament. Act defines powers,
objects and privileges.
• Wholly owned by the state. Government appropriates
its profits and bear the losses.
• It is a body corporate and can sue and be sued, enter
into contract and acquire property.
• Members of the board are nominated by the
government.
• Free from political, parliamentary and departmental
interference.
• Independent financial budget. Prepare its own budget
and retains & utilises its earnings.
• Profit motive is not the only consideration.
• Public accountability is an important feature.
Merits-Statutory Corporation
Free from undesirable control: They frame their own
policies and procedures within the powers assigned by the
act which makes them free from undesirable government
regulation and control.
Financial autonomy: Government does not interfere in
financial matters and they decide upon their incomes and
receipts.
Free from red-tapism: Quick decisions can be taken as it

is relatively free from red-tapism and bureaucracy.
Public interest: Parliamentary control helps in protecting

public interest.
Limitations-Statutory Corporation
Lack of Operational Flexibility : Many rules and

regulations limits their operational flexibility.
Political interference: Major decisions or huge funds

involving matters are not free from government and political
interference.
Corruption: Rampant corruption exists where public

dealing is involved.
Undesirable practices: Board of directors may abuse their

powers and indulge in undesirable practices.
GOVERNMENT COMPANY
• Any company in which not less than 51% of the paid-up

capital is held by the Central Government or State
Government or both.
• Subsidiary of a government company is considered
government company.
• Shares of government company are purchased in the name
of the President of India.
• Suitable for running on business lines, competing with
private sector or involving technical/ financial assistance
from private/ foreign enterprises.
• Examples:
• Hindustan Machine Tools Ltd.
• Bharat Heavy Electricals Ltd.
• Maruti Udyog Ltd.
• Steel Authority of India Ltd.
Features-Government Company
• Created under the Indian Companies Act, 1956.
• Can file a suit in a court of law against any third party
and be sued.
• Can enter into a contract and can acquire property in
its own name.
• Regulated by provisions of the Companies Act, like
any other public limited Company.
• Employees are appointed according to their own rules
and regulations as contained in its Memorandum and
Articles.
• Exempt from Accounting and Audit rules and
procedures.
• Obtains funds from government shareholding, private
shareholders and capital market.
Merits-Government Company
Ease in Establishment: It can be easily established under

Indian Companies Act, 1956. A separate act is not required.
Separate legal entity: It has a separate legal entity and is

free from government regulations.
Maximum autonomy: Enjoys maximum autonomy in all

management decisions and actions. There is no undue
departmental interference in the working of a government
company.
Curb unhealthy business practices: They curb unhealthy
business practices by providing goods and services at
reasonable prices.
Limitations-Government Company
Irrelevant provisions: Government is the major

shareholder, the provisions of the Companies Act does not
have much relevance.
Lack of Accountability: It is not directly accountable to

the Parliament.
Diversion from goals: Main purpose of a Government

Company, registered like other companies is defeated as the
government is the only major shareholder.
Assignment
• Differentiate between Private and Public Sector

Enterprises
• Define Departmental Undertaking. State its
features. Explain its Merits & Limitations.
• Define Statutory Corporation. State its features.
Explain its Merits & Limitations.
• Define Government Company. State its features.
Explain its Merits & Limitations.
THANK YOU

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Chapter 3

PUBLIC, PRIVATE AND

Accountability Accountable to the Accountable to the public

Political Less political More political interference

Social Not very important To achieve development of

Forms of Sole proprietorship, Departmental undertaking,

• Oldest & Traditional form of Public enterprises.

• Under direct control of the ministry- Established as

Effective Control: Direct and centralised control by the

Accountability: Ensures high degree of public

Revenue: A source of income for the government, as the

National Security: It is suitable for the national security

Delay in Decisions: Employees are not allowed to take

Political Interference: Through Ministry

• Public enterprises brought into existence by a Special Act

Free from red-tapism: Quick decisions can be taken as it

Public interest: Parliamentary control helps in protecting

Lack of Operational Flexibility : Many rules and

Political interference: Major decisions or huge funds

Corruption: Rampant corruption exists where public

Undesirable practices: Board of directors may abuse their

• Any company in which not less than 51% of the paid-up

Ease in Establishment: It can be easily established under

Separate legal entity: It has a separate legal entity and is

Maximum autonomy: Enjoys maximum autonomy in all

Irrelevant provisions: Government is the major

Lack of Accountability: It is not directly accountable to

Diversion from goals: Main purpose of a Government

• Differentiate between Private and Public Sector

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