Private, Public and Global Enterprises

Written and reviewed by Rohit Singh, Computer Science & Commerce faculty at UniDrill (MCA, Osmania University · 6 years teaching). Based on NCERT Business Studies Class XI, Chapter 3.

Who owns the train, the insurer and the soap factory?

You buy a train ticket, pay a life insurance premium and wash your hands with soap from an international brand. All three are businesses, but each is owned and run in a different way. The ticket comes from a government department, the insurer was created by a special law, and the soap maker has factories in dozens of countries. This chapter sorts them: private enterprises owned by individuals, public enterprises owned by the government, and global enterprises that operate across borders.

A mixed economy: two sectors, one country

India is a mixed economy, which means private and government enterprises are both allowed to operate. The private sector is owned by individuals or groups: sole proprietorships, partnerships, Joint Hindu Family firms, cooperatives and companies. The public sector is owned and managed wholly or partly by the central or a state government. The Industrial Policy Resolutions of 1948 and 1956 divided roles between the two. The New Industrial Policy of 1991 then widened the space for private and foreign business and began the sale of government holdings.

The reason for a mixed economy is simple. Private business goes where profit is. Some needs, such as steel plants in backward regions, railways or power for villages, need huge capital and slow returns that private firms avoided in the early years after Independence. The government stepped in to build them.

What makes an enterprise "public"

A public enterprise has three marks: public ownership, use of public funds and public accountability. There are three forms.

Test every case with three questions. Is it a department of a ministry? That is a departmental undertaking. Was it set up by its own Act of Parliament? That is a statutory corporation. Is it registered as a company in which the government holds at least 51 per cent? That is a government company.

Departmental undertaking: the oldest form

A departmental undertaking functions as a part of a ministry. It is financed by the treasury, it follows government accounting and audit, its employees are government servants, and its head answers to the ministry. It suits activities where national security or national integration is at stake, which is why the railways and the postal system were organised this way.

Statutory corporation: independent, by law

A statutory corporation is created by a Special Act of Parliament, which sets out its powers, functions and relationship with the government. It is a body corporate, which means it can sue and be sued, make contracts and own property in its own name. It is financed independently and its employees are not civil servants.

Government company: a company with a government shareholder

A government company is formed under the Companies Act, 2013. Under Section 2(45) of the Act it is a company in which not less than 51 per cent of the paid up share capital is held by the Central Government, a state government or both, and it includes a subsidiary of such a company. Shares are bought in the name of the President of India. It can be a private limited or public limited company, and it can raise money from the capital market. Its annual report is placed before Parliament or the State Legislature.

Pause and predict: A company is registered under the Companies Act and the Government of India holds 49 per cent of its paid up capital. Is it a government company?

Check your answer: No. The test is not less than 51 per cent. At 49 per cent it is just a company with a large government shareholder.

Mini case. Bharat Agro Seeds is created by an Act of Parliament to supply good seed to farmers. It makes its own contracts, raises its own funds and its staff are not civil servants. It is a statutory corporation. Suppose instead the ministry of agriculture itself ran a seed depot, with staff on government pay and funds from the annual budget. That would be a departmental undertaking. A third version, Bharat Agro Seeds Limited, with 60 per cent of shares held by the government, is a government company.

The changing role of the public sector

The Five Year Plans gave large importance to public investment in three areas: infrastructure and core sectors such as steel, power, petroleum, coal, civil aviation and railways, areas private firms avoided such as fertilisers, pharmaceuticals, newsprint and heavy engineering, and frontier areas like hotels and consultancy. The public sector also made six contributions:

The 1991 reforms. After 1991 public enterprises were asked to compete. The policy had four elements: restructure and revive viable units, close down units that cannot be revived, bring government equity in non-strategic units down to 26 per cent or lower, and protect the interests of workers fully. The number of industries reserved exclusively for the public sector fell from 17 in the 1956 resolution to 8 in 1991 and to 3 in 2001.

Beyond the textbook. For the exam: sick public units are referred to the Board for Industrial and Financial Reconstruction. In reality: that board was wound up in 2016, and revival and closure of stressed companies now go through the National Company Law Tribunal under the Insolvency and Bankruptcy Code. Why it matters: answer BIFR if the question asks about the 1991 reform package, but know that the body has been replaced.

Beyond the textbook. For the exam: disinvestment means the sale of equity of public enterprises to the private sector and the public. In reality: it comes in two flavours. A minority sale keeps control with the government, while a strategic sale hands over management control to the buyer. Why it matters: when a case says the government sold 10 per cent but still holds 90 per cent, the enterprise is still public even though disinvestment has happened.

Global enterprises: companies without a single country

A global enterprise, or multinational corporation, is a large company that operates in several countries through a network of branches and subsidiaries. It sells many products, uses advanced technology and does not depend on profits from one or two lines. It spreads its risk across markets. In India, such companies were allowed in much more freely after 1991.

Beyond the textbook. For the exam: centralised control means the head office controls the overall policy while branches work on their own day-to-day. In reality: each foreign unit is normally a separate company registered in the host country, and the parent controls it through shareholding and a common brand and policy framework. Why it matters: it explains why a branch abroad can sue and be sued locally and still follow the group's policy.

Joint ventures: sharing the work and the risk

A joint venture is the pooling of resources and expertise by two or more businesses to reach a particular goal, sharing risks and rewards. There are two types.

Joint ventures bring six benefits: increased resources and capacity, access to new markets and distribution networks, access to technology, innovation, low cost of production (cheap raw materials, labour and a qualified workforce in India) and access to an established brand name.

Pause and predict: A bakery chain gives a franchise to Hari to run an outlet under its name and recipes. Is this contractual or equity-based?

Check your answer: Contractual. No new company is formed. Hari simply operates under an agreement.

Public private partnership: government and business as co-builders

A public private partnership (PPP) shares tasks, obligations and risks between public and private partners. The public side may be ministries, departments, municipalities or state owned enterprises. The private side may be local or foreign businesses, investors with technical and financial skill, and non government organisations. Government brings capital, assets and social responsibility. The private partner brings expertise, operations and innovation. The named example is the Kundli Manesar Expressway, a 135 km project where the government gave the land and the company built the road surface.

Mini case. A state wants a new bus terminal but cannot fund it fully. It gives the land and a private firm builds and runs the terminal, earning from shop rents. The risk of construction moves to the private firm, and the state gains a terminal sooner. That is a PPP.

Exam traps

60-second revision

Where this chapter connects

• Previous: Forms of Business Organisation gives the private sector forms (proprietorship, partnership, cooperative, company) that this chapter contrasts with the public sector.
• Next: Business Services looks at banking, insurance, transport and other services, many of which are delivered by the public enterprises described here.
• Linked topic: International Business builds on the global enterprise and joint venture ideas introduced here.