1st PUC Business Studies Question Bank Chapter 3 Private, Public and Global Enterprises

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Karnataka 1st PUC Business Studies Question Bank Chapter 3 Private, Public and Global Enterprises

1st PUC Business Studies Private, Public and Global Enterprises Text Book Questions and Answers

Multiple Choice Questions

Question 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
Answer:
(b) 51 percent

Question 2.
Centralised control in MNC’s implies control exercised by
(a) Branches
(b) Subsidiaries
(c) Headquarters
(d) Parliament
Answer:
(c) Headquarters

Question 3.
PSE’s are organisations owned by
(a) Joint Hindu family
(b) Government
(c) Foreign Companies
(d) Private entrepreneurs
Answer:
(c) Foreign Companies

Question 4.
Reconstruction of sick public sector units is taken up by
(a)MOFA
(b) Moll
(c) BIFR
(d) NRF
Answer:
(c) BIFR

Question 5.
Disinvestments of PSE’s implies
(a) Sale of equity shares to private sector/publie
(b) Closing down operations
(c) Investing in new areas
(d) Buying shares PSE’s
Answer:
(a) Sale of equity shares to private sector/public

Short Answer Questions

Question 1.
Explain the concept of the public sector and private sector.
Answer:
Private Sector and Public Sector:
Meaning-A business enterprise may be defined as an organisation or institution dealing in trading, commercial and industrial activities. This term is used interchangeably with business organisation, business firms, business concerns, etc. India is a mixed economy where both public and private sectors coexist. Thus, business undertakings may be classified sector-wise as follows:

• Private sector enterprises which are owned and controlled by private entrepreneurs, having no intervention by the Government.
• Public sector enterprises are owned and controlled by the Government either Central or State Government.

Meaning and Features of Private Sector Enterprise – A private-sector enterprise is owned, controlled, and managed by individuals or groups of individuals known as entrepreneurs. Examples of private enterprises include Modi Textile, Reliance Industries, Bombay Dyeing, Tata Iron and Steel Company (TISCO), Bajaj Auto, etc.

The basic features of a private enterprise are as follows :

• It is owned by private individuals or groups of individuals who provide capital to the business unit.
• It is managed and controlled by the owners themselves or professional managers appointed by the owners.
• Its main objective is to earn profit and generate wealth for the owners.
• Financial management is full in the hands of its owners who operated,
• Routine administration is in the hands of owners or professional managers.

Meaning and Features of Public Sector Enterprise – According to A.H. Hansen, “A public enterprise means government ownership of a business undertaking.” In other words, a public enterprise is owned, controlled, and managed by the Government.

The Central, the State, or the local Government may singly or jointly contribute capital for the public enterprise. Someofthepopularpublic enterprises include Life Insurance Corporation of India(LIC), Hindustan Machine Tools Ltd (HMT), Indian Oil Corporation (IOC), Food Corporation of India (FCI), State Trading Corporation of India (STC), State Financial Corporation (SFC), etc.

The salient features of a public enterprise are as follows :

• The capital of such an enterprise is invested by the Government – the Central Government or the State Government or the Local Government, either singly or jointly.
• The management and control of such enterprises exclusively in the hands of the Government.
• Public welfare or service is the main objective of public enterprises. The profit motive is secondary. .
• Public enterprises are accountable to the general public.
• The financial management of a public enterprise is wholly under the control of the Government.
• It is managed by officials appointed by the respective Governments.

Question 2.
State the various types of organizations in the private sector.
Answer:
The various types of organizations in the private sector are:

1. Sole Proprietorship: It refers to the form of organization where the business is owned, managed, and controlled by a single individual who bears all the risks and enjoys the whole profit.
2. Partnership: It defined as an association of two or more persons who agree to carry the business together and share the profit as well as bear risks collectively.
3. Joint Hindu Family: This business is owned and carried on by the member of a Hindu Undivided family which is governed by Hindu Law.
4. Company: It may be defined as an artificial person existing only in the eyes of law with perpetual succession, having a separate legal entity and a common seal. It’s of two types – Private and Public.
5. Multinational Corporations: They are huge industrial organizations which extend their industrial and marketing operations through a network of their branches in several countries.

Question 3.
What are the different kinds of organisations that come under the public sector?
Answer:
Forms of Public Sector Enterprises – Public sector enterprises are owned and controlled by the Government. They are generally organised on the following patterns:

(1) Departmental Undertaking- It is the oldest method of organising state enterprises. It is financed and controlled by a department of the Government. Railways, posts, telegraph, communication, atomic energy, and defense undertakings are few examples of departmental enterprises.

(2) Statutory Corporation- It is an autonomous business undertaking created by law to conduct the activities entrusted to it. It is a body corporate which is set up under a special Act passed by the Central or State Legislature. Since it is created by a statute, it is known as a statutory corporation, e.g. Life Insurance Corporation of India (LIC). Food Corporation of India (FCI), Employees’ State Insurance Corporation, Reserve Bank of India (RBI) and Air India etc.

(3) Government Company – It is a company in which not less than 51 % of the paid-up share capital is held by the Government either central or state Government. It is formed and registered under the Companies Act, 1956 which contains special provisions relating to government companies e.g., Bharat Heavy Electricals Ltd. (BHEL), Steel Authority ofIndiaLtd.($AlL),StateTradingCorporation(STC),Hindustan Machine Tools Ltd. (HMT) etc.

Question 4.
List the names of some enterprises under the public sector and classify them.
Answer:
Some enterprises under the public sector are:

1. Indian Railways: Departmental Undertaking
2. Indian Post and Telegraph: Departmental Undertaking
3. Steel Authority of India Limited (SAIL): Government Company
4. Bharat Heavy Electricals Limited (BHEL): Government Company
5. Life Insurance Corporation (LlC) of India: Statutory Corporation
6. State Trading Corporation: Statutory Corporation

Question 5.
Why is the government company form of organisation preferred to other types in the public sector?
Answer:
Government Company – The company, whose at least 51 percent of the paid-up share capital is held by the government is known as Government Company. Shares may be held by the central government or state government jointly or individually. It is registered as a public limited company, under the Indian Companies Act, 1956.

The prime reason behind the formation of government company in the presence of departmental organisation and public corporations is simply to leave the door open for private local and foreign participation in the capital.

Certain examples of Government Companies:

• Heavy Electricals Ltd.
• Hindustan Steel Ltd.
• Hindustan Machine Tools Ltd.
• Hindustan Aircraft Ltd.
• Indian Telephone Industries Ltd.

Merits/Advantages of Government Company – The government company has the following merits:
(1) Independent business policies – The government companies are not under the direct control of the government, so they are free to formulate their own independent policies suitable to their interest. They are also free from bureaucratic control and interference. It can manage its affairs independently.

(2) Benefit of expertise – The government company has private even foreign participation in their capital, so they can engage expert managers and technicians in their business operations. Therefore, efficiency of the management can be high.

(3) Additional financial resources-These companies have public as well as private sources. They can borrow funds. Even debentures can be issued by them to raise the funds.

(4) Doubly benefited – Private participation leads to efficient and economical management and the government participation supplies sufficient resources. Dividend obtained by the government is used for social welfare, so benefited to both the private investors and the public in general. Government company is considered a good compromise between the rigid departmental undertaking and autonomous public corporations.

(5) Easy formation – It can easily formed as no separate statute is required to be passed. It can be created by the executive decision of the government.

Question 6.
How does the government maintain a regional balance in the country?
Answer:
One of the major objectives of planning in India has been that of removing regional disparities. During the pre-independence period most of the industrial progress was limited to a few areas like the port towns. After the inception of planning in 1951, the government started paying special attention to those regions which were lagging behind and public sector industries were deliberately set up in those backward regions.

Four major steel plants were set up in the backward areas to accelerate economic development, provide employment to the workforce and develop ancillary industries, e.g., with the establishment of Bhilai Steel Plant in Madhya Pradesh, several new small industries have come up in that state.

The private businessmen hesitate to establish their enterprises in the backward areas due to lack of infrastructure facilities, skilled workforce, etc but these regions cannot be neglected in the public interest, therefore, the government located new enterprises in backward areas and at the same time prevented the mushrooming of private sector units in already advanced ares.

Long Answer Questions

Question 1.
Describe the Industrial Policy 1991, towards the public sector.
Answer:
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:

• Restructure and revive potentially viable PSUs
• Close down PSUs, which cannot be revived
• Bring down governments equity in all non-strategic PSUs to 26 percent or lower, ifnecessary, and
• Fully protect the interest of workers.

1. Deservation:
In the 1956, industrial Policy Resolution, 17 industries were reserved for the public sector. In 1991, only 8 industries were reserved for the public sector, they were restricted to the areas of atomic energy, arms and ammunition, defense, mining, and railways. This meant that the private sector could enter all areas excet these eight (now three since 2001) giving competition to public sector.

2. Disinvestment of Public Sector Enterprises:
Disinvestment involves the sale of the equity shares to the private sector and the public. This was done with an aim to raise hinds and encourage wider participation of the general public and workers in the ownership of these enterprises. This was expected to result in-imporived managerial efficiency and financial discipline.

3. Policy regarding sick units:
All public sector units were referred to the Board of Industrial and Financial Reconstruction (BIFR) to decide whether a sick unit was to be restructured or closed down. national Renewal Fund (NRF) was set up by the government to retrain or redeploy labour retrenched from a sick unit and to provide compensation to public sector employees seeking voluntary retirement.

4. Memorandum of Understanding:
Improvement of performance through a MoU (Memorandum of Understanding) system by which managements are to be granted greater autonomy but held accountable for specified results. Under this system, public sector units were given clear targets and operational autonomy for achieving those targets. The MoU was between the particular public sector unit and their administrative ministries defining their relationship and autonomy.

Question 2.
What was the role of the public sector before 1991?
Answer:
1. Development of infrastructure:
The development of infrastructure is a prerequisite for industrialization in any country. In the pre-Independence period, basic infrastructure was not developed and therefore, industrialisation progressed at a very slow pace. The process of industrialisation cannot be sustained without adequate transportation and communication facilities, fuel and energy, and basic and heavy industries.

The private sector did not show any initiative to invest in heavy industries or develop it in any manner. They did not have trained personnel or finances to immediately establish heavy industries which was the requirement of the economy.

It was only the government which could Rail, road, sea and air transport was the responsibility of the government, and their expansion has contributed to the pace of industrialisation and ensured future economic growth. The public sector enterprises were to operate in certain spheres. Investments were to be made to:

• Give infrastructure to the core sector, which requires huge capital investment, complex and upgraded technology, big and effective organisation structures like steel plants, power generation plants, civil aviation, railways, petroleum, state trading, coal, etc;
• Give a lead in investment to the core sector where private sector enterprises are not
  functioning in the desired direction, like fertilizers, pharmaceuticals, petro-chemicals, newsprint, medium and heavy engineering.
• Give direction to future investments like hotels, project management, consultancies, textiles, automobiles, etc.

2. Regional balance:
The government is responsible for developing all regions and states in a balanced way and removing regional disparties. Most of the industrial progress was limited to a few areas like the port towns in the pre-Independence period.

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 ancilliary industries.

This was achieved to some extent but there is scope for a lot more. Development of backward regions so as to ensure a regional balance in the country is one of themajor objectives of planned development. Therefore, the government had to locate new enterprises in backward areas and at the same time prevent the mushrooming growth of private sector units in already advanced areas.

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 acts as a check over the private sector. In the private sector there are very few industrial houses which would be willing to invest in heavy industries with the result that wealth gets concentrated in a few hands and monopolistic practices are encouraged.

This gives rise to inequalities in income, which is detrimental to society. The public sector is able to set large industries which requires heavy investment and thus the income and benefits that accrue are shared by a large of 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. Simultaneously, several public sector companies like STC and MMC have played an important role in expanding exports of the country.

Question 3.
Can the public sector companies compete with the private sector in terms of profits and efficiency? Give reasons for your answer.
Answer:
It.is difficult though not impossible for the public sector companies to compete with the private sector in terms of profits and efficiency due to following reasons:

1. Difference in Objective: Private sector firms operate with the objective of profit maximization while public sector companies have social welfare as the prime objective and hence they cannot completely profit oriented.
2. Difference in Ownership: The government is the sole or major shareholder in public sector companies, the management and administration of these companies therefore rest in the hands the government which may not make economically sound policies due to politics considerations.
3. Difference in Management: Public secotr companies are managed by government officials who may not be professionally trained while private sector companies are run and managed by professional managers. This leads to higher efficiency in private sector.
4. Difference in Area of Operation: Private sector operates in all areas with adequare return on investment while public sector operates mainly in basic and public utility sectors where returns are not very high.

Question 4.
Why are global enterprises considered superior to other business organisations?
Answer:
Global enterprises operate on a global (world) scale spread in different parts of the world. These are also called giant enterprises. These enterprises play a pivotal role in today’s competitive world.

Impact of Globalisation on Business – The business environment, these days is dynamic and fast-changing. Modern business units have become a global entities. Their activities are not restricted to the place of manufacturing but their impact is felt all over the world. An advanced system of transportation developed means of communication warehousing and marketing techniques have helped in the movement of goods from one place to other places throughout the world.

Modern economies are open economies. Trading of goods between different countries is common. There are foreign collaborations and flows of foreign financial aid and technology continue. Every country has got its economic interest while trading with other countries. Modem big industries have assumed global status. The impact of globalisation is visible from the following facts:

• Formation of International Monetary Fund (IMF) and International Bank for Reconstruction and Development (IBRD).
• Foreign Collaboration and Joint Ventures, financial aid, and assistance.
• Formation of multi-national companies and banks.
• Globalisation of marketing through cable TV networks and satellite links.
• Introductionoflntemetfacilities-email and e-commerce services.

The need for globalisation can be measured with the help of the following viewpoints :

1. Development of social consciousness,
2. Advanced technological changes
3. International operations.

(1) Development of social consciousness – Global influence is responsible for the expansion of education. It has resulted in the change of ideological thinking of the people. We have now been leaving our conservative traditions. There has been changes in our style of living and our standard of living is improving. In ancient days people accepted whatever sub-standard goods were supplied to them by business houses.

Now, we expect the business to supply useful and good, quality goods. Business, these days is required to fulfill its social obligations. We have become conscious of the pollution. This has been due to the global impact of the business.

(2) Advanced technological changes – There have been technological changes in the world. New and novel products are available in the market. Advanced technological know-how improved skills help the developing countries to improve the quality of products. Transport and communication system has also improved considerably. The market is flourishing with foreign engineering and electronic goods.

(3) International operations – Modern business has now become global. It operates through a network of subsidiaries, branches, and affiliates in host countries. The structural aspect of our foreign trade has also undergone considerable changes due to foreign influence. Initially, we imported foodgrain but we now import machinery, tools, and equipment. Many multinational companies have entered our market. Our industries have also beep entering in the foreign market. All these changes force the business to become a dynamic global entity.

Question 5.
What are the benefits of entering into joint ventures?
Answer:
When two business agrees to join together for a common purpose and mutual benefit, it gives rise to a joint venture. A joint venture is the result of an agreement between two businesses in different countries, controlled by the provisions of the respective governments of both countries.

The reasons responsible for joint venture are generally business expansion, development of new products or new markets, development of distribution channels, technology, and finance. A joint venture must be based on a memorandum of understanding (MOU) signed by both countries through negotiation to avoid any legal complications at a later stage.

Benefits of Joint Venture – Joint ventures can prove extremely beneficial for the parties of both countries. It creates a base for growth and innovations, enhances capacity, resources and technical expertise. Following are the benefits of joint ventures:

(1) Increased resources and capacity: Joint venture or teaming up adds to existing resources and capacity enabling the enterprise to grow and expand more quickly and efficiently. This will help in pooling financial resources and ably compete the market challenges.

(2) Access to new markets and distribution channels: Joint venture business opens up a vastly growing market between the joining countries. The products which have reached saturation point, in-home markets can be easily sold out in new markets. It will also provide benefits of established distribution channels specially established retail outlets.

(3) Access to technology: Advanced techniques of production leading to superior quality products saves a lot of time, energy, and investment as they do not have to develop their own technology. Technology provides efficiency and effectiveness which ultimately reduces the costs.

(4) Innovation: Joint ventures help the business to come up with certain innovative and creative ideas for the market. Foreign partners can come up with innovative products because of new ideas and technology.

(5) Low cost of production: In India, the cost of raw materials and labour, management professionals, excellent manpower like lawyers, chartered accountants, engineers, and scientists is low in comparison to advanced countries. While investing in India by international corporations, they get benefits of required quality and specifications at a much lower cost than what is prevailing in their own country.

(6) Established brand name: Joint venture also benefits other’s goodwill which has already been established in the market, there is a ready market in the country in which joint venture agreement entered for the product or even a distribution system. A lot of investment is saved while a product is launched in the foreign market.

1st PUC Business Studies Private, Public and Global Enterprises Additional Questions and Answers

One Mark Questions

Question 1.
Mention any two types of Public enterprises.
Answer:

1. Departmental Undertakings
2. Government Companies

Question 2.
Give an example for a departmental undertaking.
Answer:
Railway department.

Question 3.
Give an example for statutory corporations.
Answer:
Karnataka state road transport corporation (KSRTC).

Question 4.
Mention any one feature of statutory corporations.
Answer:
Government Control.

Question 5.
Mention any one feature of Government companies.
Answer:
Ownership.

Question 6.
Mention any one feature of MNC’s.
Answer:
Large Scale operations.

Question 7.
Give an example for MNCs.
Answer:
Sony

Question 8.
Give an example of a Joint venture.
Answer:
Maruthi Suzuki

Question 9.
State any one feature of Joint venture.
Answer:
Single Business

Question 10.
State the minimum amount of capital held by the government in government companies.
Answer:
The minimum amount of capital held by the government is not less than 51% of paid up capital by state or central government.

Two Marks Questions

Question 1.
Briefly explain the features of Department Undertaking
Answer:
1. Part of government:
The undertaking is organized as a major sub-division of one of the departments or ministries of the Government. It is subject to direct control by the head of the department. The ultimate authority lies with the concerned minister who is responsible to the Parliament or State Legislature The undertaking has no separate entity distinct from the Government.

2. Government financing:
The undertaking is financed through annual budget appropriations by the Parliament or the State Legislature. The revenues of the undertaking are paid into the treasury. It is wholly owned by the Government.

3. Executive decision:
A departmental undertaking is set up by an executive decision of the Government without any legislation.

4. Accounting and audit:
The undertaking is subject to the normal budgeting, accounting and audit procedures applicable to other government departments.

5. Civil service control:
The enterprise is managed by civil servants whose methods of recruitment and service conditions are the same as for other civil servants of the government.

Question 2.
Briefly explain the features of Government Companies
Answer:
The following are the features of a Government Company.

1. Organizational format: The organizational format resembles that of a Joint Stock Company incorporated under Companies Act, 1956.
2. State ownership: The entire capital or 51% or more of the capital is owned by the Government or Governments.
3. Nomination of directors: As in case of Public Corporations, even in a Government company the directors are nominated by the Government (State or Central).
4. Ministerial control: As in the case of Departmental organizations, in a Government Company too, the overall control is under the concerned minister under whose ministry the company is formed.
5. Government auditors: The auditors are always appointed by the Government to inspect the books of accounts of the Government Companies.

Ten Marks Questions

Question 1.
Briefly explain the features of Statutory Companies.
Answer:
1. Corporate body:
It is a body corporate established through a special Act of Parliament or State Legislature. The Act defines its powers and privileges and its relationship with government departments and ministries.

2. Legal entity:
It enjoys a separate legal entity with perpetual succession and a common seal. It can acquire an own property in its own name. It can sue and be sued and can enter into contracts in its own name.

3. Government ownership:
The public corporation is wholly owned by the Central and/ or State Government (s).

4. Financial independence:
It enjoys financial autonomy. Its initial capital and borrowings are provided by the government but it is supposed to be self-supporting. It can borrow money from the public and is empowered to plough back its earnings.

5. Accounting system:
The Corporation’s not subject to the budgetary, accounting and audit regulations applicable to government departments. It is generally exempt from the rigid rules applicable to the expenditure of public funds.

6. Management and personnel:
A public corporation is managed by a Board of Directors appointed by the Government. However, its employees need not necessarily be civil servants. They can be employed on terms and conditions laid down by the corporation itself.

7. Service motive:
The primary motive of the corporation is public service rather than private profits. It is, however, expected to operate in a business-like manner.

Question 2.
Briefly explain the features of MNCs
Answer:

1. MNCs have managerial headquarters in home countries, while they carry out operations in a number of other (host) countries.
2. A large part of capital assets of the parent company is owned by the citizens of the company’s home country.
3. The absolute majority of the members of the Board of Directors are citizens of the home country.
4. Decisions on new investment and the local objectives are taken by the parent company.
5. MNCs are predominantly large-sized and exercise a great degree of economic dominance.
6. MNCs control production activity with large foreign direct investment in more than one developed and developing countries.
7. MNCs are oligopolistic in character. It is sustained by modem technologies, management skill, product differentiation and enormous advertising.
8. MNCs contribute significantly to foreign trade.

Question 3.
Briefly explain the features of Joint Ventures.
Answer:
A temporary business activity carried on by more than on individual with a view to earning profit in a pre-agreed manner without giving a new name to the business is known as joint venture.
The persons who enter into the joint venture agreement are called co-ventures:

1. Joint venture is a special partnership Without a firm name.
2. The joint venture does not follow the accounting concept ‘going concerned’.
3. The members of the joint ventures are known as co-ventures.
4. The joint venture is a temporary business activity.
5. In joint venture, profits and losses are shared in agreed proportion. If there is no agreement regarding the distribution of profit, they will share profit equally.
6. The joint venture is an agreement for polling of capital and business abilities to be employed in some profitable venture.
7. At the end of the venture, all the assets are liquidated and liabilities are paid off: if necessary the assets and liabilities could be shared by co-ventures.
8. Joint venture always follows cash basis of account

Differentiate Between Private and Public Companies: