PUBLIC, PRIVATE AND GLOBAL ENTERPRISES

IMPORTANT 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

2. Centralized control in MNC's implies control exercised by

(a) Branches
(b) Subsidiaries
(c) Headquarters
(d) Parliament

3. PSE's are organizations owned by

(a) Joint Hindu Family
(b) Government
(c) Foreign Companies
(d) Private entrepreneurs

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

(a) MOFA
(b) MoU
(c) BIFR
(d) NRF

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IMPORTANT QUESTIONS

5. Disinvestment of PSE's implies

(a) Sale of equity shares to private sector / public
(b) Closing down operations
(c) Investing in new areas
(d) Buying shares of PSE's

6. Explain the concept of private sector and public sector?

7. "MNC's are in a position to exercise massive control on an economy."

Substantiate.

8. What are the different kinds of organizations that come under the public
sector?

9. How does the government maintain a regional balance in the country?

10. Can the public sector companies compete with the private sector in terms
of profit and efficiency? Give reasons for your answer.

11. What do you mean by Joint Venture. What are the benefits of entering into
a joint venture?

12. What is Departmental Undertaking? Mention its advantages and

disadvantages.

13. What are statutory/public corporations? Present their advantages and

disadvantages.

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IMPORTANT QUESTIONS

14. Identify the type of public sector undertakings in the following situations:
a) Business enterprise established by the government and controlled by the
Ministry concerned.
b) Enterprise incorporated under a special Act of Parliament or State
Legislature.
c) Enterprise managed by the government and subject to strict budgetary,
accounting and audit control.
d) Enterprise established by the government and registered under the
companies Act.

15. Multinational Companies have done more harm than good. Explain.

16. What is the difference between Public and Private sector?

17. Differentiate between Statutory Corporation, Departmental Undertaking and

Government Company.

18. Mumbai Metro is a rapid transit system which is under construction in

Mumbai. The system is designed to address both present and future needs of
public transportation. The project was implemented under Built, Own, operates
and transfer (BOOT) method and has been India's first special metro project in
which few phases (construction and maintenance) were given to private players.
The project involved an elevated 11 km Light Rail Transit (LRT) system linking
Andheri and Ghatkopar, via Asalpha, Marol, Chakala and Saki Naka. The
construction of Mumbai Metro involved building up of a total of 146 km of track,
of which 32 km is underground. The project was approved by the Government
of Maharashtra in August 2004 and global bids were invited through an
Expression of Interest.

CLASS 11 BUSINESS
 PUBLIC, PRIVATE AND GLOBAL ENTERPRISES
IMPORTANT QUESTIONS

On the basis of the given information about Mumbai Metro, answer the following
questions:

a) State the type of public sector enterprise highlighted in above case.

b) Enlist any three features of this form of business enterprise.
c) Which kinds of applications are preferred to be undertaken by such enterprises?

19. Nourish Co. Beverages Ltd., the strategic alliance between Tata Global
Beverages and Pepsi Co India has plans of delivering healthy beverages for a
healthier India. The company is set to disrupt the hydration category in India by
delivering enhanced wellness through innovative and affordable ready-to-drink
beverages. Science, technology and research forms the foundation of every
product in the Nourish Co. portfolio. The key product of NourishCo Beverages Ltd.,
is Himalayan Orchard Pure available in three flavors viz., Apple, Strawberry and
Peach. The reasons for these alliances is complementary capabilities and
resources such as distribution channels, technology of both the parties.

On the basis of the given information about Nourish Co. Beverages Ltd., answer
the following questions:

a) Identify the kind of business enterprise formed by Tata Global Beverages and
PepsiCo India.

b) Explain the benefits of the kind of business enterprise highlighted in above

case.

CLASS 11 BUSINESS
 PUBLIC, PRIVATE AND GLOBAL ENTERPRISES
IMPORTANT QUESTIONS

20. State some danger of MNC towards the domestic economy?

21. What are the objectives of privatizing public sector enterprises?

22. Why are global enterprises considered superior to other business

organizations?

23. Define Multinational Corporations and their role in the economic

development of a nation.

24. Define Public Private Partnership. Explain its features.

25. What are the various types of organizations in the private sector.

CLASS 11 BUSINESS
 PUBLIC, PRIVATE AND GLOBAL ENTERPRISES
IMPORTANT QUESTIONS

ANSWERS
1. Answer: (b)

2. Answer: (c)

3. Answer: (b)

4. Answer: (c)

5. Answer: (a)

Answer 6: 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. In
other words, it encompasses all organisations that are not owned or operated
directly by the government. In most of the free economies (where the
government has a minimal role), the private sector employs a significant portion
of the workforce. The private sector consists of the following types of
organisations.

• Sole proprietorship
• Partnership
• Joint Hindu Family
• Cooperative societies
• Company

Public sector: This sector consists of organisations that are directly owned and
operated by the government. These organisations are either partly or completely
owned by the central or a state government—
Bharat Heavy Electricals Ltd,
Oil India Ltd.
and Life Insurance Corporation of India are examples of public sector industries.

RECTIFICATION OF ERRORS (ACCOUNTS)

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Answer 7 . MNC's are in a position to exercise massive control on an economy

because of the following reasons:

• MNC's are characterized by possessing huge financial resources. These

huge financial resources give them economic power in the economy. They can
afford to survive even during losses as well.

• MNCs possess technological superiorities and are capable of conform to

international standards and quality specifications.

• They make use of aggressive marketing strategies for their products.

• They have an established brand image in the market.

Answer 8: The public sector consists of organizations that are directly owned
and operated by the government. These organizations are either wholly or
partially under government control. The following are the various forms of
public sector organizations.

• Departmental undertakings
• Statutory corporations
• Government companies

1. Departmental Undertaking: This is the oldest and traditional form of public

enterprises. It is managed by government officials as one of the government
departments. It is under the control of concerned minister of the department,
who is answerable to government through parliament.

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2. Statutory Corporation: Statutory Corporation is a corporate body with a

separate legal existence, set up under a special act of parliament or of the state
legislature.

3. Government Company: According to the Indian Companies Act 1956, a

government company means any company in which not less than 51 per cent of
the paid up capital is held by the government or by any state government or
partly by central government and partly by one or more state governments

Answer 9: The following are the ways in which the Government of India has
employed to maintain regional balance in the country.
(a) Setting up steel industries in rural areas: During the 1950s, the Government
of India established four major steel plants in rural areas. The basic rationale
behind this move was to facilitate the economic development and growth of rural
and backward areas.

(b) Creating employment opportunities: The steels plants and many other
enterprises in rural areas provided the rural people with employment
opportunities, helping them to earn a higher income and enjoy a better standard
of living.

(c) Facilitating development through linkages: The setting up of the industries

contributed to the development of various forward and backward linkages,
besides providing employment opportunities. These linkages encouraged the
agricultural sector, which in turn spurred the development of ancillary industries
(i.e., related industries).

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IMPORTANT QUESTIONS

(d) Ensuring infrastructure development: The establishment of industries in

rural and backward areas necessitated infrastructure development, including
better roads, railways and bridges. The infrastructure made the backward
areas well connected with the rest of the country, facilitating the growth and
development of these areas

Answer 10: No, the public sector cannot compete with the private sector in
terms of profit and efficiency. This is because the private sector is usually
more efficient and earns more profit than the public sector. The following
points make the reasons clear.

(a) Profit motive: Profit is the prime objective of private sector industries. This
motive is achieved by choosing those combinations of capital, labour and
other inputs that minimize the business costs. Further, these companies have
various research and development centres which come up with new
technologies to minimize the costs. However, in the case of the public sector,
profit is not the only important objective. Besides profits, it is the welfare
motive that normally drives the public sector. The prime objective of the public
sector is to produce goods and services that enhance the well-being and
welfare of society. Moreover, PSEs make their goods and services available
to consumers at a nominal cost, in order to keep them within the reach of the
poor.

CLASS 11 BUSINESS
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(b) Efficiency: An organization is said to be efficient when it uses optimum

amount of inputs at low costs to produce a given amount of output. As private
sector industries have structures to ensure quick decision making, they set
their goals in a manner such that the efficiency targets are met well on time.
This is because, in private industries, the management keeps a constant eye
on its employees, which helps check inefficiencies and reduce wastages. In
public sector industries, on the other hand, the decision-making process is
slow and rigid. This is because of the numerous procedures that employees
have to follow, which slow down decision making and affect the overall
efficiency of the industries. Moreover, public sector industries are slower to
adopt new and efficient technologies, and consequently, they lag behind
private sector industries.

Answer 11: A joint venture is a business agreement in which two or more

organizations come together for mutual benefits and gains. Business
organizations in a joint venture share not only the physical, financial and
human resources available but also the risks and profits of the business. The
following are some of the benefits for a company entering into a joint venture.

(a) Increased resources and capacity: In a joint venture, the resources and
operational capacities of the individual business are pooled. A joint venture is
able to expand and grow better than an individual business enterprise.
(b) Access to new markets and distribution networks: Entering into a joint
venture with an enterprise located in another region widens the market base
for each of the individual enterprises.

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IMPORTANT QUESTIONS

(c) Access to technology: Through a joint venture, a company can acquire new
and modern technology more easily with less investment and less time and
effort compared with the technology that individual enterprises may be able to
acquire working independently.

(d) Innovation: A joint venture, especially with a foreign partner, gives a

company access to new ideas and technology which help in the innovation of
new products. These new products enable businesses to sustain in today’s
complex and competitive market.

(e) Low cost of production: The costs of raw material and labour, etc., are very
low in India compared to other countries. Thus, international corporations that
enter into joint ventures with Indian companies reap huge benefits.

Answer 12: Departmental Undertaking - It works as the ministry or a

department of the government. The budget of these departmental
organizations is presented to the parliament just like other ministries. Indian
Railways and Post and Telegraph departments are its examples.

Departmental organizations are entirely owned and controlled by either the

Central Government or by a State Government. Advantages of Departmental
Undertaking: Departmental organization enjoy the following merits:

1. Service Motive: These enterprises are formed with a service motive. Public
interest and social welfare hold priority for them. These undertakings also help
to reduce the burden of tax on the public.

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IMPORTANT QUESTIONS

2. National Importance: Activities that have got national importance are

performed by these departmental organizations. The risk of misuse of
public money minimized due to strict budget, accounting, and audit.

3. Secrecy: These organizations are capable of maintaining secrecy.

because these are under the control of the government. The government
can avoid disclosure of facts on the plea of public interest.

4. Proper Management: These enterprises are managed by qualified

government staff. Their work is systematic. They are properly v managed
and supervised. Such control and management keep the government
official alert.

Disadvantages of Departmental Undertaking Departmental organization

suffer from the following disadvantages:

1. Least profit earning venture: Departmental organization is owned and

controlled by the government. It is formed with a service motive, so it
does not remain an excellent profit earning venture.

2. Red tapism: Employees follow the beaten track. They do not take
much interest in the work. They are careless and bother much for their
salaries. Officers worry much for their status and respect. Decisions are
generally delayed due to bureaucratic procedures and political
considerations.

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3. Lack of competent workers: Government employees are not much efficient

in business affairs. They have sufficient administrative experience but not
experienced enough to manage the activities of, the enterprise. Promotion to
the higher rank is based upon seniority, so competent employees are not
recruited.

4. Political evils: Every important decision in the departmental organization has

a political motive. It is managed and controlled by the minister, who is the
representative of a political party. The minister has to look after the interest of
his party.

5. Lack of competition: Generally departmental organizations have the status

of monopoly. Lack of competition makes them incompetent. In the absence of
competition and profit motive, there is little incentive for hard work and
efficiency. There is hardly any link between reward and performance.,

Answer 13: Public corporations are formed by the special act of Parliament or
Legislative Assemblies.

Their existence is separate from the government. This is why these

corporations are called autonomous bodies. Though these corporations are
independent in financial matters, even then they remain under the control of
the government. It is an autonomous body fully financed by the government.

According to Morrison, "Public corporation is a combination of public

ownership, public accountability, and business management for the public
end." Examples of such corporations are Air India, Life Insurance Corporation
of India, etc.
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 PUBLIC, PRIVATE AND GLOBAL ENTERPRISES
IMPORTANT QUESTIONS

Merits/Advantages of Statutory Corporations Public corporations enjoy the

following merits:
1. Free from government control: These are autonomous bodies, which are
not under the direct control of the government.

2. Service motive: These corporations are also formed in the public interest for
social welfare like other public enterprises. Service motive dominates their
activities.

3. Independent decision: Public corporations are independent in making their

own decisions, policies, and plans.

4. Efficient management: These corporations are benefited from efficient

management because they are managed by a competent board of directors,
who are professional in their attitude and work. As changes in government do
not affect its stability, it can take long term policy decisions.

5. Economic self-independence: Public corporations are financially

independent. They have to arrange their own finances. It is free from political
interference by ministers and bureaucrats.

Demerits/Disadvantages of Statutory Corporations - Public corporations have

got the following disadvantages:

1. Red Tapism: Like other public enterprises and government departments

public corporations are also victims of red-tapism.

CLASS 11 BUSINESS
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IMPORTANT QUESTIONS

2. Rigid structure: The constitution of such a corporation is rigid. The objects

and powers of such corporations cannot be changed without amending the
statute, which is a time-consuming and cumbersome process.

3. Theoretical autonomy: The autonomy of these corporations exists only on

paper. In actual practice, interference by political bosses and ministers gives
the wrong signal to their autonomy. Red-tapism and bureaucratic control
reduce the flexibility of operations.

Answer 14: a) Departmental undertaking

b) Statutory Corporation.
c) Government Company.
d) Government Company.

Answer 15: Yes, I agree that Multinational Companies have done more harm
than good. It is clear from the following disadvantages which it is creating for
the economy.

1. It disregards national priorities.

2. It leads to creation of monopoly.
3. It leads to depletion of natural resources.
4. It leads to technology obsolete.
5. It creates threat to national sovereignty.

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IMPORTANT QUESTIONS

Answer 16: Differences between public and private sectors are summarized in
the table given below:

Private Sector
Basis Public Sector

These are owned by the These are owned by

Ownership government central or individuals or group
state. of individuals.

It aims at social welfare. It aims at profit

Aim
maximisation.

It is likely to be less It is likely to be more

efficient due to lack of efficient due to quick
Efficiency
autonomy and too much decision making.
interference.

It is controlled only by
Management It is subject to control
business laws but net
Control from the government.
directly by the government.

These are accountable

These are accountable to
Accountability to the government.
the owners.

Reliance Industries Limited,

Railways, BHEL, LIC Ltd,
Example Partnership firms, HUF,
SAIL, GAIL
Cooperatives etc.

Answer 17: Differences between Statutory Corporation, Departmental

Undertaking and Government Company are summarized in the table given
below:

FREQUENCY DIAGRAM (STATISTICS)

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IMPORTANT QUESTIONS

Departmental
Statutory Government
Basis Undertaking
Corporation Company

By a special act of Under Companies

Parliament or State Act with or without
Formation By a Ministry
Legislature Private Sector
participation

At least 51% share

Wholly owned by Wholly owned by capital is held by the
Ownership
the Government the Government Government.

Autonomy Sufficient No Autonomy Highest

Separate legal No separate legal Separate legal entity

Legal Status
entity entity

Public
Moderate Highest Low
Accountability

Not government Not government

Government
employees but hired employees but hired
Personnel employees
under a contract of under a contract of
service service

Financed from its

Finance from its
own resources which
own resources Financed from
may
which may include government
Funds include issue of
issue of shares and budget
shares and
debentures.
debentures.

Defense, services
Industrial and Industrial and
of public utility
commercial commercial
Suitability like education,
undertakings undertakings.
health etc.

LIC, GIC, SBI, RBI Railways, Post

Example etc. and Telegraph SAIL, GAIL, BHEL etc.

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IMPORTANT QUESTIONS

Answer 18: a) Mumbai metro is a public private partnership.

b) The features of public private partnership are:

i. Contract with the private party to design and build public facility.
ii. Facility is financed and owned by the public sector.
iii. Key driver is the transfer of design in construction risk.

c) The application of public private partnership are:

i. Capital projects with small operating requirements.

ii. Capital projects where the public sector wishes to retain the operating
responsibility.

Answer 19: a) Joint Venture is a strategic alliance formed by Tata Global

beverages and PepsiCo India.

b) The benefits of joint venture are as follows:

i. Greater resources and capacity: In a joint venture the resources and capacity
of two or more firms are combined which enables to grow quickly and
efficiently.

ii. Access to advanced technology: It provides access to advanced techniques

of production which increases efficiency and then helps in reduction in cost and
improvement in quality of production.

DEPRICIATION (ACCOUNTS)

CLASS 11 BUSINESS
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iii. Access to new market and distribution network: A foreign company gains
access to the vast Indian market by entering into a joint venture with Indian
company. It can also take advantage of well established distribution system of
the local firms.

iv. Innovation: Foreign partners in joint ventures have the ideas and the
technology to develop innovative products and services. They have advantage
in highly competitive and demanding market.

v. Low cost of production: raw materials and labor cheap in developing

countries so if one partner is from developing country they can be benefited by
the low cost of production.

Answer 20: Dangers from MNC:

1. Creation of Monopoly: MNC joins hands with big business houses and gives
rise to monopoly and concentration of economic power in host countries.

2. Threat to National Sovereignty: These corporations tend to interfere in the

political affairs of host nations. Some MNCs like IT1 are accused of
overthrowing governments in countries such as Chile.

3. Alien Culture: MNCs tend to vitiate the cultural heritage of local people and
propagate their own culture to sell their products. For example, MNCS have
encouraged the consumption of synthetic food, soft drinks, etc. in India.

4. Depletion of Natural Resources: MNCs cause rapid depletion of some of the

non-renewable natural resources in host countries.

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Answer 21: The primary objectives of privatizing public sector enterprises are
following:

1. Releasing the large amount, to utilize on other social priority areas.

2. Reducing the huge amount of public debt and interest burden.
3. Transferring the commercial risk to the private sector.
4. Freeing these enterprises from government control.

Answer 22: Global enterprises are considered superior to other business

organizations because it has following advantages which other business
organizations may not have.
1. Huge capital resources: MNCs possess huge capital resources and they are
able to raise lot of funds from various sources.

2. International operations: A MNC has production, marketing and other

facilities in several countries.

3. Centralized control: MNCs have headquarters in their home countries from

where they exercise their control over all branches and subsidiaries. It
provides only broad policy, framework to them and there is no interference in
their day to day operations.

4. Foreign collaboration: Usually they enter into agreements relating to sale of

technology, production of goods, use of brand name etc. with local firms in the
host country

5. Advanced technology: These organizations possess advanced and superior

technology which enable them to provide world class products and services.

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IMPORTANT QUESTIONS

Answer 23: Definition of Multinational Corporation (MNC): A Multinational

Corporation refers to an organization that has its headquarters in one country
and business operations in other countries. This means that this type of
organization will have business across many countries. An MNC has its
registered office in one country (called home country) and it carries its
business operations in a number of foreign countries (called host countries).

A multinational corporation controls production and marketing facilities in more

than one country. For instance, Coca-Cola is a company registered in the
U.S.A., has production and marketing operations in many countries of the
world.

Role of MNCs - Multinational companies have been playing an important role

in several developing economies including India.

1. Investment of Foreign Capital: MNCs can help the developing economies to

secure capital from the developed countries as they suffer from a shortage of
capital required for rapid industrialization. They facilitate the transfer of capital
from countries where it is abundant to countries where it is scarce. Thus,
MNCs can help increase the investment level and thereby the pace of
development of the host country. Since liberalization, India has attracted
foreign investment worth several billion dollars.

2. Advanced Technology: The developing countries have old and obsolete

technology. MNCs can be used as vehicles for the transfer of superior
technology to developing countries. Advanced technological know-how,
improved skills, and consultancy help the developing countries to improve the
quality of products and reduce costs.

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3. Creation of Job Opportunities: The MNCs set up facilities for the production
and distribution of goods and thereby create employment opportunities it is In
the host country. Multinational offer excess lent pay scales and career
advancement opportunities to managers, technical and other staff.

4. Utilization of idle Resources: The MNCs help in the utilization of idle

resources of the host country and thus generate income for the country.

5. Creation of Healthy Competition- MNCs increase competition and break

domestic monopolies. The inefficient firms are forced to either improve or
withdraw from the market. Many Indian companies now compete with
multinationals after liberalization through improved technology.

6. Professional Management: The MNCs kindle a managerial revolution in the

host countries by professional management and the employment of the latest
management techniques. The host countries are thus able to develop a culture
of professional management. Multinationals build up a knowledge base
through management techniques like MBO and corporate planning.

7. Growth of Domestic Firms: The MNCs can help the growth of domestic
firms to supply them materials, components, etc. Over the years, several
ancillary units have grown to provide support to the MNCs.

8. Higher Standard of Living: Because of their superior technology, MNCs

provide a large variety of quality products to the people in the host country.
This helps to increase their standard of living.

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9. Integration with the World Economy: The MNCS facilitate the integration of
the economy of the host country with the world market. They encourage
international brotherhood and cultural exchanges in the host country.

Answer 24: Public Private Partnership (PPP) refers to the involvement of

private enterprises in the form of management expertise and for financial
contribution in government projects for public benefits. A public partner may be
a central government or a state government or a local body. A private partner
may be either an Indian private enterprise or two or more enterprises of
foreign private enterprise or enterprises. For e.g.- a number of highway
projects have been taken up under PPP.

Features of PPP are explained below ;

1. Contractual Relationship - PPP is a contract between public sector authority

and private sector organisation in which private sector organisation provides
its services and bears the financial, technical and operational risk for
implementing a project meant for public benefits.

2. Pertaining to High Priority Projects and Projects for Public Welfare - PPP is
suitable for high priority projects such as infrastructure sector. PPP is used in
the public welfare projects e.g.Delhi metro constructing bridge and so on.

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3. Choice of Partner by the Government - Government has the sole right to

choose the partner to whom the contract may be given. For choosing the
partner the government may adopt any one of the following methods,
competitive bidding or competitive negotiation with suitable organisations and
selecting the most suitable.

4. Payment Mechanism- The government may pay to the private partner i.e.
an alternative way-contractual payment for implementing the project grants-in -
aids to cover a part of the project cost or giving right to the partner to levy a
charge on the users of the facility (for e.g. toll tax on bridges constructed under
PPP).

5. Sharing of Revenue - The revenue of PPP is shared between government

and private partner in an agreed ratio. The main problem with PPP projects is
that private investors get a rate of return that is higher than the government
bond rate even though most of the risk is borne by the public sector

Answer 25: Various types of organizations in the private sector include:

1. Sole Proprietorship: Sole proprietorship refers to a form of business

organization which is owned, managed and controlled by an individual who is
the recipient of all profits and bearer of all risks.

2. Hindu Undivided Family Business: It refers to a form of organization wherein

the business is owned and carried by the members of the Hindu Undivided
Family (HUF).

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3. Partnership: Partnership is the relation between persons who have agreed

to share the profit of the business carried on by all or any one of them acting
for all.

4. Cooperative Society: Cooperative society is a voluntary association of

persons, who join together with the motive of welfare of the members.

5. Joint Stock Company: A company is an association of persons formed for

carrying out business activities and has a legal status independent of its
members.

6. Multinational Corporations: An MNC is a company whose business

operations extend beyond the country in which it has been incorporated.

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