Business Ownership
In our country, we can find all sorts of organisations; small or large, industrial or trading privately-owned or government-owned. They affect our daily economic life, therefore are essential part of an Indian economy. As the Indian economy consists of both privately-owned and government enterprises, it is known as mixed economy.
The economy of India is classified into two sectors
3.1 Private Sector Enterprises
It implies all those enterprises which are owned and managed by individuals or group of individuals.
e.g. - Reliance Industries Ltd, Wipro Ltd etc. The various types of organisations in private sector are
- Sole Proprietorship
- Partnership
- Joint Hindu Family
- Private Company
- Multinational Corporations
The two important features of private sector enterprise are
- It is owned by private individuals who provide capital to such firms.
- Its main objective is to earn profit.
3.2 Public Sector Enterprises
If implies all those enterprises which are managed/owned partly or wholly by central or state government or by both. They supply goods and services at reasonable price and are operated on more or less self-supporting basis. They are formed by the government to take decisions and to participate in economic activities on behalf of it. They contribute towards the economic development in the competitive and liberalised world. They are accountable to public through parliament, and public funds are used by them for their activities.
e.g. Air India, India Railways.
The two important features of public sector enterprise are
- The management and control of such enterprise rest in the hands of government.
- Public welfare is the main objective of such enterprises.
3.2.1 Forms of Organising Public Sector Enterprises
Public sector enterprises can be organised in any of the following forms
- Departmental Undertaking
- It is the oldest and traditional form of organising public sector enterprises. It may be run either by the Central Government or by State Government. It is managed by the government officials and rules of Central/State Governments are applicable.
- It has no separate legal existence. It functions under the overall control of one ministry or department of government and is managed by concerned ministers e.g. railways, post and telegraph department, defence, telephone services etc.
Features of Departmental Undertaking
Some features of departmental undertaking are given as under
- They are formed under special act of parliament. They operate under the overall control of one of the ministries of Central or State Government.
- They are of major sub-divisions of government department. They are not separate entity. Thus, are subject to direct control of the ministry.
- They are financed from the government Treasury and an annual appropriation for them is made in the budgets of the government.
- The revenues of departmental undertakings are deposited in the treasury of the government.
- The staff of departmental undertakings are government servants and they are headed by civil servants and Indian Administrative Service (IAS) officers. They are recruited and compensated as per the rules of civil servants and are transferable from one ministry to another.
- They are subject to accounting and audit controls applicable to other government activities.
- Their management is directly under the concerned ministry. Thus, they are accountable to it.
- Public or Statutory Corporation
- It is a corporate body created by the legislature with defined powers, functions and is financially independent with a clear control over a specified area.
- It has the power of government as well as considerable amount of operation of flexibility like private enterprises. g. Air India, State Bank of India, Life Insurance Corporation of India etc.
Features of Public or Statutory Corporation
Following are the features of statutory corporation
- They are formed by a special act of parliament. The act defines their powers objects and privileges.
- They are directly under the control of State Government. They have ultimate financial responsibility i.e. power to appropriate their profits and also bear losses if any.
- They can sue and be sued, enter into contracts and purchase or sell property in their own name.
- They are independently financed. They are financed by borrowings from the government or from public through revenue generated by sale of goods and services. They can also make use of their revenues.
- They are free from government accounting and audit control because they are not financed from the central budget of the government.
- The employees of such enterprises are not government or civil servants. Their conditions, procedures, rules and regulations of work are prescribed under the provisions of the act itself.
- Government Company
A government company is registered and governed by the provisions of the Indian Companies, Act. They are established for purely business purposes and in true spirit compete with companies in the private sector. The government exercises control over the paid up share capital of the company, e.g. Steel Authority of India. According to the Indian Companies Act, 2013, “a government company means any company in which not less than 51% of the paid up capital is held by the Central Government or by any State Government or partly by Central Government and partly by one or more State Government”.
Features of Government Company
Following features are found in a government company
- The government company is incorporated under the prevailing Indian Companies Act, 2013.
- The government company has a separate legal existence. It can buy and sell property, enter into contract in its own name.
- Government companies are exempted from the accounting/audit rules and procedures. However, an auditor is appointed by the Central Government and an annual report is presented in the Parliament/State Legislature.
- The government company obtains its funds from government shareholding and can also raise the funds from the capital market.
- The company can file a suit in court of law against any third party and be sued.
- The employees of the company are appointed according to the rules and regulations as provided under the Memorandum and Articles of Association of the company.
3.3 Role of Public Sector Enterprises
- After 1990, new economic policies were introduced which emphasised liberalisation, privatisation and globalisation.
- After this, the role of public sector was refined. They have to actively participate and compete in the market with other private companies.
- Different committees were also set up to keep watch on public sector and to study the working efficient public sector units. These committees also provide reports on how to improve managerial efficiency and profitability of these units.
3.4 Public-Private Partnership or Joint Sector (PPP,
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Infrastructure development has been a key responsibility of the government. Due to the shortage of funds, government alone would not be able to fulfil this demand. To overcome this issue, PPP (Public-Private Partnership) came into the picture.
Public-Private Partnership means partnership between public sector and private sector in financing, designing and developing infrastructural facilities.
It refers to the participation of private sector in government projects. In such projects, the private sector contributes money, technical know how and managerial expertise.
It is basically a joint venture between public sector and private sector. It is formed for the following projects Power, Transport, water, Healthcare, Education, telecommunications etc.
3.4.1 Features of Joint Sector
Following are the features of joint sector
- PPP is an arrangement between public sector and a private party, in which private party provides public service and/or asset to the public.
- PPP arrangement is for a specific period and at the expiry of such period such partnership comes to an end.
- PPP is suitable of big and high priority projects.
- Revenue is shared between the government and private enterprise in an agreed ratio.
- Risk of the project is also shared between the government and the private party.
3.4.2 Benefits of Joint Sector
Following are the benefits of joint sector
- Inflow of Private Investment: Private participation in investment reduces the use of public money, which can be used in other priority areas and projects.
- Sharing of Project Risk: The structuring of a PPP project allocates the risk to the agency which is able to handle it.
- Increased Efficiency: Private party provides a public service or project and assumes substantial financial, technical and commercial responsibilities. Their expertise in their field bring efficiency to the project.
- Public Welfare: PPP is used in the government projects targeted at public welfare, e.g. Delhi Metro Railway Corporation (DMRC).
- Innovation: PPP helps in bringing innovative designs and construction purposes.
3.5 Global Enterprises or Multinational Corporations (MNCs)
A multinational corporation is one which operates in two or more than two countries. Such companies have branches, factories, offices, etc in different countries.
In simple words, it can be stated that a multinational company is a huge industrial organisation which extends its industrial and marketing operations through a network of its branches in several countries. Their branches are also called Majority Owned Foreign Affiliates (MOFA). Few examples of MNCs are Coca Cola, Hyundai, Reebok, L’oreal, Samsung, Sony, etc.
3.5.1 Features of MNCs
Following features are found in MNCs
- MNCs have Huge Capital Resources
- Centralised Control
- Foreign Collaboration
- Advanced Technology
- Expansion of Market Territory
- Marketing Strategies
- Product Innovation
3.6 Joint Ventures
- When two or more firms join together for a common purpose and mutual benefit, it is known as a joint venture. The two organisations may be private, government-owned or a foreign company. Joint ventures share technology, capital, human resources, risks, rewords etc.
- In broader sense, a joint venture is the pooling of resources and expertise by two or more businesses, to achieve a particular goal. e.g. Maruti Suzuki, Bharti arid Airtel etc.
Joint ventures are formed due to following reasons
- Business expansion
- Development of new products
- Moving into new markets in another country.
3.6.1 Features of Joint Venture
Features of a joint venture are following
- Joint venture is a short-term partnership between two firms.
- It is a temporary business activity.
- In joint venture, profits and losses are shared in agreed proportion. If there is no agreement then profits and losses are shared equally.
- The joint venture agreement will be automatically terminated after completing the venture.
- At the end of the venture, all the assets are liquidated and liabilities are paid off.
3.6.2 Formation of Joint Venture
Joint ventures may be formed in any of these ways
- New Joint Venture Company: Two parties (companies or individuals) subscribe to the shares of the joint venture company in cash, in agreed proportion of the newly formed joint venture company.
- Transfer of Business to New Company: A new company is formed when one party transfers business and in consideration shares are issued. The other party pays cash and subscribes to the shares.
- Collaboration of Existing Company with Other Party: When a company collaborates with an individual or a company (whether resident or non-resident) to jointly carry on business, it is also a form of joint venture. The other party may be resident or non-resident and subscribe to the shares in cash.
3.6.3 Benefits of Joint Venture
Following are the benefits of a joint venture
- Increased Resources and Capacity
- Access to New Markets and Distribution Networks
- Access to Technology
- Low Cost of Production
- Established Brand Name
- Innovation
