PRIVATE, PUBLIC AND GLOBAL ENTERPRISES

3.1 Introduction

In daily life, you come across many businesses:

 Small shops owned by a person (Sole Proprietorship).

 Larger businesses run by a group (Partnership).
 Government departments like Railways and the Post Office.
 Global Enterprises, like multinational firms, working across many countries.

Summary: All businesses operate in one of three sectors:

1. Private Sector (Owned by individuals or groups).

2. Public Sector (Owned by Government).
3. Global Enterprises (Businesses working across borders).

3.2 Private Sector and Public Sector

1. Private Sector
Meaning:
The private sector includes all the businesses and industries that are owned, controlled, and managed by
individuals or private groups, not the government.
These businesses are started with the aim of earning profit. The people who invest their money in these
businesses take care of all the decisions and bear the risks too.
Key Features:
 Owned by private individuals or groups.
 Run for profit.
 Can be small or large businesses.
 Decisions are taken by the owner or board of directors.
Forms of Private Sector:
There are different forms of private businesses:
1. Sole Proprietorship:
 Owned by one person.
 That person takes all the decisions, earns all the profit, and bears all the risk.
Example:
A small neighborhood medical shop run by one person. He/she buys the medicines, sells them, and keeps the
earnings.
2. Partnership:
 A business run by two or more people who share profits and losses.
Example:
A law firm or a clinic run by two or three doctors together.
3. Hindu Undivided Family (HUF):
 This is a business run by members of a Hindu family.
 The eldest male member (called Karta) manages the business, and other members are co-owners.
Example:
A family-owned shop or small-scale industry passed down generations.
4. Cooperative Society:
 A business owned and run by a group of people with a common goal.
 Aim is not just profit, but also to help members.
Example:
A dairy cooperative where farmers bring milk, and the society sells it and shares the income.
5. Company:
 A large organization where many people (called shareholders) invest money.
 Managed by a board of directors.
 It is a separate legal entity (different from its owners).
Example:
Tata Group – It is a company that makes cars, mobile phones, chemicals, software, etc.

2. Public Sector
Meaning:
The public sector includes businesses and industries that are owned and managed by the Government.
The main aim of the public sector is not profit but to provide essential services, develop the country’s
economy, and take care of people’s welfare.
Key Features:
 Owned and operated by the government (central, state, or both).
 Focus on public interest and national development.
 Funded by tax money or government funds.
 May not always be profitable, but they are necessary for the country.
Examples of Public Sector Enterprises:
1. Indian Railways:
 Owned and operated by the Government of India.
 It connects people across the country and provides affordable travel.
 It is one of the largest employers in India.
2. ONGC (Oil and Natural Gas Corporation):
 A government-owned company that searches for and produces oil and gas in India.
 It helps in making India energy-independent.
3. BSNL (Bharat Sanchar Nigam Limited):
 A government-owned telecom service provider.
 It provides internet and mobile services, especially in rural areas where private companies may not
go.
3. Mixed Economy
Meaning:
A mixed economy is a system where both private and public sectors work together.
India follows a mixed economy model. This means:
 Private businesses (like Tata, Reliance, Infosys) run to earn profits.
 Public sector companies (like Indian Railways, ONGC) work for national interest.
 Government and private players both play important roles in development.
Why Mixed Economy?
 It balances the strengths of both private and public sectors.
 Private sector brings efficiency, competition, and innovation.
 Public sector ensures equity, basic services, and national welfare.
Example of Mixed Economy in India:
1. Healthcare:
 Private hospitals (like Apollo, Fortis) provide high-end services.
 Government hospitals (like AIIMS) offer affordable or free treatment.
2. Telecom Sector:
 Private players like Jio and Airtel offer competitive services.
 BSNL offers services in remote areas and is government-supported.
Feature Private Sector Public Sector Mixed Economy
Ownership Individuals or private groups Government Both private and public
Objective Profit Public welfare Both profit and welfare
Example Tata, Reliance Indian Railways, ONGC India’s economy
Decision- By owner or directors By government Joint roles
making
Risk Borne by private owners Borne by government Shared responsibility
3.3 Forms of Organising Public Sector Enterprises

Government businesses can be run in three ways:

1. Departmental Undertakings
2. Statutory Corporations
3. Government Companies

1. Departmental Undertakings
✅ What it means:
A Departmental Undertaking is a business unit owned and operated directly by a government department. It
is just like any other part of the government, such as a police department or education department.
✅ Examples:
 Indian Railways
 India Post (Post and Telegraph)
✅ Main Features:
 It works under a government ministry (like Ministry of Railways).
 It is fully funded by the government (from taxpayers' money).
 It does not have a separate legal identity – it is part of the government.
 The employees are government employees, and they follow government service rules.
 Ministry controls all major decisions, policies, and operations.
✅ Merits (Advantages):
1. High accountability – Since the government is directly running the business, it is easy to hold
someone responsible if something goes wrong.
2. Good for national security services – It is suitable for services that are sensitive or related to national
interest (like Defence production, railways, etc.).
❌ Limitations (Disadvantages):
1. Lack of flexibility – Since all decisions need approval from the ministry, it takes a lot of time to
make changes.
2. Bureaucratic delays – Too much paperwork and red tape can slow down work.
🧠 In Simple Words:
It’s like the government running a business just like it runs schools or hospitals — fully controlled, funded,
and operated by government rules.

2. Statutory Corporations
✅ What it means:
A Statutory Corporation is a government business that is created by passing a special law (called an Act of
Parliament). This law gives it powers and duties.
✅ Examples:
 Life Insurance Corporation of India (LIC)
 Food Corporation of India (FCI)
 Airports Authority of India (AAI)
✅ Main Features:
 It is created by a special act passed in Parliament.
 It is not part of any government ministry.
 It has a separate legal identity, just like a company.
 It has autonomy – meaning it can take many decisions on its own.
 The law that created it defines its powers, objectives, and functions.
✅ Merits (Advantages):
1. More flexibility and autonomy – It can make business decisions faster without waiting for
government approval.
2. Profit stays in the business – It can use its profits for development instead of sending it to the
government.
❌ Limitations (Disadvantages):
 1. Political interference – Even though it's independent, sometimes politicians and bureaucrats interfere
in its decisions.
2. Less competition – As it gets support from the government, it may not try to be efficient like private
companies.
🧠 In Simple Words:
It’s like a special government-run company that has its own rules and freedom, created by a law, but still
influenced by the government.

3. Government Companies
✅ What it means:
A Government Company is a company registered under the Companies Act, 2013, in which the government
owns at least 51% (more than half) of the shares. These companies operate just like private companies, but
the majority owner is the government.
✅ Examples:
 ONGC (Oil and Natural Gas Corporation)
 BHEL (Bharat Heavy Electricals Limited)
 SAIL (Steel Authority of India Limited)
✅ Main Features:
 It is registered like any other private company.
 The government is the main shareholder (owns 51% or more shares).
 It has a separate legal identity.
 It follows the rules of the Companies Act, not the government rules.
 It can sue or be sued in its own name, and can enter into contracts.
✅ Merits (Advantages):
1. More autonomy and flexibility – It can take business decisions without waiting for ministry
approval.
2. Efficient functioning – It can work like private companies with faster processes and professional
management.
❌ Limitations (Disadvantages):
1. Government control – Even though it looks like a private company, the government still controls
most of it, which can slow down decisions.
2. Not fully accountable to public – Unlike ministries, the public doesn’t have much say in how it
works.
🧠 In Simple Words:
It’s like a regular company where the government owns most of the shares, so it works independently but
under government influence.
Basis Departmental Statutory Corporation Government Company
Undertaking
Legal Status Not a separate legal Separate legal entity by Separate legal entity under
entity law Company Law
Formation No law needed, part of Created by special Act of Formed under Companies Act
ministry Parliament
Ownership 100% Government Fully Government Minimum 51% Government
shares
Flexibility Very low Moderate to high High
Example Indian Railways LIC ONGC, BHEL
Type of Government servants Own recruitment system Company employees
Employees
Suitability Services like defence, Large-scale public utilities Industrial or commercial
railways businesses

Type of Business Best For

Departmental Services that require full government control like defence, railways, postal
 services.
Statutory Corporation Large public services needing autonomy, like insurance, airports, electricity.
Government Commercial and industrial activities, like oil, gas, heavy engineering.
Company

3.4 Changing Role of the Public Sector

When India became independent in 1947, the country faced several economic problems:

 Lack of basic industries and infrastructure (roads, electricity, steel plants, etc.)
 Poverty and unemployment
 Regional imbalance – some areas were developed, others were backward
 Lack of private capital – private businesses didn’t have enough money or confidence to invest in big
projects

So, the government started public sector enterprises to:

1. Build Infrastructure and Heavy Industries

At that time, building industries like steel, coal, electricity, oil, heavy machinery needed huge investment
and long-term planning. Private companies were not willing to take that risk.

✅ Example:
The Government set up Steel Authority of India Limited (SAIL) to produce steel for construction, railways,
bridges, etc.

2. Develop Backward and Remote Areas

Private businesses always preferred to invest in cities or developed regions to earn profit quickly. But rural
or tribal areas were left behind.

✅ Example:
Public sector companies like NTPC (National Thermal Power Corporation) were set up in remote regions to
generate electricity and bring development.

3. Create Jobs and Reduce Unemployment

The government created many public sector companies to generate employment and give job security to
people.

✅ Example:
People got jobs in banks, railways, manufacturing units, etc. – helping many middle-class families rise out
of poverty.

4. Promote Balanced Economic Growth

The public sector was used to promote equality and balance between different sectors and regions of India.

✅ Example:
Setting up fertilizer factories, power plants, and oil refineries in different parts of the country helped reduce
regional imbalance.

🔄 Changes in the Role of the Public Sector After 1991 (LPG Reforms)
In 1991, India faced a major economic crisis:

 Foreign exchange was very low

 Government didn’t have money to pay for imports
 Public sector units were making losses

To handle this, the government introduced LPG reforms: Liberalization, Privatization, and Globalization.

🔄 After 1991, the role of the public sector changed from:

❌ "Controller" ➔ ✅ "Participant and Competitor"

Earlier, the government controlled everything: licenses, prices, quotas. After 1991, the market was opened
for competition. Public sector units had to compete with private companies and perform better.

✅ Example:
BSNL (Bharat Sanchar Nigam Limited) used to be the only telephone service provider. But after 1991,
private companies like Airtel and Jio entered the market. BSNL had to improve service to survive.

🔧 Major Policy Changes After 1991

1. Reduced Number of Industries Reserved for the Public Sector

Earlier, 17 important industries were reserved only for the government. These included steel, electricity, oil,
etc.

But after 1991:

 The number of reserved industries reduced from 17 ➔ 8 ➔ 3

 Now, only 3 industries are reserved for the public sector:
1. Atomic Energy
2. Railways
3. Defense Production

✅ Example:
Steel industry, which was earlier reserved for public sector (like SAIL), is now open to private companies
like Tata Steel and JSW Steel.

2. Disinvestment – Selling Government Shares

To reduce the burden on the government and raise money, it started selling shares of public sector units
(PSUs) to private investors.

This is called disinvestment.

✅ Example:
The government sold shares of Air India, BPCL, LIC, and others. Air India was even completely handed
over to the Tata Group.

3. Treatment of Sick Units

Many public sector units were making huge losses and were called "sick units".

Earlier, the government kept funding them. But after 1991:

  These companies were treated like private firms.
 If they could not improve, they were either shut down or restructured.

✅ Example:

 Hindustan Cables Limited was closed.

 Some others were merged with stronger PSUs or sold to private companies.

4. Introduction of MoUs (Memorandums of Understanding)

To improve efficiency and hold public sector units accountable:

 Government signed MoUs with PSUs every year

 These agreements set performance targets, like profit, quality, service

✅ Example:
If ONGC (Oil and Natural Gas Corporation) signs an MoU with the government, it must meet certain targets
related to production and earnings. If it performs well, it gets rewards; if not, it must improve.

Aspect Before 1991 After 1991 (LPG Reforms)

Role of Public Builder of economy, controller Participant in open market, competitor
Sector
Industries Reserved 17 key industries Only 3 (Atomic Energy, Railways, Defense)
Sick Units Supported by government Closed, merged, or restructured
funds
Competition No competition Had to compete with private and foreign
companies
Accountability Weak performance monitoring Performance measured through MoUs
Ownership Fully government-owned Disinvestment to bring private ownership

3.5 Global Enterprises (MNCs)

✅ Operate across many countries.

✅ Large size, huge capital, advanced technology, and global marketing.

1. 💰 Huge Capital Resources

What it means:
MNCs have a lot of money to run their business. They can raise funds from many sources like international
banks, investors, or even their own profits.

Example:
Apple Inc. has billions of dollars. If it wants to open a new factory in India or Brazil, it can easily get a loan
from global banks or use its own savings.

2. 🤝 Foreign Collaboration

What it means:
MNCs often work together with local companies in other countries. This helps them use local knowledge
and also share their own technology and expertise.

Example:
Suzuki (a Japanese company) partnered with Maruti in India to form Maruti Suzuki.
Suzuki gave the technology, and Maruti brought local market knowledge. Together, they became
successful.

3. ⚙️Advanced Technology

What it means:
MNCs use the latest machines, tools, and software in their factories and offices. This helps them produce
better products faster and cheaper.

Example:
Samsung uses high-end robots and automation in its smartphone manufacturing plants in South Korea and
Vietnam. This makes production efficient and modern.

4. 🧪 Product Innovation

What it means:
MNCs spend a lot of money on research and development (R&D). They always try to create new products
or improve old ones.

Example:
Coca-Cola keeps changing its packaging and flavor formulas to match local tastes. They even introduced
Mango-flavored Coca-Cola for the Indian market.

5. 📢 Marketing Strategies

What it means:
MNCs have strong marketing and advertising strategies. Their brand names are known all over the
world. They advertise on TV, internet, sports events, etc.

Example:
Nike uses international sports celebrities like Cristiano Ronaldo and Virat Kohli to advertise its shoes and
clothes. Its slogan “Just Do It” is recognized globally.

6. 🌎 Expansion of Market Territory

What it means:
MNCs sell their products and services in many countries. They may have offices, branches, factories, or
retail stores in several parts of the world.

Example:
McDonald's has thousands of outlets in over 100 countries including India, the USA, UAE, UK, and more.
They also adapt menus to local tastes—like the McAloo Tikki Burger in India.

7. 🏢 Centralized Control

What it means:
Even though an MNC operates in many countries, the main decisions are made at the headquarters,
which is usually in the home country. Local branches follow the decisions made by the head office.

Example:
Microsoft has its headquarters in the USA. It has offices in India, Germany, Japan, etc. But most important
decisions (like new product launches or policies) are made in the USA.

Feature Simple Meaning Example

 Huge Capital MNCs have lots of money Apple, Amazon
Foreign Collaboration Work with local companies Maruti-Suzuki
Advanced Technology Use latest machines/tools Samsung factories
Product Innovation Create new or better products Coca-Cola flavors
Marketing Strategies Global advertising & brand name Nike, Adidas
Market Expansion Sell in many countries McDonald's stores worldwide
Centralized Control Decisions from headquarters Microsoft HQ in the USA

3.6 Joint Ventures

✅ Two or more businesses (private or Government) work together.

✅ Pool resources, technology, and expertise.
✅ Share profits and losses.

A Joint Venture (JV) is a business arrangement where two or more companies come together to do a
specific project or business activity. They share resources, risks, profits, and losses.

But unlike a merger, the companies remain separate, even though they work together for that one purpose

🧩 Types of Joint Ventures

1. Contractual Joint Venture

 In a Contractual Joint Venture, companies sign a legal agreement to work together on a specific
project.
 No new company or entity is formed.
 The companies stay separate but follow the agreement to work together.
 It's usually temporary and used for limited-time projects.
 This is similar to franchise or licensing agreements, where one party gives the right to use its name,
products, or services.

✅ Example:

Let’s say Tata Consultancy Services (TCS) and a UK-based tech firm want to work together on
developing a new app.

 They sign a contract that clearly defines:

o What work each company will do
o How profits and costs will be shared
o How long the partnership will last
 They don’t create a new company, but collaborate through that agreement.

This is a Contractual Joint Venture.

2. Equity-based Joint Venture

 In an Equity Joint Venture, the partner companies create a new company together.
 Each company invests money and gets shares in the new company.
 They become co-owners of the new company.
 The profits and losses are shared according to the percentage of ownership.

✅ Example:

Suppose Maruti Suzuki India Limited is a result of a joint venture between:

  Maruti (Indian company) and
 Suzuki (Japanese company)

They created a new company:

 Maruti Suzuki
Both partners invested money and shared control.

This is an example of an Equity-based Joint Venture.

🎁 Benefits of Joint Ventures

Joint ventures can offer many advantages, especially when two companies with different strengths work
together.

1. Increased Resources and Capacity

 By joining hands, both companies can combine their resources, like:

o Money
o Skilled staff
o Infrastructure
 This helps them to do bigger projects which they couldn’t do alone.

✅ Example:

A small Indian manufacturer may partner with a large foreign company to get access to better machinery or
trained staff.

2. Access to New Markets

 A company can enter a new country or market by partnering with a local company.
 The local partner helps with:
o Knowledge of customer preferences
o Legal rules
o Language and culture

✅ Example:

An American food brand wants to sell its products in India. It can form a joint venture with an Indian food
distributor to understand the local market.

3. Reduced Cost of Production

 Partners can share the costs of:

o Setting up a factory
o Research and development
o Marketing
 This helps in reducing the financial burden on each partner.

✅ Example:

Two pharmaceutical companies join hands to develop a new medicine. By sharing lab space and research
teams, they reduce the total cost.
4.Use of Advanced Technology

 Companies with modern technology can share it with their partner.

 This helps the other partner to improve quality and work faster.

✅ Example:

A European electronics company may have advanced chip-making technology. If it forms a JV with an
Indian firm, the Indian company can learn and use that technology.

5 Established Brand Names

 When a company joins hands with a famous brand, it automatically gets trust and recognition from
customers.
 This helps in quick sales and faster growth.

✅ Example:

An Indian clothing brand may enter a joint venture with Nike. The popularity of the Nike brand will help the
new company to grow quickly in India.

Type Key Feature New Example

Entity?
Contractual Agreement-based cooperation ❌ No TCS and UK firm working on a
JV project
Equity JV New company is formed with shared ✅ Yes Maruti Suzuki (India + Japan)
ownership

3.7 Public Private Partnership (PPP)

A Public-Private Partnership (PPP) is a type of collaboration or cooperation between the Government

(public sector) and private businesses (private sector) to work together on large projects like roads, bridges,
hospitals, schools, airports, railways, etc.

✅ Why is PPP important?

Some projects are too big or expensive for the government to handle alone. So, instead of doing everything
by itself, the government joins hands with private companies. Both sides share the responsibilities, risks,
and profits.

✅ What do both sides contribute?

Government (Public Sector) Private Businesses (Private Sector)

Provides land for the project Brings money/investment
Gives legal approvals and clearances Offers technical expertise and experience
Makes policies and rules Handles construction and daily operations
May offer subsidies or tax benefits Maintains efficiency and quality

✅ Example: Kundli-Manesar Expressway

Let’s take the example of the Kundli-Manesar Expressway in India.

 This is a major highway project.

 The government helped by giving land, permissions, and support.
  A private company helped by building the road, maintaining it, and collecting tolls.
 This is a PPP project – both public and private sectors worked together.

🗝️Key Terms

1. Private Sector

 These are businesses owned and managed by individuals or private companies.

 Example: Reliance, Tata, Infosys.

🧠 Think of your local shopping mall or a private hospital — they’re run by businesspeople, not the
government.

2. Public Sector

 These are businesses or services owned and managed by the Government.

 Example: Indian Railways, BSNL, LIC.

🧠 The government runs these to serve people, not just for profit.

3. Departmental Undertakings

 These are government departments that act like businesses.

 They are controlled directly by a ministry.
 Example: Indian Railways is part of the Ministry of Railways.

✅ Features:

 Fully controlled by government.

 Employees are government workers.
 Profits go to the government.

4. Statutory Corporation

 A business created by a special law (Act of Parliament or State Legislature).

 It has its own rules and powers.
 Example: LIC (Life Insurance Corporation of India), created under the LIC Act, 1956.

✅ Features:

 Independent from direct government control.

 Has its own board of directors.
 Government usually owns a big part of it.

5. Government Company

 A company registered under the Companies Act, where at least 51% of shares are owned by the
Government.
 Example: ONGC (Oil and Natural Gas Corporation), Bharat Petroleum.

✅ Features:

 Looks like a private company but controlled by the government.

 More freedom than a government department.
6. Joint Ventures

 When two or more businesses work together for a common goal, it’s called a joint venture.

🧠 It’s like two friends starting a restaurant together. They share money, work, and profits.

 Example: Maruti Suzuki – a joint venture between India’s Maruti and Japan’s Suzuki.

✅ In the context of PPP, Joint Ventures can happen between government and private firms too.

7. Public-Private Partnership (PPP)

As explained earlier, this is a special joint venture between Government and Private Sector for big
projects like:

 Highways
 Airports
 Power plants
 Metro systems
 Hospitals

✅ Benefits:

 Combines public welfare with private efficiency.

 Saves government money.
 Makes projects faster and better.

✅ Types of PPP Models (Extra Understanding – Optional for Exams)

There are different types of PPP models, depending on who pays for what and who runs the project:

1. Build-Operate-Transfer (BOT):
o Private company builds the project.
o Operates it for a few years to recover money.
o Then transfers it back to the government.
2. Build-Own-Operate (BOO):
o Private company builds and owns the project forever.
3. Design-Build-Finance-Operate (DBFO):
o Private company handles everything — from designing to financing to operating.

🧠 These models help the government get things done faster and better without doing everything on its
own.

🔁 Summary – Quick Revision

Concept Meaning
PPP Public + Private sector work together
Private Sector Owned by individuals
Public Sector Owned by Government
Departmental Undertakings Government departments acting as businesses
Statutory Corporation Government business created by a special law
Government Company Registered under Companies Act, government holds 51%+ shares
Joint Ventures Two or more entities work together
Example of PPP Kundli-Manesar Expressway