NCERT Solutions for Class 11th Business Studies Chapter 3 – Private, Public and Global Enterprises

National Council of Educational Research and Training (NCERT) Book Solutions for class 11th
Subject: Business Studies
Chapter: Chapter 3 – Private, Public and Global Enterprises

These Class 11th NCERT Solutions for Business Studies provide detailed, step-by-step solutions to all questions in an Business Studies NCERT textbook.

Click Here for Class 11 Business Studies Notes.

Class 11th Business Studies Chapter 3 – Private, Public and Global Enterprises NCERT Solution is given below.

Multiple Choice Questions

1. A government company is any company in which the paid up capital held by the government is not less than

(a) 49 per cent

(b) 51 per cent

(c) 50 per cent

(d) 25 per cent

Answer (b) 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 Central Government, or by any State Government or partly by Central Government and partly by one or more State Governments.

2. Centralised control in MNCs implies control exercised by

(a) Branches

(b) Subsidiaries

(c) Headquarters

(d) Parliament

Answer (c) MNCs have their headquarters in their home country and exercise control over all branches and subsidiaries Thus control IS limited to the broad policy framework and there IS no interference In day-to-day operations of the subsidies.

3. PSE’s are organisations owned by

(a) Joint Hindu Family

(b) Government

(c) Foreign Companies

(d) Private Entrepreneurs

Answer (b) PSE stands for Public Sector Enterprise i.e., an enterprise in the public sector which is under government ownership.

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

(a) MOFA

(b) MoU

(c) BIFR

(d) NRF

Answer (c) If a public sector unit is making losses continuously and is declared Sick, it is referred to the Board for Industrial and Financial Reconstruction (BIFR) for complete overhauling or shut down.

5. Disinvestments 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 PSE’s

Answer (a) Disinvestment refers to the sale of the equity shares to the private sector and the public The objective of disinvestment IS to raise funds and encourage wider participation of the general public and workers in the ownership of these enterprises.

Short Answer Type Questions

Question 1. Explain the concept of public sector and private sector.

Answer Indian Economy consists of mixed economy. A mixed economy refers to an Economic system where both private and government enterprises co-exist. The economy IS therefore classified into two sectors viz., private sector and public sector.

The private sector consists of business enterprises owned by individuals or a group of individuals. The various forms of organisation are sole proprietorship, partnership, joint Hindu family, co-operative and company.

The public sector consists of business enterprises owned and managed by the government. These organisations may either be partly or wholly owned by the Central or State Government with an equity stake of at least 51 % with the government. They may also be a part of the ministry or might have come into existence by a Special Act of the Parliament. The government participates in the economic activities of the country through public sector

Industrial policy resolutions announced by the government from time-to-time define the area of activities in which the private sector and public sector are allowed to operate.

Question 2. State the various types of organisations in the private sector.

Answer The various types of organisations in private sector are

(i) Sole Proprietorship It refers to the form of organisation where business is owned, managed and controlled by a single individual who bears all the risks and enjoys the whole profit.

(ii) 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.

(iii) Joint Hindu Family This business is owned and carried on by the member of a Hindu undivided family which is governed by the Hindu Law.

(iv) 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 common seal. It’s of two types-Private and Public.

(v) Multinational Corporations They are huge industrial organisations 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 The forms of organisation which a public enterprise may take are as follows

(i) Departmental Undertaking These enterprises are established as departments of the ministry and are considered as part or an extension of the ministry Itself. These undertakings may be under the Central or the State Government. Examples: Railways and; Post and Telegraph Department.

(ii) Statutory Corporation Statutory corporations are public enterprises brought into existence by a Special Act of the Parliament, which defines its powers and functions. It IS a financially independent
corporate body created by the legislature and has a clear control over a specified area or a particular type of commercial activity.

(iii) Government Company According to the Indian Companies Act, 1956, a government company means any company in which at least 51 per cent of the paid up capital is held by the Central Government, or by any State Government or partly by Central Government and partly by one or more State Governments. These are established purely for business purposes.

Question 4. List the names of some enterprises under the public sector and classify them.

Answer Some enterprises under the public sector are

(i) Indian Railways: Departmental Undertaking

(ii) Indian Post and Telegraph: Departmental Undertaking

(iii) Steel Authority of India Limited (SAIL) : Government Company

(iv) Bharat Heavy Electricals Limited (BHEL) : Government Company

(v) Life Insurance Corporation (LIC) of India: Statutory Corporation

(vi) State Trading Corporation: Statutory Corporation

Question 5. Why is the government company form of organisation preferred to other types in the public sector?

Answer The government company form of organisation is preferred to other types in the public sector because of the following advantages it offers

(i) Simple Procedure of Establishment A government company can be easily formed as compared to other public enterprises. There is no need to get a bill passed by the Parliament or State Legislature. It can be formed simply by following the procedure laid down by the Companies Act.

(ii) Working on Business Principles The government company works on business principles, It is independent in financial and administrative matters. Its Board of Directors usually consists of professionals and persons of repute.

(iii) Efficient Management The management of a government company ensures efficiency in managing the business as it is more accountable than other forms of public enterprises because the annual report of the government company is placed before both the House of Parliament.

(iv) Competition These companies pose a healthy competition to private sector which ensures availability of goods and services at reasonable prices and good quality.

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 mudstones 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 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 areas.

Long Answer Type Questions

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

Answer Government of India introduced four major reforms in the public sector in its new Industrial Policy, 1991. Which were as follows

(i) Dereservation 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, defence, mining, and railways. This meant that the private sector could enter all areas except these eight (now three since 2001) giving competition to public sector.

(ii) 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 funds and encourage wider participation of the general public and workers in the ownership of these enterprises. This was expected to result in improved managerial efficiency and financial discipline.

(iii) 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. A 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,

(iv) Memorandum of Understanding Management of public sector units was granted greater autonomy but held accountable for specified results through signing of Memorandum of Understanding (MoU) between the particular public sector unit and their administrative ministries. Under this system, public sector units were given clear targets and operational autonomy for achieving those
targets.

Question 2. What was the role of the public sector before 1991?

Answer Public sector had a prominent role before 1991 as discussed below

(i) Development of Infrastructure and Heavy Industries At the time of independence, basic infrastructure was not developed and hence industrialisation was difficult due to lack of adequate transportation and communication facilities, fuel and energy, and basic and heavy industries. The private sector did not take initiative to invest in heavy industries and infrastructure due to heavy capital requirements and long gestation periods involved in these projects. Therefore, government took the lead in these projects through public sector enterprises.

(ii) Regional Balance 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 as public sector units in the backward areas to accelerate economic development, provide employment to the workforce and develop ancillary industries.

(iii) Economies of Scale Average cost of production is lowered when the scale of production is large. But large scale industries require huge capital outlay and hence the public sector had to step in to take advantage of economies of scale. Units of electric power. natural gas, petroleum, etc were set up in public sector as these units required a larger base to function economically which was possible only with government resources and mass production.

(iv) Concentration of Economic Power At the time of independence, there were very few industrial houses which had the required capital

to invest in heavy industries and if public sector units were not established, wealth could get concentrated in a few hands giving rise to monopolistic practices. The public sector ensures that the income and benefits that accrue are shared by a large of number of employees and workers.

(v) Self Reliance One of the major objectives of Five Year Plans WaS self-reliance. It was difficult to import heavy machinery required for a strong industrial base due to shortage of foreign exchange. At that time, public sector companies involved in heavy engineering helped in import substitution. Simultaneously, public sector companies like STC and MMTC 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

(i) Difference in Objective Private sector firms operate with the objective of profit maximisation while public sector companies have social welfare as the prime objective and hence they cannot be completely profit oriented.

(ii) Difference in Ownership The government is the sole or major shareholder in public sector companies. The management and administration of these companies therefore rests in the hands of the government which may not make economically sound policies due to political considerations.

(iii) Difference in Management Public sector 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.

(iv) Difference in Area of Operation Private sector operates in all areas with adequate 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 are large industrial organisations which extend their industrial and marketing operations through a network of their branches or subsidiaries in several countries. These enterprises are Considered superior to other private sector companies and public sector enterprises because of certain features which are as follows

(i) Availability of Funds These enterprises can survive in crises and register higher growth as they possess huge financial resources as they have the ability to raise funds from different sources such as equity shares, debentures or bonds. They are also in a position to borrow from financial institutions and international banks as they have high credibility.

(ii) Diversification of Risk Global enterprises usually operate in different countries and enter into joint ventures with domestic firms of the host country. Thus, losses in one country may be compensated by profits in another country. Risk is also shared by the domestic partner in case of joint venture.

(iii) Advanced Technology Global enterprises conform to international standards and quality specifications as they possess superior technologies and methods of production.

(iv) Research and Development (R&D) High quality research involves huge expenditure which only global enterprises can afford. Therefore, these enterprises have highly sophisticated research and development departments which regularly come up with product as well as process innovations making these firms globally competitive.

(v) Marketing Strategies Global companies use aggressive marketing strategies in order to increase their sales. Their market information systems are reliable and up-to-date leading to effective advertising and sales promotion. They manage their brands effectively as they have a global brand equity.

(vi) Wider Market Access The operations and marketing of global companies extend to many countries in which they operate through a network of subsidiaries, branches and affiliates. Due to this they enjoy a far wider market access than domestic firms.

Question 5. What are the benefits of entering into joint ventures ?

Answer When two businesses agree to join together for a common purpose and mutual benefit, it gives rise to a joint venture. The major benefits of joint ventures are as follows

(i) Increased Resources and Capacity When two firms come together, it enables the joint venture company to grow and expand more quickly and efficiently as the new business pools in financial and human resources. It is able to face market challenges and capitalise new opportunities more effectiveJy.

(ii) Access to New Markets and Distribution Networks When foreign companies form joint venture with companies in a host country, they gain access to the market of host country. They can also take advantage of the established distribution channels i.e., the wholesale and retail outlets in different local markets which may be very expensive for them otherwise.

(iii) Access to Technology Most businesses enter into joint ventures to get access to an advanced technology which IS not possible or economically feasible to be developed on their own. Technology adds to efficiency and effectiveness, thus leading to reduction in costs and superior quality products.

(iv) Innovation Products become outdated after sometime and demand for them starts falling. Consumers have become more demanding in terms of new and innovative products. JOint ventures enable companies to come up with innovative products because of new ideas and technology acquired from the partner In the joint venture.

(v) Low Cost of Production When international corporations invest in developing countries through joint ventures. they are able to benefit from low cost of raw materials and labour The international partner is
thus able to produce the products of required quality and specification at a much lower cost than what is prevailing In the home country

(vi) Established Brand Name When two businesses enter into a joint venture one of the parties benefits from the other’s goodwill already established in the market. In such cases, there is a ready market waiting for the product to be launched which saves expenditure on marketing activities otherwise required to launch a new product.

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