A presentation on

PUBLIC ENTERPRISE
 A very important type of business organisation which
a management students should study is a public
enterprise.
It is unique type of organisation which has emerged
due to increasing needs and wants of people.
India has been practicing this type of organisation
since years for social welfare.
These are the organisation which are established,
operated, owned, managed and controlled by the state
or central government.
 This types of organisation requires huge investment
and it takes substantial amount of time to produce the
return. Basically they are established for social
welfare.
The main reason behind establishing these types of
organisation is due to reluctance of private firms to
invest in this type of organisation.
 FORMATION OF PUBLIC ENTERPRISE

Public enterprise may be established by the

government either by creating a complete new unit
which is owned and controlled by the government, or
by acquiring existing units and taking over
ownership and control.
It happened in case of banks in 1960s, where all
private sector banks were converted into public
banks, which was popularly known as
NATIONALISATION. Nationalisation leads to
transfer of ownership from private hands to the
goevernment.
 FORMS OF PUBLIC ENTERPRISE

Forms

Departmental Government Public

organisation companies corporation
 DEPARTMENTAL ORGANISATION

Few of the public enterprise are operated by government

departments. Such as Railway, post and telegraphs, radio and
national television.
These are directly run by the government. The employees
working in department are considered as Government
employees.
Characteristics of departmental organisation
It is managed by separate government department
Management and control of the department
They do not have any financial autonomy. All the revenue goes to
the treasury and expenses are financed through budget.
The enterprise comes under the area of budget and is audited as
well
It is considered as superior authority, which can not be sued
without consent of the government.
 Merits of departmental organisation

Control of the government- In departmental organisation, the

government has total control over the organisation, starting from
appointing management team to the implementation of any plan.
The government determines all the activities and design the operations.
Thus, there is a centralized controlling system which provides benefits
to the society as they are solely directed towards to the social benefits.
Source to execute social benefits- As the government has total
control over the departmental organisation, it is good source of
government to provide better products and service to society at very
reasonable rates.
Source of revenue- The government solely designs the operations
and conducts all the activities, thus, the whole share profit goes to the
government to provide better products and services to society at very
reasonable rates.
 Quick decision making- The services provided by the
government organisation has a national importance . The
decision regarding any changes or alteration has to be done
quickly.
Suitable for projects of national importance- These
organisation are best suited to those giants projects which
are established by the government and are of national
importance. EX. Service of railways are used by almost
every citizen of India
 DEMERITS OF DEPARMENTAL ORGANISATION

Less flexible- Controlling power rests with the government,

thus for any change to take place, it has to be done through
defined protocol or system. The management does not have
any flexibility to adjust to the situation without going
through a rigid procedural system.
Lack of competent staff- Generally the staff appointed by
government in the departmental organisation at times
found incompetent and inefficient. They lack of devotion to
duty and there is presence of red-tapism as well.
Criticism from public- Any problem in delivering service or
misconduct will generate lots of criticism and the
organisation has to welcome them without any objection
 Inspection by parliament- The departmental organizations
are subject to frequent parliament inspection which at times
disturbs the operation.
Monopoly- Generally, departmental has monopoly in the
market. At least they do not have close substitutes or they do not
have any. Due to this, it gives wrong permission to the public that
these firms exploit people due to their commanding position in
the market.
Frequent losses- Due to lack of efficient staff, lack of devotion
to duty and rising overhead cost, these firms frequently suffers
losses.
Political influence- They have the largest political influence
which disturbs the smoothness of the operation and every
important decision has political motive and it generates
conflicting interest.
 Public corporations

Public corporation are also known as statutory

organisation are established under separate act of
parliament.
In this type of organisation the government does not
intervene more in regular activities of the organisation.
The managers and executives are, of course appointed by
government but the operational control remains with the
corporations.
Thus, people have to informed about the profits and
working of the organisation.
In India SBI, RBI, etc., are the examples of public
corporation.
 Characteristics of public corporations

Established through a special act of the government

It has autonomous organisation
It has financial autonomy. Which was not there in
departmental organisation
Management team is appointed by the government
It does not enjoy superior authority and thus can be
sued.
It has independent legal status and flexibility

 Merits

Flexible- As there is no government interference, the management has

full flexibility in taking any decision and put them into action
Internal autonomy- The firm has complete internal autonomy. They
can generate finance from any source and can ultilise it as and when
they find it fit.
They can select the management team to a certain extent. They design
the operations and an implement them as when they feel necessary.
No Interference of the government- it is an autonomous
institution the government does not have any say in the matters of the
public corporations.
Ensures national goals They are established with certain goals. As
they work like private company, they can reach those goals effectively
which are significant from national perspective.
 Freedom of decision making- Due non
government interference, the decision are taken
freely among themselves without consulting it with
any government authority.
 DEMERITS

Autonomy v/s. Accountability: One side government

gives them complete financial autonomy and on the other
side, Government makes them accountable for the same. This
creates problem.
Suitable for giant enterprise: public corporations are
generally suited for large scale enterprises as they have to
serve common which is quite high in number in our country.
Formation is elaborate and time consuming: As it
involves special legislation to establish, the formation
becomes long and complex. It takes substantial amount of
time to establish these type of organisation.
Rigidity: Any alteration to be introduced would require an
amendment of the special act and thus makes it comparatively
rigid.
 Government companies

In this case, a company is established and registered as a

joint stock company but the government holds enough
shares to acquire and retain the controlling power.
Characteristics
Established under companies act 1956.
They make take form of private or public limited companies.
At least 51 percentage of share capital is acquired by government.
The board of directors are normally appointed by the government.
it is legal entity and has their own rules and regulations in form of
memorandum of association and articles of association.
Lastly. It does not come under the surveillance of audit and budget.
 Merits
These types of companies are easy to establish with minimum
formalities to be done.
It displays a fine combination of flexibility , autonomy, and
government control.
it is an autonomous institution
Demerits
The autonomy and flexibility exist only on paper. In practice, the
decision are highly directed and guided by the government.
These companies are not subject to undergo any audit. Thus, there
exists a chance to create fraudulent activity and mislead the public
and government.
Lastly, the management team has very little interest in the activities
of the organisation and thus, it suffers, from the efficiency view
point.
 MERITS OF PUBLIC SECTOR ENTERPRISE

PROPER ULTILISATION OF NATIONAL

RESOURCES: In many cases, we see that private
organisation are not using the resources properly and at
times wasting them in order to compete in the market.
The resources which they waste or misuse are of national
importance and probably scare in nature. Thus, in order
to protect the misuse of these resources, public
enterprise make use of this resources in such a way that
they are employed in right directions instead of using the
same in competing with rival firms to increase in market
share.
 Prevention of monopoly: If the economic power
remains in few hands then there exists a chance to
create monopoly in the market. In some cases, the
private firms showed this kind of tendency. This
situation leads to adverse effect on the economy.
Concentration of power leads to reduction in
competition and thus, consumers get exploited.
In such a situation, Government intervenes and
takes over the ownership by nationalizing them.
Development of backward areas- public enterprise
are established for social welfare. They are here to ensure
equality among population. Most of the private
industries will not find it profitable to establish their
industries in rural or backwards areas due to lack of
various facilities that a business requires to conduct its
operation smoothly.
so, these private firms will be concentrated in big city/
towns where all amenities are available. But public
sector enterprises with the main goal of social welfare,
takes up the challenge and establishes their operations in
backward areas.
 Adequate employment generation: Public
enterprises are huge in size because they have to
cater the needs of the whole population of the nation.
in order to provide service effectively in every area of
the country, it has to employ large number of
personal to do work at all levels of management.
Private players can recruit limited numbers of
employees due to limitation of size and capital
required.
 Social welfare: public enterprise, as we study, are
very much necessary for taking the economy closer
to social welfare which is their central theme. These
industry try to carry on activities even if they are
unprofitable. They do so because the activities
through which product or service are generated are
very important than the profit itself
Ex. St bus at times runs in losses due to poor quality,
in efficiency, and many other reasons, but still they
are continuing it because most of the rural and semi
urban population is dependent on them.
 DEMERITS

Lack of efficiency:- Due to bureaucracy ( employees

irregular way of working), lack of proper efforts, red-
tapism etc, existing in the public enterprise, makes them
inefficient.
The decision making process is slow and flexibility is low
as compared to private enterprise. The cost rising with
no corresponding increase in revenue.
Excessive manpower:- Most of the public enterprises
are flooded with man power. They go on recruiting
employees without any requirement. Due to this huge
amount is wasted in paying them salaries and wages.
 Political interference:- public enterprise have
frequent political interference. The political party takes
them for granted and undesirably, the enterprise has to
work in accordance with tem. Political party at times
disturbs smooth working of the enterprise and there by
hampers the efficiency
Lack of autonomy:- many public enterprise under
excessive control of the government or any other similar
authority. The firm does not have any liberty to take
action or to take any decision. The suggestions/plans
have to pass through a very rigid structure mechanism
set by government in order to get implemented.
 Improper pricing policy- prices set by most of the public
sector units are not rational. In order to provides goods and
services at reasonable rates, they fix up prices very low which
affects the cost structure of the unit. Thus, in order to cover
cost, they start providing lower quality product services. For
examples civil hospitals, S.T. buses, etc.
Underutilization of capacity- due to increase competition
from private sector, rise in standard of living of population
and increasing all around awareness, the public has now
started shifting to more qualitative products. Because of this
public many public sectors are not able to ultilise their full
capacity.
Ex. S.T. buses go on their defined route without many
passengers in it. This increase cost without
generating enough revenues,
 Improper work culture and management- in
public enterprise, the employees are generally found
in disciplined and they do not full fill their
responsibility. The relation between the employee
and management are also not very healthy which
certainly affects working of unit.