PRIVATE, PUBLIC AND

GLOBAL ENTERPRISES
INTRODUCTION
• The Indian economy consists of both private and government-owned businesses. Individuals or
groups can own the private sector business. Any state or federal government can own an
organisation entirely or partly. The government is responsible for taking care of public sector
organisations. The federal or state governments may take over these organisations entirely.
• They could be a part of the ministry or created by a Parliamentary Special Act. The government of
India initiated an approach to economic development in the Industrial Policy Resolution of 1948.
The Industrial Policy Resolution of 1956 set forth some goals to help achieve to speed up the
expansion rate and industrialisation.
• The industrial policy of 1991, as opposed to all the other strategies where the government
considered disinvesting in the public sector and allowing independence to the private
sector.
• Companies outside India were asked to invest in India. The Indian economy consists of
the public sector, private sector and multinational corporations.
DIFFERENCE BETWEEN
PUBLIC SECTOR AND
PRIVATE SECTOR
 PUBLIC SECTOR
• The Public Sector consists of businesses that are owned and controlled by the government
of a country.
• The ownership and control of the central or state governments in these organisations are
either complete or partial. But it still holds a majority stake and makes every single
decision regarding running the entity.
• These organisations include government agencies, state-owned enterprises,
municipalities, local government authorities and other public service institutions.
• Some of them can be non-profit organisations while others participate in commercial
activities as well.
• It generally focuses on providing goods and services to the general public at relatively
cheaper rates than private companies. Its main aim is to ensure the welfare of the general
public within a country.
 PRIVATE SECTOR
• The Private Sector enterprises are owned, controlled and managed either
by individuals or business entities.
• It can be small-scale, medium-scale or even large-scale organisations.
• These get formed to earn a profit from their business operations, and they
can raise funding from individuals, groups, and the general public.
• The different entities within the private sector include sole proprietorship, partnership,
cooperative societies, companies and multinational corporations.
• They also focus on taking care of the needs of their customers to survive in the long run.
• Ever since the introduction of the New Economic Policy in 1991 by the Government of
India, almost every industry in the country has opened up to the private sector. It has led
to a phenomenal increase in the size of the Indian economy and its growth rates.
TYPES OF PUBLIC SECTOR
ENTERPRISES
 DEPARTMENTAL UNDERTAKINGS
• This is the oldest and most traditional form of organising public enterprises. These enterprises
are established as departments of the ministry and are considered part or an extension of the
ministry itself.
• The Government functions through these departments and the activities performed by them are
an integral part of the functioning of the government.
• They have not been constituted as autonomous or independent institutions and as such are not
independent legal entities. They act through the officers of the Government and its employees
are Government employees.
• These undertakings may be under the central or the state government and the rules of
central/state government are applicable. Examples of these undertakings are railways and post
and telegraph department.
 FEATURES OF DEPARTMENTAL
UNDERTAKINGS
• The funding of these enterprises come directly from the Government Treasury and are an annual
appropriation from the budget of the Government. The revenue earned by these is also paid into the
treasury.
• They are subject to accounting and audit controls applicable to other Government activities.
• The employees of the enterprise are Government servants and their recruitment and conditions of
service are the same as that of other employees directly under the Government. They are headed by
Indian Administrative Service (IAS) officers and civil servants.
• It is generally considered to be a major subdivision o f the Government department and is subject to
direct control of the ministry.
• They are accountable to the ministry since their management is directly under the concerned
ministry.
 MERITS OF DEPARTMENTAL
UNDERTAKINGS
• EASY FORMATION – It is very easy to form a departmental undertaking as no registration is
compulsory.

• EFFECTIVE CONTROL – The control on departmental undertaking is very effective as it is

direct and centralised.
• OPTIMUM UTILISATION OF FUNDS – There is proper utilisation of funds as financial
matters are subject to ministerial sanction, budget, accounting and audit control.
• ACCOUNTABILITY – There is direct parliamentary control. The performance of departmental
undertakings can be discussed in parliament. So, there is public accountability.
• PUBLIC REVENUE – The revenue of departmental undertaking is deposited in the treasury of
the government. So, these undertakings help to increase the government revenue.
DEMERITS OF DEPARTMENTAL
UNDERTAKINGS
• INFLEXIBILTY – The departmental undertaking works under strict parliamentary control. There
is too much interference of ministers and top officials. It is treated as one of the government offices.
• LACK OF MOTIVATION – The departmental undertakings have no power to utilise their revenue
as these are deposited in the treasury. There is no incentive to maximise profit. There is no direct
relation between efforts and rewards.
• LACK OF FINANCIAL AUTONOMY – The departmental undertakings cannot plan long-term
investment projects. As they are subject to budgetary control of government, they are not allowed
to use their own revenue freely as these have to deposited in the treasury.
• INEFFICIENT MANAGEMENT – The departmental undertakings are managed
by the government officials. These officials are overburdened with the paper work.
As a result they have less sense of responsibility and efficiency.
• RED TAPISM AND BUREAUCRACY – Red tapism and bureaucracy refers to
delay in decision due to so many formalities. The decisions in departmental
undertakings are delayed due to administrative formalities, paper work, procedures
etc.
 SUITABILITY
THE DEPARTMENTAL UNDERTAKINGS ARE SUITABLE IN THE
FOLLOWING CASES :-
• When utmost secrecy is required e.g., defence
• When government control is necessary e.g., broadcasting
• Where huge investment is involved e.g., aircraft, iron and steel etc
• Undertaking is a source of revenue e.g., railways
 STATUTORY CORPORATION
• A statutory corporation is a body corporate formed by a special Act of Parliament or by the
central or state legislature. It is financed by the government and it can arrange its own fund also.
• For example, Indian Airlines, Air India, State Bank of India, Life Insurance Corporation of
India, Food Corporation of India ,Oil and Natural Gas Corporation, etc.
 FEATURES OF STATUTORY
CORPORATION
• 1. It is created by an Act of Parliament or central or state legislature.
• 2. The powers, objectives and limitations of public corporation are defined in the Act only.
• 3.It operates under total control of central or state government.
• 4. It is a separate legal entity. It gets incorporated automatically when Act is passed in the
Parliament.
• 5. It is managed by the Board of Directors who are nominated by the government.
• 6. The public corporation has its own rules of recruitment and remuneration for its staffs and
employees.
• 7.It enjoys administrative autonomy as it is relatively free from political interference.
• 8.The main motive of public corporation is service to general public.
• 9. It is accountable to Parliament or state legislature for its operation. It has to submit its annual report
on its working.
• 10. The Accounts of Public Corporation are generally audited by the Comptroller and Auditor general .
 MERITS OF STATUTORY
CORPORATIONS
• Administrative Autonomy: A public corporation is able to manage its affairs with independence and
flexibility
• Quick Decision: A public corporation is relatively free from red tapism , as there is less file work and
less formalities to be completed before taking decision.
• Service Motive: The activities of public corporation are discussed in parliament this ensures
protection of public interest
• Efficient Staff: The public corporations can have their own rules and regulations regarding
remuneration and recruitment of employees. It can provide better facilities and attractive term of
services to staff to secure efficient working from its staff.
• Professional Management: Its Board of Directors consists of business experts and also the
representatives of various groups such as labour , consumers nominated by the government.
DEMERITS OF STATUTORY
CORPORATIONS
• Autonomy on paper only: the autonomy and flexibility of public corporation is only for name’s
sake. Practically ministers, government officials and political parties often interfere with the
working of these corporations.
• Lack of Initiative: Public corporations do not have to face any competition and are not guided
by profit motive. So, the employees do not take initiative to increase the profit and reduce loss.
The losses of public corporation are made good by the government .
• Rigid Structure: The objects and powers of public corporations are defined by the Act and these
can be amended only by amending the statute or the Act. Amending the Act is a time consuming
and complicated task.
• Unfair Practices: The governing board of a public corporation may indulge in unfair practices. It
may charge unduly high price to cover up inefficiency.
 SUITABILITY
• Where undertakings require monopoly powers.
• Where undertakings require special powers, defined by the Act or statute.
• Where undertakings require regular grants from the government.
GOVERNMENT COMPANIES
• Government company means any company in which at least 51 per cent of the paid-up share capital
is held by the central or state government or partly by central or state government. The government
companies are governed and ruled by the provisions of Companies Act, 2013 like any other
registered companies.
• For example, Steel Authority of India, State Trading Corporation, Hindustan Machine Tools
 FEATURES OF
GOVERNMENT COMPANY
• Registration: The government company gets incorporated under the Companies Act 2013. All the
provisions of Companies Act are applicable on a government company. Government can exempt it from
some provisions by passing a special resolution.
• Ownership: The government company is wholly or partly owned by the government. The share capital
of these companies is owned by the government of India in the name of the President.
• Management: The government company is managed by the Board of Directors, who are nominated by
the government and other shareholders. The government has the authority to appoint majority of the
directors.
• Separate Legal Entity: The government company has a separate legal existence. It can buy and sell
property in its own name. It can enter into a contract in its own name.
• Ministerial Control: A government company is subject to ministerial control. The concerned
ministry makes appointments of directors. The ministry may issue directions and can assume
the overall supervision of the undertakings.
• Financial Autonomy: The government company enjoys borrowing powers. It can raise capital
by issue of various securities. It is free to use its revenue for the growth and expansion of the
company.
• Efficient Staff: The recruitment and remuneration of employees of government company is
independently decided try the government company itself. They are not governed by civil
services rules.
• Accountability: The government companies are accountable to the ministry or the department
concerned. Its annual report is presented and discussed in the parliament or state assembly.
 MERITS OF GOVERNMENT
COMPANY
• Administrative Autonomy: The government company is relatively free from government and political
interference. It can function freely and smoothly under the general vigilance of the government Suitable
changes can be introduced whenever needed within the provisions of Companies Act.
• Greater Flexibility: The government company is managed, financed and audited just as any other
private sector company, it can, therefore, secure greater flexibility, freedom of operation and quickness of
action in running the enterprise.
• Efficient Staff: The government companies can have their own rules and regulations regarding the
recruitment and remuneration of employees. They can appoint professional and specialised people by
offering better services and salary.
• Collaboration: The government companies can avail and accommodate managerial skill technical know
how or expertise of the private enterprise by conveniently collaborating with it .
DEMERITS OF
GOVERNMENT COMPANY
• Autonomy on Paper Only: The freedom and flexibility offered to government
companies is true theoretically only. In actual practice, the government, being the major
shareholders, dictates the terms and gets the things done in its own way.
• Political Interference: The government companies are treated as the personal property of
ministers. The interference of ministers is frequent. The operational policies of the
government companies are formed according to the whims and fancies of the ministers.
• Board Packed with Government Representatives: The Board of Directors in
government companies is appointed by the government. So, these directors always try to
please the government rather than improving efficiency of the government company.
 SUITABILITY
• Where government wants to control a company in the private sector, without
nationalisation.
• Where government wants to go for a collaboration with private enterprise.
• Where the projects require government planning and funds.
COMPARISON BETWEEN DIFFERENT FORMS OF
PUBLIC SECTOR ENTERPRISES
DIFFERENCE BETWEEN PRIVATE SECTOR AND
PUBLIC SECTOR
 GLOBAL ENTERPRISES
• Multinational consists of two different words ‘multi’ and ‘national’. Multi
means many and national means countries or nations. So, multinational means a
company which operates in many countries. Such as a company has branches,
factories, workshops, in different countries. A multinational corporation is also
known as a transnational corporation, global enterprise or international
enterprise. The headquarters of multinational companies are located in one
country (Home country) and it carries business in other countries (Host
countries). The multinational companies get incorporated in home country.
 FEATURES OF MULTINATIONAL
COMPANIES
• Giant size and huge capital resources: The assets and sales of multinational companies are quite large.
These companies operate on large scale. Their operations are so huge that sometimes their turnover exceeds
the GDP of a developing country.
• Centralised Control: The branches of MNCs spread in different countries are controlled and managed from
the headquarters located in home country.
• Advanced Technology: MNCs make use of latest technology to supply world class products. They
employ capital-intensive technology and innovative techniques of production.
• Expansion of market territory: Due to its vast resources and excellent marketing skill, MNC has access
to international markets. It is able to sell its products/services in different countries. A multinational
corporation operates in more than one country.
• Oligopolistic Powers: Oligopoly means power in the hands of few companies only. Due
to their giant size the MNCs occupy a dominating position in the market. They also take
over other firms to acquire huge power.
• Product innovation: These enterprises have highly sophisticated research and
development department, engaged in task of developing new products and superior
designs of existing products.
• Marketing Strategies:They spend huge amount on marketing. They use aggressive
marketing strategies in order to increase their sales in short period. Their advertising and
sales promotion techniques are normally very effective.
• Foreign collaboration: Global enterprises usually enter into agreements with Indian
companies. Pertaining to the sale of technology, production of goods, use of brand names
for the final products, etc.

The following safeguards must be taken to insure the effective role of MNCs in a host
country like India:
1. MNCs should be allowed to enter in high-tech industries only. For eg.
Telecommunications, petrochemicals, etc.
2. MNCs must bring direct foreign investments, so that there is improvement in balance of
payment.
3. MNCs should not be allowed to kill small domestic enterprises but they must offer
healthy competition to domestic firms.
PUBLIC PRIVATE PARTNERSHIP
Public Private Partnership describes a government service or private business venture,
which is funded and operated through a partnership of a government and one or more
private sector companies. These schemes are also referred as P3, PPP or P3.
For eg. A hospital Building financed and constructed by a private developer and then leased
to hospital authority. The private company acts as the landlord and provide housekeeping
services and other non-medical services where as hospital services are provided by the
hospital authority (i.e. Government)
FEATURES OF PPP
• The public partner in the PPP: The public partner in the PPP model are government entities i.e.
Ministries, government department, municipalities or state owned enterprise. The private partners
can be local or foreign investor with technical or financial expertise related to the project.
• The Role of Public Sector in PPP: The role of public sector in PPP is to ensure social obligations
are fulfilled and sector reforms and public investments are successfully met.
• The Role of Private Sector: The role of private sector is to make use of its expertise in operation,
managing tasks and innovation to run the business efficiently.
• Contract between Public sector and private sector: PPP is a contract between public sector
authority and private party, in which the private party provides a public service and bears financial,
technical and operational risk.
• Cost of using service: In some types of PPP, the cost of using service is borne by users of services
and not by taxpayers and in some the cost of providing services is borne wholly or partly by the
government.
• Provision of capital subsidy: Projects that aim at creating public goods in infrastructure sector, the
government may provide a capital subsidy in the form of a one-time grant to make it more
attractive to the private sector. In some cases, government may provide revenue subsidy including
tax breaks or by providing guaranteed annual revenue.
• Pertaining to high priority projects and public welfare: PPP is suitable for high priority projects
such as Infrastructure sector. PPP is used in the government projects targeted at Public Welfare e.g.
Delhi Metro Rail Corporation.
• Sharing of revenue: The revenue of PPP is shared between government and private
enterprises in agreed ratio.
• Problem with PPP: The main problem with PPP project is that private investors obtained
a rate of return that was higher than the government bond rate even though most of the
income risk is borne by the public sector.