Private, Public and Global EnterprisesClass 11 Business Studies NCERT Solutions
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Q1Long Answer Questions
Describe the Industrial Policy 1991, towards the public sector.
Solution
The Industrial Policy of 1991 brought radical changes to the role and functioning of the public sector in India. It marked a shift from a state-led development model to one that emphasized liberalisation, privatisation, and globalisation. The main elements of the government's policy towards the public sector since 1991 were as follows:
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Restructuring and Revival of PSUs: The policy aimed to restructure and revive potentially viable Public Sector Undertakings (PSUs). However, for PSUs that were chronically sick and could not be revived, the policy was to close them down. All sick PSUs were referred to the Board of Industrial and Financial Reconstruction (BIFR) to decide their future.
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Reduction in Industries Reserved for Public Sector: The number of industries exclusively reserved for the public sector was drastically reduced. From 17 industries in 1956, it was brought down to 8 in 1991, and further down to only 3 by 2001 (Atomic Energy, Arms, and Rail Transport). This opened up most sectors for private sector participation, forcing PSUs to compete with private enterprises.
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Disinvestment of Shares: The policy introduced disinvestment, which involves the sale of equity shares of select PSUs to the private sector and the general public. The objectives were to raise financial resources for the government, encourage wider public and worker participation in ownership, improve managerial performance, and enforce financial discipline in these enterprises. The government planned to bring down its equity in all non-strategic PSUs to 26 per cent or lower if necessary.
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Memorandum of Understanding (MoU): To improve the performance of PSUs, the MoU system was introduced. Under this system, a PSU and its administrative ministry would sign a Memorandum of Understanding. This granted the PSU management greater operational autonomy but also held them accountable for achieving specific, pre-determined targets and results.
Q2Long Answer Questions
What was the role of the public sector before 1991?
Solution
Before the economic reforms of 1991, the public sector was considered the primary engine of economic growth and development in India. It was assigned a strategic and dominant role in the economy with several key objectives:
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Development of Infrastructure: The public sector was responsible for building the country's core infrastructure. This included developing transportation and communication facilities (rail, road, air), fuel and energy (power plants, petroleum), and basic and heavy industries (steel plants). The private sector was unwilling or unable to make the huge investments with long gestation periods required for these sectors.
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Regional Balance: To correct regional disparities in development, the government deliberately established public sector industries in backward areas. This was a tool for planned development to ensure that economic progress was not limited to a few developed regions.
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Economies of Scale: The public sector set up large-scale industries like electric power plants and petroleum refineries. Such industries require massive capital outlay to operate economically, which only the government could mobilize. This allowed the nation to benefit from economies of scale.
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Check on Concentration of Economic Power: By investing in heavy industries, the public sector aimed to prevent the concentration of wealth and economic power in the hands of a few private industrial houses. The benefits and income generated were shared among a larger number of people, reducing income inequalities.
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Import Substitution: During the early Five Year Plans, a major goal was self-reliance. Public sector enterprises were established in heavy engineering and other critical sectors to produce goods and machinery that were previously imported. This helped save valuable foreign exchange.
Q3Long Answer Questions
Can the public sector companies compete with the private sector in terms of profits and efficiency? Give reasons for your answer.
Solution
Yes, public sector companies can compete with the private sector in terms of profits and efficiency, but they often face certain inherent challenges that can hinder their performance. The Industrial Policy of 1991 was specifically designed to make them more competitive.
Arguments for their ability to compete:
- Policy Reforms: The 1991 policy redefined the role of the public sector. It was no longer expected to play a passive role but to actively participate and compete in the market. Policies like disinvestment and reduction of reserved sectors forced them to become more efficient.
- Autonomy through MoU: The Memorandum of Understanding (MoU) system was introduced to grant PSUs greater operational autonomy while holding them accountable for results. This freedom allows management to make quicker decisions based on business prudence, similar to private companies.
- Access to Resources: Public sector companies often have the backing of the government, which can help in mobilizing huge capital for large-scale projects, allowing them to achieve economies of scale that may be difficult for some private players.
- Corporate Governance: With disinvestment and listing on stock exchanges, many PSUs have adopted better corporate governance practices, leading to improved transparency and efficiency.
Reasons for challenges in competition:
- Political Interference: Departmental undertakings and even other forms of public enterprises can suffer from excessive political interference in their day-to-day operations and major decisions, which hampers efficiency.
- Bureaucratic Hurdles: Procedures in public sector units can be rigid and slow due to red tapism and the need to follow proper channels of authority. This leads to delays in decision-making, causing them to miss business opportunities.
- Social Objectives: Unlike private companies that are driven purely by profit, public sector companies often have to fulfill social obligations, such as operating in backward regions or maintaining a large workforce, which can adversely affect their profitability.
In conclusion, while public sector companies have the potential to compete effectively, their success depends on the degree of operational autonomy they are granted, the reduction of bureaucratic and political interference, and their ability to adopt a professional, market-driven approach.
Q4Long Answer Questions
Why are global enterprises considered superior to other business organisations?
Solution
Global enterprises, also known as Multinational Corporations (MNCs), are often considered superior to other business organisations due to a combination of factors that give them a significant competitive advantage. Their superiority stems from the following key features:
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Huge Capital Resources: Global enterprises possess enormous financial resources and have the ability to raise funds from various international sources, including capital markets and international banks. This financial strength allows them to undertake large-scale projects, invest heavily in technology and marketing, and withstand market downturns.
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Advanced Technology: They possess technological superiority in their production methods, which allows them to produce high-quality goods that conform to international standards. They bring advanced technology to host countries, which contributes to the overall industrial progress of that nation.
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Product Innovation: These enterprises have highly sophisticated research and development (R&D) departments. They invest huge sums in R&D to develop new products and create superior designs for existing ones, which helps them stay ahead of the competition and meet evolving consumer demands.
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Aggressive Marketing Strategies: Global enterprises employ effective and aggressive marketing strategies. They have reliable market information systems and use powerful advertising and sales promotion techniques. Their brands are often well-known globally, which makes it easier to sell their products in new markets.
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Expansion of Market Territory: Their operations extend across many countries through a network of branches and subsidiaries. This gives them access to a global market, reduces their dependence on a single country's economy, and builds an international brand image.
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Centralised Control with Operational Flexibility: They operate with a centralised control system from their headquarters, which ensures a unified policy framework. However, their branches and subsidiaries are usually given considerable flexibility in their day-to-day operations to adapt to local conditions.
Q5Long Answer Questions
What are the benefits of entering into joint ventures and public private partnership?
Solution
Entering into joint ventures and public private partnerships (PPPs) offers significant benefits to the participating businesses and entities.
Benefits of Joint Ventures:
A joint venture is a business arrangement where two or more parties pool their resources to achieve a particular goal. The key benefits include:
- Increased Resources and Capacity: By pooling financial and human resources, a joint venture can grow and expand more quickly and efficiently than a single firm could on its own.
- Access to New Markets and Distribution Networks: A company can gain immediate access to a new, often foreign, market by partnering with a local firm. It can use the local partner's established distribution channels, saving time and money.
- Access to Technology: A business can gain access to advanced technology and production techniques from its partner without having to invest in developing them from scratch. This leads to superior products and lower costs.
- Innovation: Collaboration between partners from different backgrounds can lead to new and creative products. Foreign partners, in particular, can bring new ideas and technology.
- Low Cost of Production: International firms forming joint ventures in countries like India benefit from lower costs of raw materials and skilled labour, making their products more competitive globally.
- Established Brand Name: A new entrant can benefit from the goodwill and established brand name of its partner, saving significant investment in brand building.
Benefits of Public Private Partnership (PPP):
A PPP is a partnership between a government entity and a private company to deliver public infrastructure and services. The key benefits are:
- Access to Private Sector Expertise: The government can leverage the private sector's expertise in operations, management, and innovation to run projects more efficiently and effectively.
- Optimal Risk Allocation: PPP models are designed to allocate tasks and risks to the party best equipped to handle them. For example, design and construction risks are often transferred to the private partner.
- Access to Private Finance: PPPs can attract private sector investment for public projects, reducing the financial burden on the government. However, the text notes this is not always easy.
- Project Acceleration: By combining public sector goals with private sector efficiency, PPPs can potentially accelerate the completion of large-scale infrastructure projects.
- Improved Service Quality: The private sector's focus on efficiency and innovation can lead to better quality services for the public, as seen in sectors like telecom.
Q1Projects/Assignments
Make a list of Indian companies entering into joint ventures with foreign companies. Find out the apparent benefits derived out of such ventures.
Solution
This is a project that requires research into current business activities. To complete this assignment, you should follow these steps:
Step 1: Research and List Joint Ventures
- Look for business news in newspapers, financial magazines, or reliable online sources to identify recent examples of Indian companies forming joint ventures with foreign companies.
- Focus on different sectors like automobiles, telecommunications, pharmaceuticals, and retail.
- Create a list with the names of the Indian company, the foreign partner, and the purpose of their joint venture.
Step 2: Identify the Benefits
For each joint venture you have listed, try to identify the benefits for both the Indian and the foreign partner, based on the concepts discussed in the chapter. The benefits to look for are:
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For the Indian Company:
- Access to Technology: Did the foreign partner bring in advanced manufacturing processes or new technology?
- Access to Capital: Did the foreign company provide significant financial investment?
- Access to Global Markets: Does the joint venture plan to export its products using the foreign partner's global network?
- Innovation: Are they developing a new product or service for the Indian market?
- Brand Association: Is the Indian company benefiting from the global reputation of its foreign partner?
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For the Foreign Company:
- Access to New Markets: The joint venture gives the foreign company access to the large and growing Indian market.
- Established Distribution Network: The foreign company can use the Indian partner's existing network of dealers and retailers to sell its products.
- Low Cost of Production: Is the company leveraging India's lower costs of skilled labour and raw materials?
- Local Knowledge: The Indian partner provides valuable knowledge of the local market, consumer preferences, and regulatory environment.
Example Structure for your findings:
Joint Venture: [Name of Indian Company] and [Name of Foreign Company]
- Purpose: To manufacture/sell [Product/Service] in India.
- Benefits for Indian Company: Gained access to [mention specific technology], received capital investment for expansion, etc.
- Benefits for Foreign Company: Gained entry into the Indian market, utilized the Indian partner's [distribution network/manufacturing facility], benefited from lower production costs, etc.
Q1Short Answer Questions
Explain the concept of public sector and private sector.
Solution
The Indian economy is a mixed economy, which means it comprises both the public sector and the private sector.
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Private Sector: This sector consists of business enterprises owned by individuals or a group of individuals. The primary objective is typically profit maximization. Various forms of private sector organisations include sole proprietorship, partnership, joint Hindu family, cooperative society, and company.
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Public Sector: This sector consists of various organisations owned and managed by the government. These enterprises may be wholly or partly owned by the central or state government. They are established to participate in the economic activities of the country, often with objectives that include public welfare, infrastructure development, and economic growth, in addition to earning profits.
Q2Short Answer Questions
State the various types of organisations in the private sector.
Solution
The private sector consists of businesses owned by individuals or a group of individuals. According to the chapter, the various forms of organisation in the private sector are:
- Sole Proprietorship
- Partnership
- Joint Hindu Family Business
- Cooperative Society
- Company
Q3Short Answer Questions
What are the different kinds of organisations that come under the public sector?
Solution
Public sector enterprises can be organised in various forms depending on their nature, operations, and relationship with the government. The three main forms of organisation in the public sector are:
- Departmental Undertaking: This is the oldest form, where the enterprise is managed as a department of a government ministry. Examples include Railways and the Post and Telegraph Department.
- Statutory Corporation: This is a corporate body created by a special Act of the Parliament or State Legislature. The Act defines its powers, functions, and rules.
- Government Company: This is a company established under the Companies Act, 2013, in which at least 51 per cent of the paid-up share capital is held by the central government, state government(s), or both.
Q4Short Answer Questions
List the names of some enterprises under the public sector and classify them.
Solution
Based on the information and examples provided in the chapter, here are some enterprises under the public sector, classified according to their form of organisation:
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Departmental Undertakings: These are run as departments of a government ministry.
- Indian Railways
- Post and Telegraph Department
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Statutory Corporations: These are established under a special Act of Parliament. The chapter does not provide specific company names as examples, but it describes this category.
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Government Companies: These are registered under the Companies Act. The chapter mentions State Trading Corporation (STC) and Minerals and Metals Trading Corporation (MMTC) in the context of expanding exports. Other examples mentioned by category include steel plants and power generation plants.
Q5Short Answer Questions
Why is the government company form of organisation preferred to other types in the public sector?
Solution
The government company form of organisation is often preferred in the public sector due to several advantages it offers over departmental undertakings and statutory corporations. The key reasons for its preference are:
- Ease of Formation: A government company can be established simply by fulfilling the requirements of the Companies Act, 2013. It does not require a special Act to be passed in the Parliament, unlike a statutory corporation.
- Separate Legal Entity: It has a separate legal existence distinct from the government. It can acquire property, enter into contracts, and sue or be sued in its own name.
- Managerial Autonomy: It enjoys significant autonomy in all management decisions. It can take actions based on business prudence without seeking approval for every decision, which helps in timely responses to market opportunities.
- Market Control: By providing goods and services at reasonable prices, these companies can help control the market and curb unhealthy business practices from the private sector.
Q6Short Answer Questions
How does the government maintain a regional balance in the country?
Solution
The government is responsible for ensuring balanced development across all regions of the country and removing regional disparities. It maintains a regional balance primarily by establishing public sector industries in backward or underdeveloped areas.
Before independence, industrial development was concentrated in a few areas like port towns. To correct this imbalance, the government, through its Five Year Plans, deliberately located new public sector enterprises in regions that were lagging behind. For example, setting up four major steel plants in backward areas was a strategic move to accelerate economic development, create employment for the local workforce, and encourage the growth of ancillary industries in those regions. This policy helps prevent the concentration of industrial units in already advanced areas and promotes equitable growth across the country.
Q7Short Answer Questions
State the meaning of public private partnership.
Solution
A Public Private Partnership (PPP) is a relationship or arrangement between public sector entities (like government ministries or departments) and private sector entities (local or foreign businesses). The purpose of a PPP is to deliver infrastructure projects and other services to the public.
Under this model, tasks, obligations, and risks are allocated optimally between the public and private partners. The public partner ensures that social obligations are met and provides support like capital or assets. The private partner contributes its expertise in operations, management, and innovation to run the project efficiently. PPPs are used in various sectors, including power, transportation (roads, railways), sanitation, and hospitals.