• All industrial and commercial

Meaning of undertakings owned,

managed and controlled by
the government are called
public enterprises or public
undertakings or public sector
undertakings.
• These enterprises are known
collectively as the public
sector.
• According to A.H. Hanson,
“Public enterprise means
state ownership and
operation of industrial,
agricultural, financial and
commercial undertakings”.
 • State ownership:
A public enterprise is wholly owned by the Central Government or State Governments(s) or
local authority or jointly owned by two or more of them. In case the enterprise is owned both
by the Government and private sector, the State must have at least 51 per cent share in
ownership.
• State control:
The ultimate control of a public enterprise lies with the Government which appoints its Board
of Directors and the Chief Executive
Characteristic • Government financing:
The whole or a major portion of the capital of a public enterprise is provided by the
of Public Government.
• Service motive:
Enterprise The primary aim of a public enterprise is to render service to the society at large. It may have
even to incur losses for this purpose. However, public enterprises are expected to generate
surplus in course of time.
• Public accountability:
Public enterprises are financed out of public money. Therefore, they are accountable for their
results to the elected representatives of the public, i.e., the Parliament and the State
Legislature. That is why, the working of public enterprises is scrutinised by the Committees of
the Parliament or the State Legislature.
• Autonomous bodies:
Public enterprises are autonomous or semi-autonomous bodies. In some cases they work
under the control of Government departments. In other cases these enterprises function as
companies and statutory corporations.
 • Economic development:
Public enterprises were set up to accelerate the rate of economic growth in a
planned manner.
• Self- reliance:
Another aim of public enterprises is to promote self- reliance in strategic
sectors of the national economy.
• Development of backward area:
Objectives of Several public enterprises were established in backward areas to reduce
regional imbalances in development.
PSU • Employment generation:
Unemployment has become a serious problem in india. Public enterprises
seek to offer gainful employment to millions.
• Economic surplus:
Public enterprises seek to generate and mobilise surplus for reinvestment.
These enterprises earn money and mobiles public savings for industrial
development.
 • Filling of gaps:
At the time of independence, there existed serious gaps in the
industrial structure of the country, particularly in the field of
heavy industries.
• Employment:
Public sector has also contributed a lot towards the improvement
of working and living conditions of workers by serving as a model
employer.
• Balanced regional development:
Role of PSU Private industries tend to concentrate in certain regions while
other regions remain backward. Public sector undertakings have
located their plants in backward and untrodden parts of the
country.
• Optimum utilisation of resources:
Public enterprises makes better utilisation of scare resources of
the country. They are big in size and able to enjoy the benefits of
large scale operations.
• Mobilisation of surplus:
The profits earned by public enterprises are reinvested for
expansion and diversification.
 Criticism Of PSU
• Delay in completion:
Often a very long time is taken in the establishment and completion of public enterprises.
• Faulty evaluation:
Public enterprises are in some cases set upon political considerations. There is no proper
evaluation of demand and supply and expected costs and benefits.
• Heavy overheads costs:
Public enterprises often spend huge amounts on providing housing and other amenities to
employees.
• Poor return:
Majority of the public enterprises in India are incurring loss.
• Labour problem:
In the absence of proper manpower planning public enterprises suffer from overstaffing.
 Departmental undertaking is the oldest
and traditional form of organising public
sector enterprises.

A departmental undertaking is organised,

Departmental financed and controlled in much the same
Undertakings way as any other government department.

It may be run either by the Central

Government or by a state government.
 • Part of government:
• The undertaking is organised as a major sub division of
one of the departments or ministries of the government.
• Government financing:
• The undertaking is financed through annual budget
appropriations by the Parliament or the State Legislature.
• Executive decision:
Features • A departmental undertaking is set up by an executive
decision of the government without any legislature.
• Accounting and Audit:
• The undertaking is subject to the normal budgeting,
accounting and audit procedure applicable to other
government department.
Merits and Demerits of Departmental Undertakings

Easy formation Lack of flexibility

Direct Government Control Lack of motivation

Public accountability Red tapism

Proper use of money Financial dependence

Secrecy Inefficient management

 • It is an autonomous corporate body set up under a special
act of parliament or state legislature.
Public • The act or statute define its objectives, powers and
functions.
Corporations • A public corporation seeks to combine the flexibility of
private enterprise with public ownership and
accountability.
 Features

• Corporate body:
• It is a body corporate established through a special Act of Parliament or State
Legislature. The Act defines its powers and privileges and its relationship with
Government departments and Ministries.
• Legal entity:
• It enjoys a separate legal entity with perpetual succession and common seal.
It can acquire and own property in its own name. It can sue and be sued and
can enter into contracts in its own name. It enjoys perpetual existence.
• Government ownership:
• The public corporation is wholly owned by the Central and/or State
Government(s).
• Financial independence:
• It enjoys financial autonomy. Its initial capital and borrowings are provided by the
Government but it is supposed to be self-supporting. It can borrow money from the
public and is empowered to plough back its earnings.
• Accounting system:
• The corporation is not subject to the budgetary, accounting and audit regulations
applicable to Government departments. It is generally exempt from the rigid rules
applicable to the expenditure of public funds.
• Independent management:
A public corporation is managed by a Board Directors appointed by the
Government. However, its employees need not necessarily be of civil servants.
They can be employed on terms and conditions laid down by the corporation
itself.
Merits and Demerits

Operational Autonomy Difficulty in formation

Quick Decision Nominated Board

Motivation to work Rigid Structure

Public Accountability Abuse of monopoly

Efficient Management Excessive accountability

 • A government company in which not less
than 51 percent of the paid up share capital
is held by the central government or by one
or more state governments or jointly by the
Government central and state government.
Companies • It is formed and registered under the
companies act, 2013 which contains special
provisions relating to government
companies.
 Features
• Incorporation:
• It is registered or incorporated under the Companies Act.
• Separate legal entity:
• It is a body corporate independent from the Government can acquire property, make contracts, sue
and be sued in its own name. It enjoys perpetual existence.
• Ownership:
• It is wholly or partly owned by the Government. Where it is partly owned, the share of the
Government is at least 51 per cent of the total share capital.
• Management:
• It is managed by a Board of Directors nominated by the Government and other shareholders.
• Own Staff:
• Its employees are not Government servants. Their appointment and service conditions are independently
decided by the Government company itself. They are not governed by civil service rules.
Merits and Demerits

Ease of formation Lack of accountability

Operation autonomy Autonomy in name

Flexibility of operation Board packed with yes-men

Expert Management Fear of exposure

Private Participation
 • It means partnership between public sector and private
sector in financing designing and developing infrastructural
Public Private facilities.
• It refers to the participation of private sector in
Partnership Government projects.
• In a PPP project the private sector contributes money,
technical know how and managerial expertise.
 • Partnership:
• A PPP is a partnership between public sector and private
sector.
• High Priority Project:
• A PPP is generally formed for projects of national
importance.
• Social Objective:
• The main objective of a PPP is public good and social
welfare.
• Pooling of resources:
Features • The fund technical expertise and experience of Government
and private sector are combined for the project.
• Revenue Sharing:
• Revenues generated by a PPP are shared between
government and private sector firm. Government may
provide capital subsidy or may guarantee yearly revenues
for a fixed period to make the project attractive to the
private sector partner.