NCERT Solutions for Class 11 Business Studies Chapter 3 - Public, Private and Global Enterprises
Short Answer Questions:
1. Explain the concept of public sector and private sector.
Ans. Public sector refers to organisations which are owned, controlled and managed by government with the main objective of providing services to general community. Private sector refers to the organisations which are owned, controlled and managed by private individuals with the main motive of earning profit.
2. State the various types of organisations in the private sector.
Ans. Various types of organisations in private sector are:
(a) Sole Proprietorship
(c) Joint Hindu Family
(d) Cooperative Organisation
(e) Multinational Corporations
3. What are the different kinds of organisations that come under the public sector?
Ans. Different organisations which come under public sector are:
(a) Departmental Undertakings
(b) Statutory Corporations
(c) Government Companies
4. List the names of some enterprises under the public sector and classify them.
Ans. Departmental Undertakings: Railway, Post and Telegraph Statutory Corporations: Life Insurance Corporation of India (LIC), Air India, State Bank of India, etc.
Government Companies: Gas Authority of India Ltd. (GAIL), Steel Authority of India Ltd. (SAIL), Bharat Heavy Electricals Ltd (BHEL), etc.
5. Why is the government company form of organisation preferred to other types in the pubic sector?
Ans. Government company form is preferred to other types in public sector because it has management and financial autonomy. The government company comes directly under the concerned ministry.
6. How does the government maintain a regional balance in the country?
Ans. The public enterprises are set up to provide industrial growth in those regions that have the least industrial activities. This helps to accelerate economic development, provide employment to the work force and develop a huge industrial base. In this manner, the government maintains a regional balance in the country
7. State the meaning of public private partnership.
Ans. Public-Private Partnership (PPP) is a collaborative arrangement between the government (public sector) and private sector entities to jointly undertake and manage a project or provide public services, sharing risks, costs and rewards.
Long Answer Questions:
1. Describe the Industrial Policy 1991, towards the public sector.
- De-reservation: In 1956, the Industrial Policy Resolution reserved 17 industries exclusively for the public sector. However, in 1991, the government decided to de-reserve most industries and allowed private sector participation. Only eight industries were reserved for the public sector, and eventually, this number reduced to three.
- Disinvestment of Public Sector Enterprises: Disinvestment refers to the sale of equity shares of public sector enterprises to the private sector and the general public. The objective behind disinvestment was to raise funds for the government and encourage wider ownership and participation in these enterprises.
- Policy Regarding Sick Units: The government referred all sick public sector units to the Board of Industrial and Financial Reconstruction (BIFR) to determine whether the unit should be restructured or closed down. To address the repercussions of
closures and retrenchment, the government established the National Renewal Fund (NRF). The NRF aimed to retrain or redeploy labour from sick units and provide compensation to public sector employees opting for voluntary retirement.
- Memorandum of Understanding: Public sector units were granted greater autonomy and held accountable for achieving specific results through the signing of Memorandums of Understandings (MoUs) between the respective units and their administrative ministries. This system provided public sector units with operational autonomy while setting clear targets for them.
2. What was the role of the public sector before 1991?
Ans. Before 1991, the public sector played a prominent role in the following ways:
- Development of Infrastructure and Heavy Industries: In the early years after independence, the private sector showed limited interest in investing in infrastructure and heavy industries due to high capital requirements and long gestation periods
- Regional Balance: To address regional disparities, the government established public sector industries in economically backward regions. This deliberate effort aimed to promote economic development, generate employment opportunities, and stimulate the growth of ancillary industries. Major steel plants were set up in these regions to drive local economic progress.
- Economies of Scale: Large-scale industries benefit from economies of scale, which reduce average production costs. However, setting up large-scale industries requires significant capital investment. The public sector played a crucial role in establishing units related to electric power, natural gas, petroleum, and other sectors that required a large base to achieve economic viability.
- Concentration of Economic Power: The establishment of public sector enterprises helped prevent the concentration of economic power in the hands of a few industrial houses. By providing employment opportunities and equitable distribution of income and benefits, the public sector ensured that the economic gains were shared among a larger section of employees and workers.
- Self-Reliance: Self-reliance was a major objective of India's Five Year Plans. Due to the shortage of foreign exchange, it was challenging to import heavy machinery required for building a strong industrial base. Public sector companies specialising in heavy engineering facilitated import substitution by manufacturing domestically. Additionally, public sector companies like the State Trading Corporation (STC) and the Minerals and Metals Trading Corporation (MMTC) played a significant role in expanding the country's exports.
3. Why is it important to choose an appropriate form of organisation? Discuss the factors that determine the choice of form of organisation.
Ans. The survival, growth and success of any business depends on the form of business organisation. The selection of the form of business organisation depends on the product line, scale of operations, amount of capital required etc.
Forms Related to Starting a Business:
- Cost of Setting Up: The initial cost involved in setting up the organisation is a significant consideration. Sole proprietorships generally have the lowest setup costs, while corporations tend to involve more complex and expensive processes.
- Liability: The extent of liability borne by the owners or partners is an important factor. Sole proprietorships and partnerships typically have unlimited liability, meaning the owners' personal assets are at risk. On the other hand, limited liability is a characteristic of companies and certain other forms of organisations, providing protection to the owners' personal assets.
- Continuity: The desired continuity of the business is a crucial factor. Sole proprietorships and partnerships are generally more susceptible to disruptions in case of death, retirement, or withdrawal of the owner or partners. Companies, on the other hand, have the advantage of perpetual existence, allowing for smoother continuity.
- Management Ability: The management abilities and expertise of the individuals involved are important considerations. Sole proprietors may face limitations in having expertise in all functional areas of management, while partnerships and companies can benefit from the combined skills and knowledge of multiple individuals.
- Capital Considerations: The availability and requirements of capital play a significant role. Companies have the advantage of raising large amounts of capital by issuing shares to numerous investors. Partnerships can pool resources from multiple partners. In contrast, sole proprietors may face limitations in accessing sufficient capital.
- Degree of Control: The desired level of control over operations and decision-making power is a factor to consider. Sole proprietors have direct control over their businesses and enjoy absolute decision-making power. In partnerships and companies, decision-making may involve more complex processes and shared authority among partners or shareholders.
4. Why are global enterprises considered superior to other business organisations?
Ans. Global Enterprise in also called as Multinational Corporation (MNCs) are the corporations operating in more than one country but have their head office in the Home country. MNC's produce multiple products, thus need huge investments. MNC's follow advanced technology and marketing strategies to strengthen the network of operation globally. MNCs do not aim to maximize their profits from one or two products but aim to produce several products and strengthen their presence across the world. Foreign investments from MNC help in features of Global Enterprises are:
- International operations: The basic characteristic of an MNCs is, that it operates in more than one country. They have their branches, factories and workshops in many countries.
- Foreign collaboration: Global enterprises collaborate with private and public sector companies of Host Country for sale of technology, production of goods, use of brand names for the final products, etc. MNCs may collaborate with companies in the public and private sector. There are generally various restrictive clauses in the agreement relating to transfer of technology, pricing, dividend payments, control by foreign technicians etc.
- Advanced technology: MNCs use local resources and the latest technology to produce multiple products of international standards and quality specifications. This leads to industrial progress of the country in which such corporations operate.
- Product innovation: MNCs invest huge amounts in research and development to make the existing products better and develop new products to maintain their market share.
5. What are the benefits of entering into joint ventures and public private partnership?
Ans. There are the following benefits of entering into joint venture are:
- Increase Resource and Capacity: In Joint venture, companies get larger resources, financial as well as human resources, enabling the company to grow and expand more quickly and efficiently.
- Access to new Market and Distribution Networks: When a business enters into joint venture, it can access new markets, for example, when foreign companies form Joint Venture in India, they get access to vast Indian market. They can also take advantage of retail outlets in different local markets.
- Access to Technology: Advance techniques of production lead to superior quality of products and reduced cost of production. It saves lot of time, energy and investment because they do not have to develop their own technology.
- Innovation: Joint Ventures help business to come up with new and innovative products for the market because of new ideas and technology of foreign partners.
There are the following benefits of entering into public private partnership:
- Risk sharing: In a Public Private Partnership (PPP) risks associated with construction and project design are shared between the public and private entities, resulting in reduced overall risk exposure.
- Project acceleration: PPPs enable faster project implementation by leveraging the combined efforts and expertise of both public and private sectors, with a shared goal of completing the project on time.
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