PUBLIC SECTOR ENTERPRISES

1 166 NotesMODULE - 2 Business OrganisationsBUSINESS STUDIES7 You have learnt about various forms of business organisations, which primarily relate toprivate ENTERPRISES . Traditionally, business activities were left mainly to individual andprivate organisations, and the government was taking care of only the essential servicessuch as railways, electricity supply, postal services etc. But, it was observed that privatesector did not take interest in areas where the gestation period was long, investmentwas heavy and the profit margin was low; such as machine building, infrastructure, oilexploration, etc. Not only that, industries were also concentrated in some regions thathad certain natural advantages like availability of raw materials, skilled labour, nearnessto market. This led to regional imbalances. Hence, the government while regulating thebusiness activities of private ENTERPRISES went in for direct participation in business andset up PUBLIC ENTERPRISES in areas like coal industry, oil industry, machine building, steelmanufacturing, finance and banking, insurance etc.

2 These units are not only owned bycentral, state or local government but also managed and controlled by them and aretermed as PUBLIC SECTOR ENTERPRISES . In this chapter, you will learn about the nature andcharacteristics of PUBLIC ENTERPRISES and the forms of their studying this lesson, you will be able to: state the meaning of PUBLIC SECTOR ENTERPRISES ; identify the main characteristics of PUBLIC SECTOR organisations; distinguish between PUBLIC SECTOR and private SECTOR ; describe different forms of organisation of PUBLIC SECTOR ENTERPRISES ; state the features, merits and limitations of Departmental Undertakings, PublicCorporations and Government Companies; PUBLIC SECTOR ENTERPRISESOBJECTIVES167 NotesMODULE - 2 Business OrganisationsBUSINES STUDIES explain the importance of PUBLIC SECTOR ENTERPRISES ; and outline the current scenario of PUBLIC ENTERPRISES .

3 MEANING OF PUBLIC ENTERPRISESAs state earlier, the business units owned, managed and controlled by the central, stateor local government are termed as PUBLIC SECTOR ENTERPRISES or PUBLIC ENTERPRISES . Theseare also known as PUBLIC SECTOR pubic SECTOR enterprise may be defined as any commercial or industrial undertakingowned and managed by the government with a view to maximise social welfare anduphold the PUBLIC ENTERPRISES consist of nationalised private SECTOR ENTERPRISES , such as, banks,Life Insurance Corporation of India and the new ENTERPRISES set up by the governmentsuch as Hindustan Machine Tools (HMT), Gas Authority of India (GAIL), State TradingCorporation (STC) etc. CHARACTERISTICS OF PUBLIC ENTERPRISESL ooking at the nature of the PUBLIC ENTERPRISES , their basic characteristics can besummarised as follows:(a) Government Ownership and Management : The PUBLIC ENTERPRISES are ownedand managed by the central or state government, or by the local authority.

4 Thegovernment may either wholly own the PUBLIC ENTERPRISES or the ownership maypartly be with the government and partly with the private industrialists and thepublic. In any case the control, management and ownership remains primarilywith the government. For example, National Thermal Power Corporation (NTPC)is an industrial organisation established by the Central Government and part of itsshare capital is provided by the PUBLIC .(b) Financed from Government Funds : The PUBLIC ENTERPRISES get their capitalfrom Government Funds and the government has to make provision for their capitalin its budget.(c) PUBLIC Welfare : PUBLIC ENTERPRISES are not guided by profit motive. Their majorfocus is on providing the service or commodity at reasonable prices. Take thecase of Indian Oil Corporation or GAIL India Limited. They provide petroleumand gas at subsidised prices to the PUBLIC .

5 (d) PUBLIC Utility Services : PUBLIC SECTOR ENTERPRISES concentrate on providing publicutility services like transport, electricity, telecommunication etc.(e) PUBLIC Accountability : PUBLIC ENTERPRISES are governed by PUBLIC policiesformulated by the government and are accountable to the SECTOR Enterprises168 NotesMODULE - 2 Business OrganisationsBUSINESS STUDIES(f) Excessive Formalities : The government rules and regulations force the publicenterprises to observe excessive formalities in their operations. This makes thetask of management very sensitive and cumbersome. DIFFERENCE BETWEEN PRIVATE AND PUBLIC SECTOR ENTERPRISESIn the earlier lessons you have studied about the various forms of business organisationexisting under private ownership or in private SECTOR . By private SECTOR , we mean,economic and social activities undertaken privately by a single individual or group ofindividuals.

6 They prefer to do business in private SECTOR basically to earn the other hand PUBLIC SECTOR refers to economic and social activities undertaken bypublic authorities. The ENTERPRISES in PUBLIC SECTOR are set up with the main aim ofprotecting PUBLIC interest. Profit earning comes the difference in the objective, the ENTERPRISES in both these sectors also differin many other aspects. In this section let us know the differences between the enterprisesof PUBLIC SECTOR and private of differencePrivate SECTOR ENTERPRISES PUBLIC SECTOR enterprises1. ObjectiveMaximisation of social welfareeconomic and ensurebalanced OwnershipOwned by by ManagementManaged by owner andManaged by CapitalRaised by ownersRaised from Governmentthrough loans, privatefunds and sometimessources and PUBLIC PUBLIC Area of operation Operates in all areasOperates in basic andwith adequate returnpublic utility is meant by PUBLIC SECTOR ?

7 Whether the following statements are true or false and correct the statementsif QUESTIONS SECTOR Enterprises169 NotesMODULE - 2 Business OrganisationsBUSINES STUDIES(a) The objective of private SECTOR ENTERPRISES is welfare of the customers.(b) The PUBLIC SECTOR ENTERPRISES are managed by professional managers.(c) The private SECTOR ENTERPRISES concentrate on area of PUBLIC utility services.(d) The private SECTOR ENTERPRISES are owned and managed by private individuals.(e) The PUBLIC ENTERPRISES are totally funded by the PUBLIC . FORMS OF ORGANISATION OF PUBLIC ENTERPRISEST here are three different forms of organisation used for the PUBLIC SECTOR ENTERPRISES inIndia. These are (1) Departmental undertaking ; (2) Statutory (or PUBLIC ) Corporation,and (3) Government undertaking form of organisation is primarily used for provision ofessential services such as railways, postal services, broadcasting etc.

8 Such organisationsfunction under the overall control of a ministry of the Government and are financed andcontrolled in the same way as any other government department. This form is consideredsuitable for activities where the government desires to have control over them in viewof the PUBLIC Corporation (or PUBLIC corporation) refers to a corporate body created bythe Parliament or State Legislature by a special Act which define its powers, functionsand pattern of management. Statutory corporation is also known as PUBLIC capital is wholly provided by the government. Examples of such organisations areLife Insurance Corporation of India, State Trading Corporation Company refers to the company in which 51 percent or more of thepaid up capital is held by the government. It is registered under the Companies Act andis fully governed by the provisions of the Act.

9 Most business units owned and managedby government fall in this ENTERPRISESD epartmentalUndertakingStatutoryCorporati onsGovernmentCompaniesExample1. Posts & Telegraph2. Railways3. All india Radio (AIR)4. Door Darshan (TV)5. Ordinance FactoriesExample1. Food Corporation of India2. Industrial FinanceCorporation of India3. Life Insurance Corporationof India4. Unit Trust of India5. State Trading CorporationExample1. Hindustan MachineTools Limited2. Steel Authority ofIndia Limited3. Hindustan ShipyardLimitedPublic SECTOR Enterprises170 NotesMODULE - 2 Business OrganisationsBUSINESS STUDIES DEPARTMENTAL UNDERTAKINGSD epartmental undertakings are the oldest among the PUBLIC ENTERPRISES . A departmentalundertaking is organised, managed and financed by the Government. It is controlled bya specific department of the government.

10 Each such department is headed by a policy matters and other important decisions are taken by the controlling Parliament lays down the general policy for such Features of Departmental UndertakingsThe main features of departmental undertakings are as follows:(a) It is established by the government and its overall control rests with the minister.(b) It is a part of the government and is managed like any other government department.(c) It is financed through government funds.(d) It is subject to budgetary, accounting and audit control.(e) Its policy is laid down by the government and it is accountable to the Merits of Departmental UndertakingsThe following are the merits of departmental undertakings :(a) Fulfillment of Social Objectives : The government has total control over theseundertakings. As such it can fulfill its social and economic objectives.