PU1: Business Studies Chapter 3 Solutions

PU1

Chapter 3

Private, Public and Global Enterprises

One Mark Questions

1. What is Private Sector?

Ans. The private sector consists of business owned by individuals or a group of individuals. The various forms of organisation of business in private sector are sole proprietorship, partnership, joint Hindu family, cooperative society and company.

2. What is Public Sector?

Ans. 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.

3. Mention any one form of organizing Public Sector Enterprises.

Ans. (i)Departmental undertaking

Also (ii)Statutory corporation

(iii)Government company

(any one can be written)

4. State any one feature of Departmental Undertakings.

Ans. 1. Funding of Departmental undertakings come directly from the Government Treasury and are an annual appropriation from the budget of the Government. The revenue earned by these is also paid into the treasury.

Also

2. They are subject to accounting and audit controls applicable to other Government activities.

3. The employees of the enterprise are Government servants and their recruitment and conditions of service are the same as that of other employees directly under the Government. They are headed by Indian Administrative Service (IAS) officers and civil servants who are transferable from one ministry to another.

4. It is generally considered to be a major subdivision of the Government department and is subject to direct control of the ministry.

5. They are accountable to the ministry since their management is directly under the concerned ministry.

(any one can be written)

5. Give an example for Departmental Undertakings.

Ans. Railways

Also

Postal department and Telegraph department (any one can be written)

6. State any one feature of Statutory Corporations.

Ans. Statutory corporations are set up under an Act of Parliament and are governed by the provisions of the Act. The Act defines the objects, powers and privileges of a statutory corporation.

Also

2. This type of organisation is wholly owned by the state. The government has the ultimate financial responsibility and has the power to appropriate its profits. At the same time, the state also has to bear the losses, if any.

3. A statutory corporation is a body corporate with a separate entity which means that they can sue and be sued, enter into contract and acquire property in its own name.

4. This type of enterprise is usually independently financed. It obtains funds by borrowings from the government or from the public through revenues derived from sale of goods and services. It has the authority to use its revenues.

5. A statutory corporation is not subject to the same accounting and audit procedures applicable to government departments. It is also not concerned with the central budget of the Government.

6. The employees of these enterprises are not government or civil servants and are not governed by government rules and regulations.The conditions of service of the employees are governed by the provisions of the Act itself.

(any one can be written)

7. Give an example for Statutory Corporations. (not in textbook)

Ans. Reserve Bank of India set up in 1935 under the Reserve Bank of India Act,1934.

Also 1. State Bank of India created by State Bank of India Act, 1955.

2. Life Insurance Corporation formed under LIC Act, 1956.

3. Employees State Insurance Corporation set up under the ESI Act 1948.

4. Air India established under Air Corporation Act, 1953

(any one can be written)

8. State any one feature of Government Company.

Ans. It is an organisation created under the Companies Act, 2013 or any other previous Company Law.

Also

2. The company can sue and be sued i.e it can file a suit in a court of law against any third party and be sued.

3. The company can enter into a contract and can acquire property in its own name.

4. The management of the company is regulated by the provisions of the Companies Act, like any other public limited company.

5. The employees of the company are appointed according to their own rules and regulations as contained in the Memorandum and Articles of Association of the company. The Memorandum and Articles of Association are the main documents of the company, containing the objects of the company and its rules and regulations.

6. These companies are exempted from the accounting and audit rules and procedures. An auditor is appointed by the Central Government and the Annual Report is to be presented in the Parliament or the State Legislature.

7. The government company obtains its funds from government shareholdings and other private shareholders. It is also permitted to raise funds from the capital market.

(any one can be written)

9. Give an example for Government Company. (not in textbook)

Ans. Hindustan Machine Tools (HMT).

Also 

2. Hindustan Steel Limited

3. Hindustan Copper Limited.

4. Hindustan Antibiotics Ltd.

5. Hindustan Shipyard.

6. Hindustan Aeronautics Limited.

7.  Steel Authority of India Limited (SAIL).

8. Bharat Heavy Electricals Limited (BHEL).

9. Maruti Udyog Limited.

10.Bharat Earthmovers Limited (BEML).

11.Madras Refineries Limited (MRL).

12.Indian Telephone Industries Limited (ITI)

(any one can be written)

10. State the Minimum amount of Capital held by the Govt. in Government Companies.

Ans. not less than 51 percent of the paid up capital is held by  the Govt. in Government Companies.

11. Mention any one feature of Global Enterprises.

Ans. Huge capital resources: Global Enterprises possess huge financial resources and have the ability to raise funds from different sources.

Also

2. Foreign collaboration: Global Enterprises are multi national companies (MNCs) which collaborate with Indian companies in the public and private sector.

3. Advanced technology:These enterprises possess technological superiorities in their methods of production.

4. Product innovation: Only global enterprises can afford huge investment into qualitative research to develop new products and superior designs of existing products.

5. Marketing strategies: global companies have far more effective and aggressive marketing strategies.

6. Expansion of market territory:Their operations and activities extend beyond the physical boundaries of their own countries. They operate through a network of subsidiaries, branches and affiliates in host countries.

7. Centralised control: They have their headquarters in their home country and exercise control over all branches and subsidiaries.

(any one can be written)

12. Give an example for Global Enterprises. (not in the textbook)

Ans. Unilever Ltd.

Also  Coca-Cola, Samsung (any one can written)

13. State any one benefit of Joint Venture.

Ans. Increased resources and capacity: Joining hands with another or teaming up adds to existing resources and capacity enabling the joint venture company  to grow and expand more quickly and efficiently.

Also

2. Access to new markets and distribution networks: The products which have reached saturation point in their home markets can be easily sold in new markets.

3. Access to technology: which adds to efficiency and effectiveness, thus leading to reduction in costs.

4. Innovation: Joint ventures allow business to come up with something new and creative for the same market because of new ideas and technology.

5. Low cost of production: International Corporations entering into joint venture with Indian companies benefit immensely due to the lower cost of production.

6. Established brand name: In a joint venture, one of the parties benefits from the other’s goodwill which has already been established in the market.

14. Give an example for Joint Venture.

Ans. AVI Oil India Pvt. Ltd. (Joint Venture Holders: Balmer Lawrie & Co. Ltd., NYCO SA,France, established on 4November, 1993)

Also

2. Green Gas Ltd. (Joint Venture Holders: GAIL(India) Ltd. and IOCL, established on 7 October, 2005)

3. Delhi Aviation Fuel Facility Pvt.Ltd. (Joint Venture Holders: BPCL and DIAL, established on 28 March, 2010)

(any one can be written)

15. Expand MOU.

Ans. Memorandum of Understanding

16. Expand MNC.

Ans. Multi National Corporation

17. Expand BIFR.

Ans. Board of Industrial and Financial Reconstruction

Multiple Choices One Mark Questions

1. A government company is any company in which the paid up capital held by the

government is not less than

(a) 49 percent

(b) 51 percent

(c) 50 percent

(d) 25 percent

Ans. (b) 51 percent

2. Centralized control in MNCs implies control exercised by

(a) Branches

(b) Subsidiaries

(c) Headquarters

(d) Parliament

Ans. (c) Headquarters

3. PSEs are organizations owned by

(a) Joint Hindu Family

(b) Government

(c) Foreign Companies

(d) Private entrepreneurs

Ans. (b) Government

4. Reconstruction of sick public sector units is taken up by

(a) MOFA

(b) MoU

(c) BIFR

(d) None of the above

Ans.  (c) BIFR

5. Disinvestments of PSEs implies

(a) Sale of equity shares to private sector/public

(b) Closing down operations

(c) Investing in new areas

(d) None of the above

Ans. (a) Sale of equity shares to private sector/public

Two marks Questions

1. What are Departmental Undertakings?

Ans.  Departmental Undertakings are the oldest and most traditional form of organising public enterprises. These enterprises are established as departments of the ministry and are considered part or an extension of the ministry itself. The Government functions through these departments and the activities performed by them are an integral part of the functioning of the government.

Examples of these undertakings are railways and post and telegraph department.

2. State any two merits of Departmental Undertakings.

Ans. 1. Departmental undertakings facilitate the Parliament to exercise effective control over their operations.

2. These ensure a high degree of public accountability

Also

3. The revenue earned by the enterprise goes directly to the treasury and hence is a source of income for the Government

4. Where national security is concerned, this form is most suitable since it is under the direct control and supervision of the concerned Ministry.

(any two can be written)

3. State any two limitations of Departmental Undertakings.

Ans. 1. Departmental undertakings fail to provide flexibility, which is essential for the smooth operation of business.

2. The employees or heads of depart-ments of such undertakings are not allowed to take independent decisions, without the approval of the ministry concerned. This leads to delays, in matters where prompt decisions are required.

Also

3. The bureaucrat’s are over-cautious and conservative which does not allow them to take risky ventures. So, these enterprises are unable to take advantage of business opportunities.

4. There is red tapism in day-to-day operations and no action can be taken unless it goes through the proper channels of authority.

5. There is a lot of political inter-ference through the ministry.

6. These organisations are usually insensitive to consumer needs and do not provide adequate services to them.

(any two can be written)

4. Give the meaning of Statutory Corporations.

Ans. Statutory corporations are corporate bodies brought into existence by a Special Act of the Parliament. The Act defines its powers and functions, rules and regulations governing its employees and its relationship with government departments. Statutory corporations have the power of the government and considerable amount of operating flexibility like private enterprises.

For example Reserve Bank of India, State Bank of India, Air India, etc.

5. Mention any two merits of Statutory Corporations.

Ans. 1. Statutory Corporations enjoy independence in their functioning and a high degree of operational flexibility. They are free from undesirable government regulation and control.

2. Since the funds of these organisations do not come from the central budget, there is no/less government interference in their financial matters, including their income and receipts.

Also

3. Since they are autonomous organisations they frame their own policies and procedures within the powers assigned to them by the Act.

4. A statutory corporation is a valuable instrument for economic development. It has the power of the government, combined with the initiative of private enterprises.

(any two can be written)

6. Mention any two limitations of Statutory Corporations.

Ans. 1. In reality, a statutory corporation does not enjoy as much operational flexibility as stated above. All actions are subject to many rules and regulations.

2. Government and political interference has always been there in major decisions or where huge funds are involved.

Also

3. Where there is dealing with the public,rampant corruption exists.

4. The practice of the Government of appointing advisors to the Corporation Board curbs the freedom of the corporation in entering into contracts and other decisions. If there is any disagreement, the matter is referred to the government for final decisions. This further delays action.

7. Give the meaning of Government Companies.

Ans. According to the section 2(45) of the Companies Act 2013, 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 by any state government or partly by Central government and partly by one or more State governments and includes a company which is a subsidiary of a government company. A government company may be formed as a private limited company or a public limited company.

For example, Hindustan Machine Tools (HMT), Maruti Udyog Limited, etc.

8. State any two merits of Government Companies.

Ans. 1. A government company can be established by fulfilling the requirements of the Indian Companies Act. A separate Act in the Parliament is not required.

2. It has a separate legal entity, apart from the Government.

Also

3. It enjoys autonomy in all management decisions and takes actions according to business prudence.

4. These companies by providing goods and services at reasonable prices are able to control the market and curb unhealthy business practices.

(any two can be written)

10. State any two limitations of Government Companies.

Ans. 1. Since the Government is the only shareholder in some of the companies, the provisions of the Companies Act does not have much relevance.

2. It evades constitutional responsibility. It is not answerable directly to the Parliament.

Also

3. The government being the sole shareholder, the management and administration rests in the hands of the government. This defeats the main purpose of registering it like any other company.

(any two can be written)

11. What is Disinvestment in relation to PSEs?

Ans. Disinvestment  in relation to PSEs involves the sale of the equity shares of the public sector enterprise to the private sector and the public. This will result in the privatisation of the public sector enterprises.

12. What do you mean by Global Enterprises?

Ans. Global Enterprises are gigantic corporations or huge industrial organisations which have their operations in a number of countries. They extend their industrial and marketing operations through a network of their branches in several countries.

For example, Unilever Ltd., Coca-Cola, Samsung.

13. Give the meaning of Joint Ventures.

Ans. When two businesses agree to join together for a common purpose and mutual benefit, it gives rise to a joint venture. In other words, 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.

For example, AVI Oil India Pvt. Ltd. (Joint Venture Holders: Balmer Lawrie & Co. Ltd., NYCO SA,France, established on 4November, 1993)

14. Write any two benefits of Joint Ventures.

Ans. Refer to Q13 of 1 mark questions.

(any two can be written)

Four Marks Questions

1. Briefly explain any four features of Departmental Undertakings.

Ans. Meaning of Departmental Undertaking - Refer to Q1 of 2 mark questions.

Features of the departmental undertakings- Refer to Q4 of 1 mark questions.

(any four can be written)

2. Briefly explain the merits of Departmental Undertakings.

Ans. Meaning of Departmental Undertaking - Refer to Q1 of 2 mark questions.

Merits of departmental undertakings are: Refer to Q2 of 2 mark questions.

3. Briefly explain any four limitations of Departmental Undertakings.

Ans.  Meaning of Departmental Undertaking - Refer to Q1 of 2 mark questions.

Following are the limitations of departmental undertaking Refer to Q3 of 2 mark questions

4. Briefly explain any two merits and two limitations of Departmental Undertakings.

Ans. Refer to Q2 & 3 of 4 mark question (take two points each from both)

 

5. Briefly explain any four features of Statutory Corporations.

Ans. Meaning of Statutory Corporation - Refer to Q4 of 2 mark questions.

Following are the features of statutory corporations- Refer to Q6 of 1 mark questions

(write any four)

6. Briefly explain any four merits of Statutory Corporations.

Ans. Meaning of Statutory Corporation - Refer to Q4 of 2 mark questions.

Following are the merits of statutory corporations: Refer to Q5 of 2 mark questions.

7. Briefly explain the limitations of Statutory Corporations.

Ans. Meaning of Statutory Corporation - Refer to Q4 of 2 mark questions.

Following are the limitations of Statutory Corporations: Refer to Q6 of 2 mark questions.

8. Briefly explain any two merits and two limitations of Statutory Corporations.

Ans. Refer to Q 6&7 of 4 mark question, (take two points each from both).

9. Briefly explain any four features of Government Companies.

Ans. Meaning of Government Companies - Refer to Q 7 of 2 mark questions

Features of Government Companies are: Refer to Q 8 of 1 mark questions

(any four can be written)

10. Briefly explain the merits of Government Companies.

Ans.  Meaning of Government Companies - Refer to Q 7 of 2 mark questions

Merits of Government Companies are: Refer to Q 8 of 2 mark questions 

11.  Briefly explain any two merits and two limitations of Government companies.

Ans. Definition of Government companies and merits –  Refer to Q10 of 2 marks question (write any two merits)

Following are the limitations of Government companies.- Refer to Q 10 of 2 mark questions

(any two can be written)

12. Briefly explain any four features of Global Enterprises.

Ans. Meaning of Global Enterprises - Refer to Q 12 of 2 mark questions

Following are the features of Global Enterprises: Refer to Q 11 of 1 mark questions

13.  Briefly explain any four benefits of Joint ventures.

Ans. Meaning of Joint Ventures- Refer to Q 13 of 2 mark questions 

Following are the benefits of Joint ventures: Refer to Q 14 of 2 mark questions

(any four can be written)

Eight marks Questions

1. What are Global Enterprises? Explain their features.

Ans. Refer to Q 12 of 4 mark questions

2. What do you mean by Joint ventures? Explain their benefits.

Ans. Refer to Q 13 of 4 mark questions.

3. Explain the changing role of Public Sector.

Ans. At the time of Independence, it was expected that the public sector enterprises would play an important role in achieving certain objectives of the economy either by direct participation in business or by acting as a catalyst.

Few other objectives which were envisaged for the Public Sector are:

1. Development of infrastructure : It was expected that the public sector would build up infrastructure for other sectors of the economy and invest in key areas.

Since the private sector was unwilling to invest in projects which required heavy investment and had long gestation periods. The government then took it upon itself to develop infrastructural facilities and provide for goods and services essential for the economy.

2. Regional balance: After 1951,the government laid down in its Five Year Plans, that particular attention would be paid to those regions which were lagging behind and public sector industries were deliberately set up.Four major steel plants were set up in the backward areas to accelerate economic development, provide employment to the workforce and develop ancillary industries.

3. Economies of scale: Where large scale industries are required to be set up with huge capital outlay, the public sector had to step in to take advantage of economies of scale. Electric power plants, natural gas, petroleum and telephone industries are some examples of the public sector setting up large scale units. These units required a larger base to function economically which was only possible with government resources and mass scale production.

4. Check over concentration of economic power: The public sector acted as a check over the private sector. The public sector is able to set large industries which require heavy investment and thus the income and benefits that accrue are shared by a large number of employees and workers. This prevents concentration of wealth and economic power in the private sector.

5. Import substitution: During the second and third Five Year Plan period, India was aiming to be self-reliant in many spheres. Obtaining foreign exchange was also a problem and it was difficult to import heavy machinery required for a strong industrial base. At that time, public sector companies involved in heavy engineering which would help in import substitution were established.

However ,in the post–1990s, the new economic policies, emphasised on

(a) liberalisation,

(b)privatisation and

(c) globalisation.

The role of public sector was redefined in the following ways:

1. It was not supposed to play a passive role but to actively participate and compete in the market with other private sector companies in the same industry.

2. They were also held accountable for losses and return on investment.

3. If a public sector was making losses continuously, it was referred to the Board for Industrial and Financial Reconstruction (BIFR) for complete overhauling or shut down.Various committees were set up to study the working of inefficient public sector units with reports on how to improve their managerial efficiency and profitability.

Thus the role of the public sector has changed drastically over years since independence, especially after the introduction of financial reforms in 1991.

4. Explain the Government Policy towards the Public Sector since 1991.

Ans. The Government of India had introduced four major reforms in the public sector in its new industrial policy in 1991. The main elements of the Government policy are as follows:

1. Restructure and revive potentially viable PSUs.

2. Close down PSUs, which cannot be revived.

3. Bring down governments equity in all non-strategic PSUs to 26 percent or lower, if necessary; and

4. Fully protect the interest of workers.

The main steps taken by the Government can be summarised as:

1.Reduction in the number of industries reserved for the public sector from 17 to 8 (and then to 3): These are atomic energy, arms and rail transport. This meant that the private sector could enter all areas (except the three) and the public sector would have to compete with them.

2. Disinvestment of shares of a select set of public sector enterprises: Disinvestment means the sale of the equity shares of the 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. The government had taken a decision to withdraw from the industrial sector and reduce its equity in all undertakings which would lead to improving managerial performance and ensuring financial discipline.

The other objectives of disinvestment are:

a. Releasing the large amount of public resources locked up in non-strategic Public Sector Enterprises (PSEs), so that they may be utilised on other social priority areas such as basic health, family welfare and primary education.

b. Reducing the huge amount of public debt and interest burden;

c. Transferring the commercial risk to the private sector so that the funds are invested in able projects;

d. Freeing these enterprises from government control and introduction of corporate governance; and

e.  In many areas where the public sector had a monopoly, for example, telecom sector the consumers have benefitted by more choices, lower prices and better quality of products and services

3. Policy regarding sick units to be the same as that for the private sector: All public sector units were referred to the Board of Industrial and Financial Reconstruction to decide whether a sick unit was to be restructured or closed down.

4. Memorandum of Understanding: Under this system, public sector units were given clear targets and operational autonomy for achieving those targets. Thus, the managements are to be granted greater autonomy but held accountable for specified results.