PUBLIC ENTERPRISES,PUBLIC CORPORATION MEFA SUBJECT

                                                         PUBLIC ENTERPRISES

Public enterprises occupy an important position in the Indian economy. Today, public enterprises provide the substance and heart of the economy. Its investment of over Rs.10,000 crore is in heavy and basic industry, and infrastructure like power, transport and communications. The concept of public enterprise in Indian dates back to the era of pre-independence.

Genesis of Public Enterprises

In consequence to declaration of its goal as socialistic pattern of society in 1954, the Government of India realized that it is through progressive extension of public enterprises only, the following aims of our five years plans can be fulfilled.

·         Higher production

·         Greateremployment

·         Economic equality,and

·         Dispersal of economicpower

The government found it necessary to revise its industrial policy in 1956 to give it a socialistic bent.

Need for Public Enterprises

The Industrial Policy Resolution 1956 states the need for promoting public enterprises as follows:

·         To accelerate the rate of economic growth by planneddevelopment

·         To speed up industrialization, particularly development of heavy industries and to expand public sector and to build up a large and growing cooperativesector.

·         To increase infrastructurefacilities

·         To disperse the industries over different geographical areas for balanced regionaldevelopment

·         To increase the opportunities of gainfulemployment

·         To help in raising the standards of living

·         To reducing disparities in income and wealth (By preventing private monopolies and curbing concentration of economic power and vast industries in the hands of a small number ofindividuals)

Achievements of public Enterprises

The achievements of public enterprise are vast and varied. They are:

1.       Setting up a number of public enterprises in basic and keyindustries

2.       Generating considerably large employment opportunities in skilled, unskilled, supervisory and managerial cadres.

3.       Creating internal resources and contributing towards national exchequer for funds for development and welfare.

4.       Bringing about development activities in backward regions, through locations in different areas of the country.

5.       Assisting in the field of export promotion and conservation of foreignexchange.

6.       Creating viable infrastructure and bringing about rapid industrialization (ancillary industries developed around the public sector as itsnucleus).

7.       Restricting the growth of privatemonopolies

8.       Stimulating diversified growth in privatesector

9.       Taking over sick industrial units and putting them, in most of the vases, inorder,

10.   Creating financial systems, through a powerful networking of financial institutions, development and promotional institutions, which has resulted in social control and social orientation of investment, credit and capital managementsystems.

11.   Benefiting the rural areas, priority sectors, small business in the fields of industry, finance, credit, services, trade, transport, consultancy and soon.

Let us see the different forms of public enterprise and their features now.

Forms of public enterprises

Public enterprises can be classified into three forms:

(a)               Departmentalundertaking  

(b)               Publiccorporation             

(c)                Government company. These are explained below

This is the earliest from of public enterprise. Under this form, the affairs of the public enterprise are carried out under the overall control of one of the departments of the government. The government department appoints a

managing director (normally a civil servant) for the departmental undertaking. He will be given the executive authority to take necessary decisions. The departmental undertaking does not have a budget of its own. As and when it wants, it draws money from the government exchequer and when it has surplus money, it deposits it in the government exchequer. However, it is subject to budget, accounting and audit controls.

Examples for departmental undertakings are Railways, Department of Posts, All India Radio, Doordarshan, Defense undertakings like DRDL, DLRL, ordinance factories, andsuch.

Features

1.       Under the control of a government department: The departmental undertaking is not an independent organization. It has no separate existence. It is designed to work under close control of a government department. It is subject to direct ministerialcontrol.

2.       More financial freedom: The departmental undertaking can draw funds from government account as per the needs and deposit back whenconvenient.

3.       Like any other government department: The departmental undertaking is almost similar to any other governmentdepartment

4.       Budget, accounting and audit controls: The departmental undertaking has to follow guidelines (as applicable to the other government departments) underlying the budget preparation, maintenance of accounts, and getting the accounts audited internally and by externalauditors.

5.       More a government organization, less a business organization . The set up of a departmental undertaking is more rigid, less flexible, slow in responding to marketneeds.

Advantages

1.       Effective control: Control is likely to be effective because it is directly under theMinistry.

2.       Responsible Executives: Normally the administration is entrusted to a senior civil servant. The administration will be organized andeffective.

3.       Less scope for mystification of funds: Departmental undertaking does not draw any money more than is needed, that too subject to ministerial sanction and other controls. So chances for mis-utilisation arelow.

4.       Adds to Government revenue: The revenue of the government is on the rise when the revenue of the departmental undertaking is deposited in the government account.

Disadvantages

1.       Decisions delayed: Control is centralized. This results in lower degree of flexibility. Officials in the lower levels cannot take initiative. Decisions cannot be fast and actions cannot beprompt.

2.       No incentive to maximize earnings: The departmental undertaking does not retain any surplus with it. So there is no inventive for maximizing the efficiency orearnings.

3.       Slow response to market conditions: Since there is no competition, there is no profit motive; there is no incentive to move swiftly to marketneeds.

4.       Redtapism and bureaucracy: The departmental undertakings are in the control of a civil servant and under the immediate supervision of a government department. Administration gets delayedsubstantially.

5.       Incidence of more taxes: At times, in case of losses, these are made up by the government funds only. To make up these, there may be a need for fresh taxes, which isundesirable.

Any business organization to be more successful needs to be more dynamic, flexible, and responsive to market conditions, fast in decision marking and prompt in actions. None of these qualities figure in the features of a departmental undertaking. It is true that departmental undertaking operates as a extension to the government. With the result, the government may miss certain business opportunities. So as not to miss business opportunities, the government has thought of another form of public enterprise, that is, Public corporation.

PUBLIC CORPORATION

Having released that the routing government administration would not be able to cope up with the demand of its business enterprises, the Government of India, in 1948, decided to organize some of its enterprises as statutory corporations. In pursuance of this, Industrial Finance Corporation, Employees’ State Insurance Corporation was  set up in1948.

Public corporation is a ‘right mix of public ownership, public accountability and business management for public ends’. The public corporation provides machinery, which is flexible, while at the same time retaining public control.

Definition

A public corporation is defined as a ‘body corporate create by an Act of Parliament or Legislature and notified by the name in the official gazette of the central or state government. It is a corporate entity having perpetual succession, and common seal with power to acquire, hold, dispose off property, sue and be sued by its name”.

Examples of a public corporation are Life Insurance Corporation of India, Unit Trust of India, Industrial Finance Corporation of India, Damodar Valley Corporation and others.

Features

1.       A body corporate: It has a separate legal existence. It is a separate company by itself. If can raise resources, buy and sell properties, by name sue and besued.

2.       More freedom and day-to-day affairs: It is relatively free from any type of political interference. It enjoys administrativeautonomy.

3.       Freedom regarding personnel: The employees of public corporation are not government civil servants. The corporation has absolute freedom to formulate its own personnel policies and procedures, and these are applicable to all the employees includingdirectors.

4.       Perpetual succession: A statute in parliament or state legislature creates it. It continues forever and till a statue is passed to wind itup.

5.       Financial autonomy: Through the public corporation is fully owned government organization, and the initial finance are provided by the Government, it enjoys total financial autonomy, Its income and expenditure are not shown in the annual budget of the government, it enjoys total financial autonomy. Its income and expenditure are not shown in the annual budget of the government. However, for its freedom it is restricted regarding capital expenditure beyond the laid down limits, and raising the capital through capitalmarket.

6.       Commercial audit: Except in the case of banks and other financial institutions where chartered accountants are auditors, in all corporations, the audit is entrusted to the comptroller and auditor general ofIndia.

7.       Run on commercial principles: As far as the discharge of functions, the corporation shall act as far as possible on sound businessprinciples.

Advantages

1.       Independence, initiative and flexibility: The corporation has an autonomous set up. So it is independent, take necessary initiative to realize its goals, and it can be flexible in its decisions asrequired.

2.       Scope for Redtapism and bureaucracy minimized: The Corporation has its own policies and procedures. If necessary they can be simplified to eliminate redtapism and bureaucracy, ifany.

3.       Public interest protected: The corporation can protect the public interest by making its policies more public friendly, Public interests are protected because every policy of the corporation is subject to ministerial directives and board parliamentarycontrol.

4.       Employee friendly work environment: Corporation can design its own work culture and train its employees accordingly. It can provide better amenities and better terms of service to the employees and thereby secure greaterproductivity.

5.       Competitive prices: the corporation is a government organization and hence can afford with minimum margins of profit, It can offer its products and services at competitiveprices.

6.       Economics of scale: By increasing the size of its operations, it can achieve economics of large-scale production.

7.       Public accountability: It is accountable to the Parliament or legislature; it has to submit its annual report on its workingresults.

Disadvantages

1.       Continued political interference: the autonomy is on paper only and in reality, thecontinued.

2.       Misuse of Power: In some cases, the greater autonomy leads to misuse of power. It takes time to unearth the impact of such misuse on the resources of the corporation. Cases of misuse of power defeat the very purpose of the public corporation.

3.       Burden for the government: Where the public corporation ignores the commercial principles and suffers losses, it is burdensome for the government to provide subsidies to make up thelosses.

Government Company

Section 617 of the Indian Companies Act defines a government company as “any company in which not less than 51 percent of the paid up share capital” is held by the Central Government or by any State Government or Governments or partly by Central Government and partly by one or more of the state Governments and includes and company which is subsidiary of government company as thus defined”.

Features

The following are the features of a government company:

1.       Like any other registered company: It is incorporated as a registered company under the Indian companies Act. 1956. Like any other company, the government company has separate legal existence. Common seal, perpetual succession, limited liability, and so on. The provisions of the Indian Companies Act apply for all matters relating to formation, administration and winding up. However, the government has a right to exempt the application of any provisions of the governmentcompanies.

2.       Shareholding: The majority of the share are held by the Government, Central or State, partly by the Central and State Government(s), in the name of the President of India, It is also common that the collaborators and allotted some shares for providing the transfer oftechnology.

3.       Directors are nominated: As the government is the owner of the entire or majority of the share capital of the company, it has freedom to nominate the directors to the Board. Government may consider the requirements of the company in terms of necessary specialization and appoints the directorsaccordingly.

4.       Administrative autonomy and financial freedom: A government company functions independently with full discretion and in the normal administration of affairs of theundertaking.

5.       Subject to ministerial control: Concerned minister may act as the immediate boss. It is because it is the government that nominates the directors, the minister issue directions for a company and he can call for information related to the progress and affairs of the company anytime.

Advantages

1.       Formation is easy: There is no need for an Act in legislature or parliament to promote a government company. A Government company can be promoted as per the provisions of the companies Act. Which is relativelyeasier?

2.       Separate legal entity: It retains the advantages of public corporation such as autonomy, legalentity.

3.       Ability to compete: It is free from the rigid rules and regulations. It can smoothly function with all the necessary initiative and drive necessary to complete with any other private organization. It retains its independence in respect of large financial resources, recruitment of personnel, management of its affairs, and soon.

4.       Flexibility: A Government company is more flexible than a departmental undertaking or public corporation. Necessary changes can be initiated, which the framework of the company law. Government can, if necessary, change the provisions of the Companies Act. If found restricting the freedom of the government company. The form of Government Company is so flexible that it can be used for taking over sick units promoting strategic industries in the context of national security andinterest.

5.       Quick decision and prompt actions: In view of the autonomy, the government company take decision quickly and ensure that the actions and initiatedpromptly.

6.       Private participation facilitated: Government company is the only from providing scope for private participation in the ownership. The facilities to take the best, necessary to conduct the affairs of business, from the private sector and also from the publicsector.

Disadvantages

1.       Continued political and government interference: Government seldom leaves the government company to function on its own. Government is the major shareholder and it dictates its decisions to the Board. The Board of Directors gets these approved in the general body. There were a number of cases where the operational polices were influenced by the whims and fancies of the civil servants and theministers.

2.       Higher degree of government control: The degree of government control is so high that the government company is reduced to mere adjuncts to the ministry and is, in majority of the cases, not treated better than the subordinate organization or offices of thegovernment.

3.       Evades constitutional responsibility: A government company is creating by executive action of the government without the specific approval of the parliament orLegislature.

4.       Poor sense of attachment or commitment: The members of the Board of Management of government companies and from the ministerial departments in their ex-officio capacity. The lack the sense of attachment and do not reflect any degree of commitment to lead the company in a competitiveenvironment.

5.       Divided loyalties: The employees are mostly drawn from the regular government departments for a defined period. After this period, they go back to their government departments and hence their divided loyalty dilutes their interest towards their job in the governmentcompany.

6.       Flexibility on paper: The powers of the directors are to be approved by the concerned Ministry, particularly the power relating to borrowing, increase in the capital, appointment of top officials, entering into contracts for large orders and restrictions on capital expenditure. The government companies are rarely allowed to exercise their flexibility andindependence.