Around the world, as economies developed, governments left business activities to individuals and private organizations while keeping essential services. Over years, many governments observed that the private sector avoided areas with long gestation periods like oil exploration, infrastructure development, etc.
Further, industries developed around region rich in natural resources, skilled labor, and proximity to a market, leading to a regional imbalance. Eventually, this led to the evolution of public enterprises where the government started participating directly in businesses. Hence, a Public Enterprises or a Public Sector Enterprise is a business unit which the government owns, controls, and manages.
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Public Enterprises and their Structures
A commonly accepted definition of a public enterprise is “Any commercial or industrial undertaking which the government owns and manages with a view to maximize social welfare and uphold the public interest.”
Characteristics of Public Enterprises
The primary characteristics of public enterprises are:
- They function under the direct control of the government and some are even established under statutes and Companies Act. Therefore, public enterprises are autonomous or Semi-Autonomous in nature.
- Either the State or the Central government can control a public sector enterprise.
- Primarily, the objective of establishing a public enterprise is to serve the public. They can supply essential goods/services at reasonable prices and also create employment opportunities.
- A public enterprise endeavors to serve all section of people in the community.
- In some sectors, private organizations do not have permission to operate. Therefore, the public sector enterprises enjoy a monopoly in operation. For example, the State enterprises have a monopoly in Energy production, Railways, and Post and Telegraph services.
- Sometimes, the country receives financial/technological assistance from the international community for the development of industries. These grants are applied through public enterprises.
- Public sector enterprises are liable to the general public for their actions.
- These enterprises help in the implementation of the economic plans and policies of the government.
- The government makes the primary investment in a public sector enterprise. However, they arrange finance for the day-to-day operation making it financially independent.
Organization of Public Enterprises
In India, public sector enterprises have three different forms of organization:
- Departmental Undertaking – which is primarily used for providing essential services like railways, postal services, etc. to the general public. A Ministry of the Government controls such organizations in the same way as any other department in the government. This form of a public enterprise is apt for activities which require governmental control for the public interest.
- Statutory or Public Corporation – The Parliament or State Legislature can create a corporate body through a Special Act which defines its functions, powers, and pattern of management. This is a Statutory or Public Corporation. In this form, the government provides the entire capital. Some examples, Life Insurance Corporation of India (LIC), State Trading Corporation, etc.
- Government Company – is a company in which the government holds at least 51 percent of the paid-up capital. A Government Company is registered under the Companies Act. Further, all the provisions of the Act are applicable to such a company. Some examples, Bharat Heavy Electricals Limited, Bharat Electronics Limited, etc.
Solved Question for You
Q1. What is a public enterprise?
A public enterprise is an industrial or commercial undertaking which the government owns and manages. Also, the primary objective of such an enterprise is social welfare and upholding the interest of the general public.