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LEARNING OBJECTIVES
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Anita, a student of class XI, was going through some newspapers. The headlines
stared at her face, Government plans to disinvest its shares in a few companies.
The next day there was another news item on one public sector company incurring
heavy losses and the proposal for closing the same. In contrast to this, she read
another item on how some of the companies under the private sector were doing
so well. She was actually curious to know what these terms like public sector,
disinvestment, privatisation meant. She realised that in certain areas there
was only the government which operates like the railways and in some areas
both the privately owned and government run business were operating. For
example, in the heavy industry sector SAIL, BHEL and TISCO, Reliance, Birlas
all were there and in the telecom sector, companies like Tata, Reliance, Airtel
operate and in airlines Sahara and Jet have recently gained entry. These
companies along with the Government-owned companies like MTNL, BSNL, Indian
Airlines, Air India. She then started wondering where from companies like Coca
cola, Pepsi, Hyundai came? Were they always here or did they operate somewhere
else, in some other country. She went to the library and was surprised to know
that there was so much information about all these in books, business magazines
and newspapers.
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country. These organisations affect our private and public sector were clearly
daily economic life and therefore defined and the government through
become part of the Indian economy. various Acts and Regulations was
Since the Indian economy consists of overseeing the economic activities of
both privately owned and government both the private and public sector. The
owned business enterprises, it is Industrial Policy Resolution, 1956 had
known as a mixed economy. The also laid down certain objectives for the
Government of India has opted for a public sector to follow so as to
mixed economy where both private and accelerate the rate of growth and
government enterprises are allowed to industrialisation. The public sector was
operate. The economy, therefore, may given a lot of importance but at the
be classified into two sectors viz., same time mutual dependency of
private sector and public sector. public and private sectors was
The private sector consists of emphasised. The 1991 industrial
business owned by individuals or a policy was radically different from all
group of individuals, as you have the earlier policies where the
learnt in the previous chapter. The government was deliberating
various forms of organisation are disinvestment of public sector and
sole proprietorship, partnership, allowing greater freedom to the private
joint Hindu family, cooperative sector. At the same time, foreign direct
and company. investment was invited from business
The public sector consists of houses outside India. Thus,
various organisations owned and multinational corporations or global
managed by the government. These enterprises which operate in more than
organisations may either be partly or one country gained entry into the
wholly owned by the central or state Indian economy. Thus, we have public
government. They may also be a part sector units, private sector enterprises
of the ministry or come into existence and global enterprises coexisting in the
by a Special Act of the Parliament. The Indian economy.
government, through these enterprises
participates in the economic activities 3.3 FORMS OF O RGANISING P UBLIC
of the country. SECTOR ENTERPRISES
The government in its industrial Government’s participation in business
policy resolutions, from time-to-time, and economic sectors of the country
defines the area of activities in which needs some kind of organisational
the private sector and public sector are framework to function. You have
allowed to operate. In the Industrial studied about the forms of business
Policy Resolution 1948, the organisation in the private sector viz.,
Government of India had specified the sole proprietorship, partnership, Hindu
approach towards development of the undivided family, cooperative and
industrial sector. The roles of the company.
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Indian Economy
Departmental Government
Undertakings Companies Partnership Joint Cooperative Multinational
Hindu Corporations
Statutory Sole
Family
Corporation Properietorship Company
Public Private
(Ltd.) (Ltd.)
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benefits that accrue are shared by a for the public sector. In 1991, only
large of number of employees and 8 industries were reserved for
workers. This prevents concentration the public sector, they were restricted
of wealth and economic power in the to atomic energy, arms and
private sector. communication, mining, and
(v) Import substitution: During the railways. In 2001, only three
second and third Five Year Plan period, industries were reserved exclusively
India was aiming to be self-reliant in for the public sector. These are
many spheres. Obtaining foreign atomic energy, arms and rail
exchange was also a problem and it transport. This meant that the private
was difficult to import heavy machinery sector could enter all areas (except
required for a strong industrial base. the three) and the public sector
At that time, public sector companies would have to compete with them.
involved in heavy engineering which The public sector has played a vital
would help in import substitution were role in the development of the
established. Simultaneously, several economy. However, the private sector
public sector companies like STC and is also quite capable of contributing
MMTC have played an important role substantially to the nation building
in expanding exports of the country. process. Therefore, both the public
(vi) Government policy towards the sector and the private sector need to
public sector since 1991: The be viewed as mutually complementary
Government of India had introduced parts of the national sector. Private
four major reforms in the public sector sector units also have to assume
in its new industrial policy in 1991. The greater public responsibilities.
main elements of the Government policy Simultaneously, the public sector
are as follows: needs to focus on achieving more in a
• Restructure and revive potentially highly competitive market.
viable PSUs (b) Disinvestment of shares of
• Close down PSUs, which cannot a select set of public sector
be revived enterprises: Disinvestment involves
• Bring down governments equity in the sale of the equity shares to the
all non-strategic PSUs to 26 per private sector and the public. The
cent or lower, if necessary; and objective was to raise resources and
• Fully protect the interest of encourage wider participation of the
workers. general public and workers in the
(a) Reduction in the number of ownership of these enterprises. The
industries reserved for the public government had taken a decision to
sector from 17 to 8 (and then to 3): withdraw from the industrial sector
In the 1956 resolution on Industrial and reduce its equity in all
policy, 17 industries were reserved undertakings. It was expected that
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payments, tight control by foreign already have carved out a place for
technicians, etc. Big industrial houses themselves in the global market, and
wanting to diversify and expand have their brands are well-known, selling
gained by collaborating with MNCs in their products is not a problem.
terms of patents, resources, foreign (vi) Expansion of market territory:
exchange etc. But at the same time Their operations and activities extend
these foreign collaborations have given beyond the physical boundaries of their
rise to the growth of monopolies and own countries. Their international
concentration of power in few hands. image also builds up and their market
(iii) Advanced technology: These territory expands enabling them to
enterprises possess technological become international brands. They
superiorities in their methods of operate through a network of
production. They are able to conform subsidiaries, branches and affiliates in
to international standards and quality host countries. Due to their giant size
specifications. This leads to industrial they occupy a dominant position in the
progress of the country in which such market.
corporations operate since they are (vii) Centralised control: They have
able to optimally exploit local resources their headquaters in their home
and raw materials. Computerisation country and exercise control over all
and other inventions have come due to branches and subsidiaries. However,
the technological advancements this control is limited to the broad
provided by MNCs. policy framework of the parent
(iv) Product innovation: These company. There is no interference in
enterprises are characterised by having day-to-day operations.
highly sophisticated research and
development departments engaged in 3.6 JOINT VENTURES
the task of developing new products
Meaning
and superior designs of existing
products. Qualitative research requires Business organisations as you have
huge investment which only global studied earlier can be of various types
enterprises can afford. private or government owned or global
(v) Marketing strategies: The enterprises. Now, any business
marketing strategies of global organisation if it so desires can
companies are far more effective than join hands with another business
other companies. They use aggressive organisation for mutual benefit. These
marketing strategies in order to increase two organisations may be private,
their sales in a short period. They posses government-owned or a foreign
a more reliable and up-to-date market company. When two businesses agree
information system. Their advertising to join together for a common purpose
and sales promotion techniques are and mutual benefit, it gives rise to a
normally very effective. Since they joint venture. Businesses of any size
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can use joint ventures to strengthen products or moving into new markets,
long-term relationships or to particularly in another country. It is
collaborate on short term projects. A becoming increasingly common for
joint venture can be flexible depending companies to create joint ventures with
upon the party’s requirements. These other businesses/companies and form
need to be clearly stated in a joint strategic alliances with them. The
venture agreement to avoid conflict at reasons for these alliances may be
a later stage. complementary capabilities and
A joint venture may also be the result resources such as distribution
of an agreement between two businesses channels, technology or finance. In this
in different countries. In this case, there kind of a joint venture, two or more
are certain provisions provided by the (parent) companies agree to share
governments of the two countries, which capital, technology, human resources,
will have to be adhered to. risks and rewards in the formation of a
Thus, we see that joint ventures new entity, under shared control.
may mean many things, depending In India, joint venture companies
upon the context we are using it in. But are the best way of doing business.
in a broader sense, a joint venture is There are no separate laws for these
the pooling of resources and expertise joint ventures. The companies
by two or more businesses, to achieve incorporated in India are treated the
a particular goal. The risks and same as domestic companies.
rewards of the business are also
shared. The reasons behind the joint Joint Ventures are of two types —
venture often include business Contractual joint venture
expansion, development of new Equity-based joint venture
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PPP Model
Features
• Contract with the private party to design and build public facility.
• Facility is financed and owned by the public sector.
• Key driver is the transfer of design and construction risk.
Application
• Suited to capital projects with small operating requirement.
• Suited to capital projects where the public sector wishes to retain the
operating responsibility.
Strengths
• Transfer of design and construction risk.
• Potential to accelerate project.
Weaknesses
• Conflict between parties may arise on environmental considerations
• Does not attract private finance easily.
Example
• Kundli Manesar Expressway Ltd.: In this 135 km expressway, land
has been provided by the government and surface has been laid out
by the company.
Key Terms
Public sector Departmental undertaking Globalisation
Public enterprises Government companies Global enterprises
Statutory corporation Disinvestment Public Sector Undertakings
Joint ventures Public accountability
Public Private Partnership Privatisation
SUMMARY
Private sector and public sector: There are all kinds of business
organisations — small or large, industrial or trading, privately owned or
government owned existing in our country. These organisations affect our
daily economic life and therefore, become part of the Indian economy. The
Government of India has opted for a mixed economy, where both private
and government enterprises are allowed to operate. The economy, therefore,
may be classified into two sectors viz., private sector and public sector. The
private sector consists of business owned by individuals or a group of
individuals. Various for ms of organisation are sole proprietorship,
partnership, joint Hindu family, cooperative and company. The public sector
consists of various organisations owned and managed by the government.
These organisations may either be partly or wholly owned by the Central or
State government.
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of operations all over the world. Global enterprises thus are huge industrial
organisations which extend their industrial and marketing operations
through a network of their branches in several countries.
Features: These corporations have distinct features which distinguishes
them from other private sector companies, public sector companies and public
sector enterprises i.e., (i) Huge capital resources, (ii) Foreign collaboration,
(iii) Advanced Technology, (iv) Product innovation, (v) Marketing strategies,
(vi) Expansion of market territory, (vii) Centralised control.
Joint ventures: Joint ventures may mean many things, depending upon
the context we are using it in. But in a broader sense, a joint venture is the
pooling of resources and expertise by two or more businesses, to achieve a
particular goal. The risks and rewards of the business are also shared. The
reasons behind the joint venture often include business expansion,
development of new products or moving into new markets, particularly in
another country.
Benefits: Business can achieve unexpected gains through joint ventures
with a partner. The major benefits of joint venture are as follows:
(i) Increased resources and capacity (ii) Access to new markets and
distribution networks (iii) Access to technology (iv) Innovation (v) Low cost
of production (vi) Established brand name.
Public Private Partnership: It is a relationship among public sector and
private sector for allocation and completion of development projects.
EXERCISES
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Projects/Assignments
1. Make a list of Indian companies entering into joint ventures with foreign
companies. Find out the apparent benefits derived out of such ventures.
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