BCOC -132 FINANCIAL ACCOUNTING AND MANAGEMENT CHAPTER-7 PUBLIC ENTERPRISES

 

BCOC -132 FINANCIAL ACCOUNTING AND MANAGEMENT CHAPTER-7 PUBLIC ENTERPRISES

WHAT IS PUBLC ENTERPRISE

A public enterprises refers to a business or organization that is owned , operate and controlled by the government or a government agency. These entities are established to provide essential services or promote essential services or promote public welfare rather than solely for pro;it. Enterprises can operate various sectors such as transportation, utilities, healthcare and more, they play a role in the economy by fulfilling public needs and objectives

SCHEMES OF PUBLIC SECTOR ENTERPRISES
MAHARATNA SCHEME:-It is the classification or status granted by Public Sector Undertakings(PSUs) based on their financial performance, market capitalisation and other criteria
NAVARATNA SCHEME:- It is another classification system for(PSUs)in India, initiated by government of India . this scheme was introduced to identify and empower a select group of nine PSUs to enhance their efficiency , competitiveness and global reach. This companies are expected to be leaders in their respective sector
MINIRATNA SCHEME:-the miniratna scheme launched in 1997 by the gvt of India provide increase autonomy and financial power to Central Public Sector Enterprises(CPSEs) with the goal of enhancing their efficiency and competitiveness

DIFFERENCE BETWEEN PUBLIC AND PRIVATE ENTERPRISE

PUBLIC:-

• Owned and operated by the gvt or gvt agencies

• Primarily motivated by public welfare

• Governed by the public policies set by gvt

• Objective aligned with national development plans, focusing on maximum social

  welfare and public interest PRIVATE :

  • Owned and operated by individual or group with in the legal framework of gvt regulations

  • Primarily motivated by private pro;it

  • Free to set their own objectives
  FEATURES AND OBJECTIVES OF PUBLIC ENTERPRISES FEATURES:

1. Owned and managed by the GVTc or gvt agencies

2. Capital mainly provided by the GVT

3. Can be organised as a departmental undertaking, statutory corporation or GVT

   company

4. Governed by public policies, focused on public interest rather then solely driven

   by pro;it

5. Objectives are aligned with development plans

OBJECTIVES:-

1. Achieve rapid economic development through industrial growth in line with development plans

2. Ensure public welfare and reduce inequalities in income and wealth distribution

3. Optimize resource utilization for economic growth

4. Promote balanced regional development in industry and trade

5. prevent the growth of economic power concentration in private hands 6. Control prices of essential goods to prevent public hardship
8.Provide favorable employment conditions, acting as model employers.

CONTRIBUTION OF PUBLIC ENTERPRISES

1. Industrial advancement:- industrial transforming the country into an industrial

   nation, contributing to India’s status among industrialized nations

2. Self reliance:- played a pivotal role in achieving self reliance in various key sectors

   of industrial production and meeting consumer demands

3. Regional development:-focus on industrialization and development in backward

   areas , fostering overall regional progress

4. Employment opportunity:- providing employment opportunities especially

   benefiting backward communities like castes and scheduled tribes

5. Income disparities

6. Avoiding of Economic Power concentration

7. Ethical dealings

PROBLEM OF PUBLIC ENTERPRISES

1. Commercial limitation
2. Directorate professionalism
3. Job security impact
4. Reward and punishment system
5. Technological challenges
6. In;luence of worker’s Union
7. Manpower surplus and low productivity 8. Size complexity
9. Government auditing constraints

DEPARTMENTAL ORGANIZATION

The departmental form of organization is the oldest and involves public enterprises being conducted under the control of government department

Situation favoring departmental organization:-
• When the primary purpose is to generate revenue for the GVT
• When GVT seeks ;irm control over service sector for public interest
• When maintaining secrecy is strategical crucial
• When project requires government funding, especially in the initial planning stages

FEATURES

1. Overall controlled by minister:- control rests with minister overseeing the relevant ministry , who delegate authority through various levels

2. Civil servant employees:- employees are civil servants funded through budget appropriations, with finances linked to the GVT treasury

3. Accounting and auditing controls:-subjected to budget accounting and audit controls

4. Sovereign immunity:- integral part of GVT, ensuring sovereign immunity for the state

MERITS:

• Maximum GVT control minimize the misuse of public funds

• Government oversight on economic activities • Contributes to economic progress
• Accountability to the parliament

LIMITATIONS

• Bureaucracy and red tape issues
• Vulnerability to political instability
• Excessive parliament control
• Lack of professional expertise
• Absence of competition and profit motive • Financial constraints

PUBLIC CORPORATION

A public corporation is also know as statutory corporation, is a corporate body created by the parliament or state legislature through a special act. This act de;ines its powers, duties, functions, immunities and management structure

PUPOSE OF PUBLIC CORPORATION

1. Transfer business of nationalized undertakings
2. Facilitate acquisition of undertakings from existing companies 3. Promote, develop and operate specific scheme
4. Extend social and utility services
5. Regulate and control institution and related matters

FEATURES:

1. Created by special Act:- established through special act of the legislature , de;ines

   its powers and relationship with GVT

2. Autonomous corporate body:-functions as legal entity , similar to joint stock

   company with a board of directors as its agents

3. State ownership

4. Managed by board directors

5. Accountability to legislature

6. Formal relation with government

7. Government employees

8. Financial independence

MERITS:

• Initiative and flexible
• Avoids bureaucratic hurdles
• Easy capital rising
• Protect public interest
• Work with service motive
• Ensure working efficiency
• Secures benefits of large scale economy

LIMITATION

• Less autonomy and flexibility
• Clash among divergent interests • Ignores commercial principles
• Excessive public accountability

GOVERNMENT COMPANY
A government company according to the Indian Companies Act, is a company where 50% or more of the total paid up capital is held by the central or state government either individually or jointly. Any company that is a subsidiary of such a government company is also considered a government company

PURPOSE OF GOVERNMENT COMPANIES

1. Public interest acquisition of private enterprises
2. Takeovers of unprofitable or insolvent companies in ;inancial crises 3. Industrial promotion and encouragement
4. Promotion of trade or commerce

FEATURES:

1. Creation under Indian Companies Act:- established under Indian Companies Act 1956, following rules applicable to private entities

2. Corporate entity:- operates as a legal entity akin to private joint stock companies

3. Scope for private participation:- may have private participation, with the

   government owning 50% of the capital

4. Managed by board directors:- governed by a board directors appointed primarily

   by the government

5. Financial independence:- utilizes revenue derived from its goods and services

MERITS:

• Easy constitutional changes
• Facilitate expertise takeover
• Allows private participation
• Simplifies ownership transfers
• Offers more autonomy and operation ;lexibility

LIMITATIONS

• Avoid constitutional responsibility
• Tendency to government interference • Concerns about public accountability • Subject to public criticism

Basis Departmental organization

Legal status No separate legal status

Public corporation

Separate legal entity

Government company

Separate legal entity

Formation

Created by the government attached to speci;ic ministry

Comes into existence by a special Act of Legislature

Formed by a Ministry under the Companies Act

Management	Managed by the concerned Government Ministry	Managed by Board of Directors nominated by the GVT	Managed by board of directors, including members nominated by the GVT and elected share holders
Capital	Provided wholly by the GVT from budgetary appropriation	Fully subscribed by the GVT	Minimum 50% owned by the GVT
Scope of private participation	No scope for private participation	No scope for private participation	Allows private participation in shares capital and affairs
Flexibility	Subject to GVT control budget, accounting and audit procedure	Subject to some restrictions by the GVT not subject to budget audit and accounting procedure	Some freedom from GVT control not subject to audit , budget and accounting procedure
Staf;ing and term of services	Employees are civil servants, governed by civil service code	They are not civil servants, governed by their contract of services	Employees are not civil servants, governed by the their contract of services