Government ownership and control of business enterprises has become a 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 as an instrument for attaining the economic and social objectives of the state as laid down in the Constitution of India.
Meaning and Definition of Public Enterprises
All industrial and commercial undertakings owned, managed and controlled by the Government are called public enterprises or public undertakings or public sector undertakings. These enterprises are known collectively as the public sector.
According to A. H. Hanson, “Public enterprise means state ownership and operation of industrial, agricultural, financial and commercial undertakings”.
In the words of S.S. Khera, “by state undertakings is meant the industrial, commercial and economic activities carried on by the Central Government or by a state government, and in each case, either solely or in association with private enterprise, so long as it is managed by a self-contained management”.
In the Encyclopedia Britannica a public enterprise has been defined as “an undertaking that is owned by a national, State or local government, supplies services or goods at price, and is operated on a more or less self-supporting basis.”
A careful analysis of the above definitions reveals the following characteristics of public enterprises:
1. State ownership:
A public enterprise is wholly owned by the Central Government or State Governments(s) or local authority or jointly owned by two or more of them. In case the enterprise is owned both by the Government and private sector, the State must have at least 51 per cent share in ownership.
2. State control:
The ultimate control of a public enterprise lies with the Government which appoints its Board of Directors and the Chief Executive.
3. Government financing:
The whole or a major portion of the capital of a public enterprise is provided by the Government.
4. Service motive:
The primary aim of a public enterprise is to render service to 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.
5. 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.e., the Parliament and the State Legislature.
That is why; the working of public enterprises is scrutinized by the Committees of the Parliament or the State Legislature.
6. Autonomous Bodies:
Public enterprises are autonomous or semi-autonomous bodies. In some cases they work under the control of Government departments. In other 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 are as follows:
Private enterprises are motivated primarily by considerations of profit. Therefore, these enterprises operate mainly in those areas of economic activities which offer a regular and steady return on capital investment.
On the other hand, Public enterprises are guided by several socio-economic and political objectives. They cover a wide spectrum of operations with little regard for considerations of profit.
A Public enterprise is owned by the Central Government and / or one or more State Governments either singly or jointly. On the contrary, the ownership of a private enterprise vests in one or more private individuals or corporate bodies.
A private sector enterprise is managed by its owners or their elected representatives. The management has to abide by the guidelines laid down by the owners.
However, there is enough scope for initiative and dynamism because policies can be modified or even discarded according to the requirements of the particular situation.
In case of public sector enterprises there is little scope for initiative and dynamism because managers of such enterprises are required to operate within the rigid policy framework and rules framed by the Government.
The entire or majority capital of a private enterprise is contributed by private investors / 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 per cent of the capital of a 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.
5. Freedom of management:
In a 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.
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 into any field of investment where steady and reasonable returns are expected. But Public enterprises operate mainly in the field of basic and strategic industries, public utility services and other areas of social benefit.