Chapter 3 — Private, Public and Global Enterprises

Chapter 3 covers private, public and global enterprises in India's mixed economy. It explains the three forms of public sector organisation — departmental undertakings, statutory corporations and government companies — the changing role of the public sector since 1991, features of global enterprises (MNCs), types and benefits of joint ventures, and Public Private Partnership.

The private sector consists of businesses owned by individuals or a group of individuals, including sole proprietorships, partnerships, joint Hindu family businesses, cooperatives and companies. The public sector consists of organisations owned and managed by the government — either partly or wholly by the central or state government.

Public enterprises may take three forms: departmental undertakings, statutory corporations and government companies. The suitability of a particular form depends on the nature of the enterprise's operations and its relationship with the government.

Departmental undertakings are established as departments of the ministry and are considered part of the ministry itself. Funding comes directly from the government treasury, employees are government servants headed by IAS officers, and they are subject to direct control of the concerned ministry. Examples include railways and the post and telegraph department.

A statutory corporation is created by a Special Act of Parliament, which defines its powers, functions and rules governing employees. It is financially independent, can sue and be sued, enter into contracts and acquire property in its own name. Its employees are not government servants and it is not subject to central budget procedures.

According to section 2(45) of the Companies Act, 2013, a government company is one in which not less than 51 per cent of the paid up capital is held by the central government, or by any state government, or partly by the central government and partly by one or more state governments, and includes a subsidiary of such a government company.

The 1991 industrial policy introduced four main reforms: restructuring and reviving viable public sector units (PSUs), closing down unviable ones, reducing government equity in non-strategic PSUs to 26 per cent or lower, and fully protecting workers' interests. Industries reserved exclusively for the public sector were reduced from 17 to 8 and then to 3 — atomic energy, arms and rail transport.

Disinvestment involves the sale of equity shares of public sector enterprises to the private sector and the public. The objective was to raise resources and encourage wider participation of the general public and workers in the ownership of these enterprises, and to improve managerial performance and financial discipline.

The public sector was responsible for developing infrastructure (rail, road, power, steel plants), ensuring regional balance by locating enterprises in backward areas, achieving economies of scale in large industries, checking concentration of economic power in private hands, and enabling import substitution during the second and third Five Year Plan periods.

Global enterprises are characterised by huge capital resources, foreign collaboration through agreements on technology and brand names, advanced technology conforming to international standards, product innovation through research and development, aggressive marketing strategies, expansion of market territory through subsidiaries and branches in host countries, and centralised control from headquarters in the home country with no interference in day-to-day operations.

A joint venture is the pooling of resources and expertise by two or more businesses to achieve a particular goal, with risks and rewards shared. There are two types: contractual joint ventures, where no new entity is created and parties only agree to work together; and equity-based joint ventures, where a new entity is jointly owned by the parties.

Joint ventures provide increased resources and capacity, access to new markets and established distribution networks, access to advanced technology, scope for innovation, lower cost of production (especially for international companies investing in India due to lower raw material and labour costs), and the benefit of an already established brand name and goodwill from the partner company.

Public Private Partnership is a relationship between public entities — government ministries, departments, municipalities or state-owned enterprises — and private businesses or investors for infrastructure and other services. It allocates tasks, obligations and risks among public and private partners in an optimal manner. Sectors where PPPs have been applied include power generation, water, roads, railways, hospitals and schools.

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