PUBLIC ENTERPRISES, PUBLIC UTILITIES, AND PUBLIC-PRIVATE PARTNERSHIPS EARNING OBJECTIVES cNapter, you should understand: 10.1 Meaning and Characteristics of Public Enterprises 10.2 Objectives of Public Enterprises 10.5 Role and Rationale of Public Enterprises 10.4 Criticism of Public Enterprises 10.5 Growth of Public Enterprises in India 10.6 Forms of Organisation in Public Sector 10.7 Departmental Undertakings 10.8 Public Corporations 10.9 Government Companies 10.10 Problems of Public Enterprises 10.11 Suggestions for Improvement 10.12 Public Utilities 10.13 Public-Private Partnerships (PPPs) Ajter studying this Government ownership and control of business enterprises has become @ common feature in every country. In India public sector has achieved commanding position in several industries. During the last fifty years, public enterprises have laid down the base for heavy and basic industries. These enterprises have created the infrastructure for the rapid industrialisation of the country. Public sector is serving ea A insti for attaining the economic and social objectives of the state as laid down in the Constitution of India. 10.1 MEANING AND CHARACTERISTICS OF PUBLIC ENTERPRISES Meaning: All industrial and commercial undertakings owned, manage, and controlled by the Government are called public oe lore nde : cing aa i rises are kno / aver Sis anton “Public enterprise means er and operation of industrial, agricultural, financial and eet poe ie words of S.S. Khera, “By state undertakings is meant the ‘ de mercial and i iviti ied on by the Central Government or by a state g a tne in en oe i ly or in association with private enterprise, so long as it i and in each case, either solely weEEX 5c commerce for class X! 7 zed by a se! Poontained management”. In the Encyclopaedia Britannic. enterprise has been defined as “an undertaking that is owned by a ational, shit local government. supplies services or goods at price, and is operated op a nee ® less self-supporting basis” ( baracteristies: A careful analysis of the above characteristics of public enterprises: State ownership. A public enterprise is wholly owned by the Central (cr oF State Governments(s) or local authority or jointly owned by two or more Of then = Sase the enterprise is owned both by the Government and private sector, the State m, : have at least $1% share in ownership. definitions reveals the fo, On ug, > State control. The ultimate control of a public enterprise lies With th Government which appoints its Board of Directors and the Chief Executive, ‘+o. ernment financing. The whole or a major portion of the capital of a Public enterprise is provided by the Government. = Scr ice motive, The primary aim of a public enterprise is to render Service tp the society at large. It may have even to incur losses for this purpose. However, public enterprises are expected to generate surplus in course of time. = Public accountability. Public enterprises are financed out of Public money Therefore. they are accountable for their results to the elected representatives of the public. i.¢., the Parliament and the State Legislature. That is why, the working of public enterprises is scrutinised by the Committees of the Parliament or the State Legislature. ~ Sutosomous bodies, Public enterprises are autonomous or semi-autonomous Dodies. In some cases they work under the control of Government departments. In othet cases these enterprises function as companies and statutory corporations. Distinction between Private Enterprises and Public Enterprises ‘The main points of distinction between a private enterprise and a public enterprise #® as follows , |, Quiects Private enterprises are motivated primarily by considerations of ‘Therefore, these enterprises operate mainly in those areas of economic activities publ offer @ regular and steady return on capital investment. On the other hand, cot emterprises are guided by several socio-economic and political objectives. The? 2 wide spectrum of operations with little regard for considerations of profit Je " wo a Ovecrsbip. A Public enterprise is owned by the Central Governme? sti? one or more State Governments either sin, . is gly or jointly. On the contrary, the ows of @ private enterprise vests in one or more private individuals or corporate 1 s. Management. A private sector enterprise is managed by its owners Toy lected representatives, The management has to abide by the guidelines laid 40" ji? owners, However, there is enough scope for initiative and dynamism because Mf can be modified or even discarded according to the requirements of the iat ie situation. In case of public sector enterprises there is little scope for init in dynamism because managers of such enterprises are required to operat? rigid policy framework and rules framed by the Government.Public Enterprises, Public Utilities, and Public-Private Partnerships [EEE 4, Capital, The entire or majority capital of a private enterprise is contributed by private inv ors/owners from their own resources. Its capacity to raise capital is limited and it can face shortage of funds. On the other hand, the entire or at least 51% of the capital of 3 Public enterprise is provided by the Government from public funds. Such an enterprise can never be short of funds because Government can mobilise unlimited financial resources. Freedom of management. Ina private enterprise, the owners are free to manage and control the affairs with little interference. But a public enterprise faces continuous interference from several agencies, e.g., ministries, politicians and bureaucrats. Quite often there is interference in day-to-day affairs of the enterprise. 6. Flexibility. A private enterprise can easily modify its policies and operations to meet the requirements of any specific situation. There are few restrictions on its owners for attaining the objects and policies of the enterprise. However, in a Public enterprise any change in objects and policies requires the approval of the Government and its functionaries. 7. Area of operations. Private enterprises are ready to venture out in of investment where steady and reasonable returns are expected. But public ent operate mainly in the field of basic and strategic industries, public utility services and other areas of social benefit. to any field terprises 430.2 OBJECTIVES OF PUBLIC ENTERPRISES _____ In India, public enterprises have been assigned the task of realising the objectives laid down in the Directive Principles of State Policy. Public sector as a whole seeks: (a) to gain control of the commanding heights of the economy, (b) to promote critical development in terms of social gain or strategic value rather than on consideration of profit, and (c) to provide commercial surplus with which to finance further economic development. Objectives of Regional Public Enterprises Development Egalitarian Society The main objectives of public enterprises in India are as follows: 1. Economic development. Public enterprises were set up to accelerate the rate of economic growth in a planned manne’ ‘These enterprises have created a sound industrial base for rapid industrialis of the country. They are expected to provide ation infrastructure facilities for promotin, ed economic structure of ez balanced and diversifiEEE sc commerce for Class Xt YY public enterprises is £0 Promote selfiry i Another aim of : . For this purpose, public enterprigg, ational economy ention, energy, petro-chemicals, and gy}. an ic infrastructut «. Several public enterprises were estapy sees in development. Balanced devel," ‘or social as well as strategic reason ance ors of the 1 ransportation, commun! They provided bi 1. Development of backward sn backward areas to reduce regional imbal of different parts of the country is necessary fi Unemployment has become a serious prob, erg n ainful employment to millions. In order to py" it or have been nationalised. Prete, 2. Self in strategic been set up in t and basic industries tion. 4, Employment nterprises seek to offer g India. Public jobs, several sick units in the private secte 5. Economie surplus. Public enterprises seek to generate and mobilise Surly = earn money and mobilise public savings for indus’ ig reinvestment. These ¢ development an society. An important objective of public enterprises is to pre, concentration of economic power and growth of private monopolies. Public sector ign the Government to enforce social control on trade and industry for ensuring eat distribution of goods and services. Public enterprises protect and promote Small-scaj. industri 7. Consumer welfare. exploitation and profiteering by ensuring supply prices. They aim at stabilising prices. 8. Public utilities. Private sector is guided by profit motive. Therefore, jt j ublic utility services like water supply, gas, electric sibility for providing Public enterprises seek to protect consumers fro, of essential commodities at cheape, reluctant to invest money in p\ public transport. Therefore, the Government has to assume respon: such services. 9. Defence. Government has to set up public enterprises for production of defence equipment. Supply of such equipment cannot be entrusted for private sector due tothe need for utmost secrecy. 10. Labour welfare. Public enterprises serve as model employers. They ensur welfare and social security of employees. Many public enterprises have develope townships, schools, colleges, and hospitals for their workers. 10.3 ROLE AND RATIONALE OF PUBLIC ENTERPRISES ox 8 elopment of the court The public sector has been playing a vital role in the economic devs In fact the public sector has come to occupy such an important place in our econom that on its effective performance depends largely the achievement of the count’ economic and social goals. Public sector is considered a powerful engine of econo development and an important instrument of self-reliance. The main contributions ° public enterprises to the country’s economy may be described as follows: 1. Filling of gaps. At the time of independence, there existed serious £4 industrial structure of the country, particularly in the field of heavy indus 9 and key industries require huge capital investment, involve considerable risk; 4 et psn ss, Baae ities, ang Public-Private Partnerships EY ‘ . Privat o gestation periods ie Sector ©oNcems do not come for lon F's, Public sector has helped to ij) UP these gaps. The " 1 e asia in Navid industrialisation has been built th ood for The public sector has consi mt soot seeded up the pace of industy a an i y . ost employment. public Sector has created Millions of jobs to tackle the “Joyment problem in the country Public sector accounts for about two-third of em iynployment in the organised industrial sector in India By taking over many te wos the public sector has Protected the employment of millions. Public sector ck vl contributed a lot towards the 'Mprovement of working and living conditions 0 2 2 ws os by serving as a model employer, fo 3, Balanced re Tward to establish onal development, Private industries tend to concentrate in regions while other regions remain backward, Public sector underta enain Teg we located their plants in backward and untrodden parts of the country. These areas ee industrial and civic facilities like electricity, water supply, township, and iacked bas wer. Public enterprises have developed these facilities thereby bringing about ae transformation in the Socio-economic life of the people in comp! kings 5. Mobilisation of surplus. The profits eamed by public enterprises are reinvested - . nd for expansion and diversification. Moreover, Public sector concerns tke banks 3 nd financial institutions mobilise scattered public savings thereby he ping i i forei; hange “pital formation in the country. Public enterprises earn considerable foreign excha: ge through exports, 6, Self-reliance. y Producing new ani ng considerable 1. i i instru for realising * Socialistic pattern of society. Public sector is an instrument “il object nono, i f wealth and private ives. Public enterprises help to check concentration of oe th tise ies. These nterprises can serve as powerful means of ec . These enter ‘ange, Tp! i i d considerably the need for imports lic enterprises have reduce ‘ A ia products within the country. These enterprises are also amount of foreign exchange through exports. © Coun ‘are. Public enterpt bli: welfare state Pub! i i tablishment of a wel inthe Ublic Welfare ic enterprises help in the establish rent cas ie en = supply essential commodities at cheaper rates. A “per Y: These enterprises sup ly is created to protect consumers against oie’ between demand and supply i eitation 'Merests 0 lungry Pi ises als ct and promote oft businessmen. Public enterprises also protec: pl it hungry busi 7 f Workers, eTre oe EEX1 sc commerce for Class X! y 10.4 CRITICISM OF PUBLIC ENTERPRISES [Arguments against Public Enterprises] Public enterprises are opposed on account of weaknesses in their organ working. These enterprises generally suffer from the following problems.” 1. Delay in completion. Often a very long time is taken in the establish, completion of public enterprises. Delay in completion leads to increase inh. establishment and benefits extracted from them are delayed =e 2. Faulty evaluation. Public enterprises are in some cases set Upon Pr considerations. There is no proper evaluation of demand and supply and expect, ind guidelines. In the absence o¢ and benefits. There are no clear cut objectives ai project planning there is under-utilisation of capacity and wastage of national res, Heavy overhead costs, Public enterprises often spend huge amoyn, ployees. Though such investments, providing housing and other amenities to em) for employees but it takes away a large part of capital and the project suffer; financial difficulties. 4. Poor returns. Majority of the public enterprises in India are incurring logs. In, of them the profits earned do not yield a reasonable return on huge investment. Lic eflective financial controls, wasteful expenditure, and dogmatic pricing policy result in} nt. Due to excessive centralisation of authority and 5. Inefficient manageme of motivation public enterprises are managed inefficiently. High level posts ae occupied by persons lacking necessary expertise but enjoying political suppor. 6. Political interference. There is frequent interference from politicians and servants in the working of public enterprises. Such interference leaves little scope initiative and freedom of action. Public enterprises enjoy little autonomy and flexi of operations. There is rigid control over them. = Labour problems. In the absence of proper manpower planning pH enterprises suffer from overstaffing. Jobs are created to fulfil employment god the Government. Guarantee of job in these enterprises encourages trade unions" militant in pursuing their aims. Arguments For and Against Public Enterprises - For Against 1. Rapid industrialisation 2. Generation of employment 1, Delay in completion 2, Faulty evaluation 3. Balanced regional development 3. Heavy overhead 4. Optimum utilisation of resources 4. Poor returns 5. Mobilisaiton of surplus 5, Inefficient management 6, Self-reliance 6, Political interference 7. Socialistic pattern of society 7. Labour problems 8. Public welfarey . Public Enterprises, Public Utilities, and Public-Private Partnerships Eq wTH OF PUBLIC ENTERPRISES IN INDIA GR ; 105 independence, public sector in India was confined mainly to railways, . defence production, and public ut aim ervic _ ac the nication services. Since then the vot ¢ public enterprises has been very rapid. Now public sector consists of public “outt Of PT railways, post, telegraph, cte.), manufacturing concerns (e.g., BHEL, vile Yeading organisations (e.g., STC, MMTC, etc.), service organisations ce. RITES, ete-)- salle oc, RI Cure jlowing table provides an overview of the growth of public sector in India Public Enterprises in India gs on April I Number of Enterprises | Capital Employed | | it ae @ in crore) | 1951 5s | 7 | 1961 48 953 1981 168 18,207 1991 236 1,02,083 | | 2001 242 2,74,114 | | 2011 220 | 6,66,848 | Since 1991 Government of India has been disinvesting in public enterprises under the policy of economic liberalisation and privatisation. 10.6 FORMS OF ORGANISATION IN PUBLIC SECTOR The main forms of organisation for public enterprises are as under: 1, Departmental Undertakings 2. Public Corporations 3. Government Companies Public Enterprises os v Departmental Public Government Steerakings Corporations Companies v v * Post and Telegraph 4. Reserve Bank of India |. Steel Authority of India “Broadcasting 2. Small Industry Development : Bank of India 2. Bharat Heavy Electricals _ flan Railways 3. Life Insurance Corporation 3. Hindustan Machine Tools fence Undertakings 4 Damodar Valley Corporation 4 State Trading Corporation do 27 o 7 SPARTMENTAL UNDERTAKINGS Ning: ara . . sae ble goog SPartmental undertaking is the oldest and traditional form of organising °t enterprises, A departmental undertaking is organised, financed, and me eeeBS controlled in much the same way as any other Government departmen, lt Tun either by the Central Government or by a state government. It is Mana government officials under the supervision of the head of the department con"! The undertaking is under the direct and ultimate control of minister who i eg to the Parliament. Some examples of departmental undertakings are: Indian Rail, Post and Telegraph, All India Radio, Doordarshan, atomic power, security, Features: The essential characteristics of departmental undertakings are Riven by, 1. Part of Government, The undertaking is organised as a major Sub-divis. ‘one of the departments or ministries of the Government. It is subject to direct by the head of department. The ultimate authority lies with the concerned Minister ys is responsible to the Parliament or State Legislature, The undertaking has no entity distinct from the Government. 2, Government financing. The undertaking is financed through annual appropriations by the Parliament or the State Legislature. The revenues undertaking are paid into the treasury. It is wholly owned by the Government 3. Executive decision. A departmental undertaking is set up by an execu decision of the Government without any legislation. 4. Accounting and audit. The undertaking is subject to the normal bud, accounting, and audit procedures applicable to other Government departments, 5. Civil service code. The enterprise is managed by civil servants whose metios of recruitment and service conditions are the same as for other civil servants of th: Government. KEI sc Commerce for Class x! , ress Con, Pty bul OF the igeing 6. Sovereign immunity. Being an integral part of the Government, a departmett| undertaking cannot be sued without the consent of the Government. Merits: Departmental undertakings enjoy the following advantages: 1, Easy formation. It is very easy to set up a departmental undertaking asa registration or special law is required. The undertaking is created by the administra’ decision of the Government and no legal formalities are involved. 2. Direct Government control. The undertaking is under the direct and compé control of the State. Therefore, it is more effective in achieving the objectives i# down by the Government. i; . . : . ol 3. Public accountability. There is maximum degree of Parliamentary co” on the undertaking. Such control keeps the management alert. Accountablit! departmental undertakings to Parliament is comy ministry concerned. x 4. Proper use of money. The risk of misuse of public money is minimise!“ to strict budget, accounting and audit controls. There is proper financial disciplit?” public funds. nC 5. Secrecy. It is easy to maintain secrecy of policy because the Governme! avoid disclosure on the plea of public interest. 5 js under plete as their management is unde