NCERT Solutions Class 11 Business Studies Chapter 3 Private, Public and Global Enterprises
Multiple choice Questions
A government company is any company in which the paid up capital held by the government is not less than
- 49 percent.
- 51 percent.
- 50 percent.
- 25 percent.
Answer b) 51 percent.
According to the Indian Companies Act, 1956, a government company means any company in which not less than 51 percent of the paid up capital is held by the Central government or state government or both.
Centralised control in MNCs implies control exercised by
Answer c) headquarters.
Centralised control in the context of MNCs refers to the control exercised by the corporation’s headquarters. In case of MNCs, the headquarters exercise (centralised) control over all its branches and subsidiaries across all the countries MNCs have presence.
PSE’s are organizations owned by
- Joint Hindu family.
- Foreign Companies.
- Private entrepreneurs.
Answer b) Government.
PSE’s stand for Public sector enterprises. Public Sector enterprises are owned by the state government or central government or both. These are formed by the government to participate in the economic activities of the country.
Reconstruction of sick public sector units is taken up by
Answer c) BIFR.
Reconstruction of sick public sector units is taken up by BIFR (Board of Industrial and Financial Reconstruction).
Disinvestment of PSE’s implies
- sale of equity shares to private sector/public.
- closing down operations.
- investing in new areas.
- buying shares PSE’s.
Answer a) sale of equity shares to private sector/public
Disinvestment involves the sale of equity shares to private sector and the public to raise resources and encourage wider participation of the general public and workers in the ownership of these enterprises.
Short Answer and explanation Questions
Explain the concept of public sector and private sector.
Answer : Private sector: It refers to that part of an economy which is owned and managed by individuals or companies with the sole motive of earning profits. The private sector consists of organizations like sole proprietorship, partnership, Joint Hindu family, cooperative and Joint Stock Company.
Public Sector: It consists various organizations owned and managed by the government. These organizations may either be partly or wholly owned by the central or state government. They may also be a part of the ministry or come into existence by a Special Act of the Parliament.
State the various types of organisations in the private sector.
Answer : It refers to that part of an economy which is owned and managed by individuals or companies with the sole motive of earning profits. The various types of private organizations in India are:
- Sole Proprietorship
- Joint Hindu Family
- Cooperative Society
What are the different kinds of organizations that come under the public sector?
These consists various organizations owned and managed by the government. These organizations may either be partly or wholly owned by the central or state government. The different kinds of organizations that come under the public sector are:
- Departmental Undertakings
- Statutory Corporations
- Government Companies
List the names of some enterprises under the public sector and classify them.
Some enterprises under the public sector are
- Departmental undertakings: Indian Railways, Post and Telegraph department, Public Works Department.
- Statutory Corporations: Life Insurance Corporation of India, Reserve Bank of India, Food Corporation of India.
- Government Companies: National Insurance Companies, Steel Authority of India, State Bank of India.
Why is the government company form of organization preferred to other types in the public sector?
A government company is established under the Indian Companies Act, 1956, and is registered and governed by the provisions of the Indian Companies Act.
The following are the reasons that government – company form of organisation is preferred over the other forms in the public sector.
- Easy Formation: It can be formed simply by following the procedure laid down by the Companies Act.
- Separate legal entity: It is separate from the government.
- Enjoys autonomy: Has autonomy in management decisions and takes actions according to business prudence.
- Curbs unhealthy business practices: These companies, by providing goods and services at reasonable prices, are able to control the market.
How does the government maintain a regional balance in the country?
The following are the ways in which the government of India has maintained a regional balance in the country.
- Four major steel plants were set up in the backward areas to accelerate economic development.
- Providing employment to the workforce and development of ancillary industries.
- Development of backward regions so as to ensure a regional balance in the country.
- Location of new enterprises in the backward areas and prevention of mushrooming growth of private sector units in already advanced areas.
Long Answer and explanation Questions:
Describe the Industrial Policy 1991, towards the public sector.
The Government of India introduced four major reforms in the public sector in the Industrial Policy 1991:
- Restructure and revive potentially viable PSUs.
- Close down PSUs which cannot be revived.
- Bring down government equity in all non-strategic PSUs to 26% or lower, as necessary.
- Fully protect interest of workers.
The steps taken by the government to achieve the above reforms are:
- Reduction in number of industries reserved for public sector from 17 to 8 (subsequently to 3): By 2001, the number of industries reserved for the public sector was brought down to 3 namely, atomic energy, rail transport and arms.
- Disinvestment of shares of select public sector enterprises: Disinvestment refers to the sale of shares of public sector units by the government to the private sector and the public. The objective was to reduce debt and interest burden, discourage government control & monopoly, release large amount of public funds blocked in the PSUs for social projects etc.
- Referring the sick units to BIFR: All the loss making PSUs were handed over to Board of Industrial and Financial Reconstruction (BIFR). The BIFR decided to wind up the very sick units and revive some other capable units. The workers retrenched were helped through retraining, redeployment or compensation.
- Memorandum of understanding: Under MoU system between the concerned ministries and PSUs, the PSUs were given greater autonomy but held accountable for achievement of the defined targets. This was initiated to reduce the unnecessary interference of ministries.
What are the roles of the public sector before 1991?
The Role of public sector before 1991 were
- Development of infrastructure: Infrastructure is considered as the backbone of economic growth. The private sector hesitates to invest in infrastructure due to huge capital and delayed profit. Hence, the public sector enterprises undertake the task of developing the infrastructure of our country.
- Regional balance: The private sector hesitates to set business in backward or remote areas due to lack of infrastructure. The government is responsible for locating the public sector enterprises in backward areas so that people in that area get the opportunity to work and also to bring about balanced regional development of the country.
- Import substitutes: The public sector has been set up for the production of capital goods, which are generally imported. These enterprises make the economy more reliant and help in saving huge amount of foreign exchange.
- Check over concentration of economic power: Very few enterprises in the private sector invest in heavy industries, due to which the power gets concentrated with a few. The public sector can invest in heavy industries, thus income gets shared by a large number of employees and workers. This prevents concentration of wealth in the private sector.
- Defence Requirement: Defence being a sensitive industry, the government has to depend upon the public sector for the supply of products and services for defence.
- Social Utilities: The private sector hesitates to invest in public utilities like water supply, electricity, gas etc. since profit making is slow and these services are subject to government controls. Hence, the public sector takes care of the provision of utilities to the society.
Can the public sector companies compete with the private sector in terms of profits and efficiency? Give reasons for your Answer and explanation.
No, the public sector cannot compete with the private sector in terms of profit and efficiency. The following are the reasons:
- Profit motive: In case of a public sector, apart from the profit motive, it is the welfare motive that generally drives the public sector. The main objective of a private sector is profit motive and hence they work towards this motive only. This motive is achieved by choosing the best combination of factors of production. PSE’s make their goods and services available to the consumers at a nominal cost so that majority of the society can benefit out of it.
- Efficiency: An organisation is said to be efficient when it uses optimum amount of inputs at low cost to produce a given amount of output. Private sectors have structures to ensure quick decision making, they set their goals in such a way that the efficiency targets are met easily. In a public sector enterprises the decision making process is very slow and rigid. This is because a lot of procedures have to be followed by the employees. Moreover public sector enterprises are very slow in adopting new and efficient technologies due to its costly affair as well and hence they lag behind.
Why are global enterprises considered superior to other business organisations?
A Global enterprise or a multinational company is that company which is incorporated in one country but has its goods produced, assembled and sold in many countries.
They are characterised by huge size, advanced technology, innovative products, advanced marketing strategies and huge markets for their products and services.
The following features make MNCs superior to other business organizations:
- Huge capital resources: MNCs have the ability to raise funds from different resources. They may do so by way of issuing shares, debentures, borrowings from banks and financial institutions. Due to their financial strength they enjoy credibility in the market.
- Foreign Collaborations: 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 product etc. MNCs may collaborate I the public and private sector. Big industrial houses wanting to diversify and expand have gained by collaborating with MNCs in terms of patents, resources foreign exchange etc.
- Advanced technology: Due to their large financial resources, MNCs posses advanced technology. This helps them to confirm to international standards and quality specifications.
- Product innovation: These enterprises are characterised by having highly sophisticated research and development departments engaged in the task of developing new products and superior designs of existing products.
- Marketing Strategies: Global companies use aggressive marketing strategies in order to increase their sales in a short period. They have more reliable and up-to- date market information. Selling their product is not a problem as they already have their well known brands. Their advertising and sales promotion techniques are normally very effective.
- Expansion of market territory: Their operations and activities extend beyond the physical boundaries of their own countries. Their international image also builds up and their market territory expands enabling them to become international brands. Due to their giant size they occupy a dominant position in the market.
- Centralised control: They have their headquarters in their home country and exercise control over all branches and subsidiaries. However this control is limited to the broad policy framework of the parent company.
What are the benefits of entering into joint ventures?
The benefits of entering into joint venture are: Increased resources and capacity: Joint venture leads to pooling of financial and human resources which helps in facing market challenges and taking advantages of new opportunities.
- Access to new markets and distribution networks: A joint venture between the partners from different countries helps in exploring new markets for their products and services. They can make use of the existing distribution channels.
- Access to technology: A joint venture brings advanced techniques of production, thus leading to superior quality products. Technology adds to efficiency and effectiveness, thereby leading to reduction in costs.
- Innovation: Joint ventures also introduce innovative products to lure the customers. They can afford investment in research and development activities to develop innovative products.
- Low cost of production: Joint venture operates on a large scale. This brings economies of scale, which reduces the cost of production.
- Established brand name: When two businesses enter into a joint venture, one of the parties benefits from the other’s goodwill which has already been established in the