ii. Difference Between Public And Private Sector Organization 740 Words | 3 Pages. national, provincial and local, and how they interact with one another. Management – These are managed by IAS (Indian Administrative Services) officers and civil servants. The disagreement with the professionals further delays decision making. The initial capital is provided by the concerned Government. 3. Legal entity – A statutory corporation is a body corporate and can sue and be sued, enter into contract and acquire property in its own name. Merits of a departmental undertaking are as follows: Formation of a departmental undertaking is quite easy because it is set up by an administrative decision of the Government. The public school system, for example, provides education to members of the general public, while the police ensure the public's safety and enforces a country's laws. Protection of Public Interest – These are accountable to the Parliament. A statutory corporation seeks to combine the flexibility of a private enterprise with State ownership and public accountability. Electricity 3. Also, there are many types of public sector organizations such as departmental undertakings, government companies etc. De facto privatisation or a renewed role for the EU? Ownership – Minimum 51% of their paid-up capital is in the name of Central Government or State Government or partly in the name of Central Government and partly in the name of a State Government. Insensitive – These enterprises do not provide adequate services to consumer as they are usually insensitive to their needs. Examples of pattern of shareholding of two prominent Central Government companies are given here, Indian Oil Corporation Limited—Central Government 58.28 per cent and public shareholding 41.72 per cent; Bharat Heavy Electricals Limited—Central Government 63.06 per cent and public shareholding 36.94 per cent; both as on December 31, 2016. Waste Management Barlow, J. Roehrich, J.K. and Wright, S. (2010). It is established under the Indian Companies Act, and is managed by provisions of this act. iii. conducted in different type of organisations, those two areas are the profit oriented organisations to the non-profit oriented organisations the profit that is profit oriented organisations is focused by a name on making money. 3. This may affect the working of the corporation adversely. There is no need for registration and completion of legal formalities. and are associated with a particular ministry. In broad sense business includes industry commerce & trade. 4. Content Guidelines 2. The tax burden on public is reduced. Corruption – Rampant corruption exists is where dealing with public is involved. Local (a municipal-level body such as a city or county). 2. Proper Utilisation of Funds – All actions are approved by the Government. Unionised public-sector workers are also far more likely to have secure working conditions than private-sector and non-unionised workers. Whenever any change is required in any of these, an amendment to the concerned Act is required which is very time-consuming. Types of Budgets in Public Administration The public budgets are different from other forms of budgets in many ways; here the voters delegate the power of spending their money to the politicians or the elected representatives. Additionally, the government finances these types of public sector undertakings, and the legislature decides its objectives, powers, limitations and other rights. It can be a wholly owned Government Company where all shares are held by the Government. iv. Organizations that are not part of the public sector are either a part of the private sector or voluntary sector. v. Political interference – There is a lot of political interference through the ministry. A statutory corporation has a service motive and not a profit motive, though in the process of doing business it may earn profit. TOS4. Finance – The government company obtains its funds from government shareholdings and other private shareholders. Needs of the people for whom the undertaking has been established become secondary. Audit and control – They are subject to accounting and audit controls applicable to other Government activities. Public Sector. Civil Service Code – A departmental undertaking is managed by civil servants whose methods of recruitment and service conditions are the same as for other civil servants. iii. A departmental undertaking is suitable in the following situations: 1. The government has a complete authority to appropriate profits and also to bear losses. "-Murray Rothbard, The Fallacy of the Public Sector[4], Libertarians and anarcho-capitalists have also argued that the system by which the public sector is funded, namely taxation, is itself coercive and unjust. "The Moral Status of Relations to the State", chapter 24 of The Ethics of Liberty. Political parties in power keep on changing, resulting in lack of continuity as the officers are changed with these changes. Hindustan Machine Tools, Hindustan Steel and Hindustan Cables were set on this pattern. [1] Public enterprises, or state-owned enterprises, are self-financing commercial enterprises that are under public ownership which provide various private goods and services for sale and usually operate on a commercial basis. It offers the twin benefits, as it has power of the government and considerable amount of operating flexibility of private enterprises. Once the coverage of the public sector is clearly defined, there is a need to classify public sector entities as either engaging in market or non-market production, i.e., as being in the public corporations sector or general government sector respectively. There is no interference of government. The public sector might provide services that a non-payer cannot be excluded from such as, services which benefit all of society rather than just the individual who uses the services. These have a separate legal existence and have to act in their own name. Public Transit 12. Corruption – In public dealings there is bound to be corruption. They are the part of a country’s economic system and is run by individual and companies with the intention to earn the profit. 6. 3. Political Interference – Politicians have their own benefit in mind wherever huge funds are involved. Supplemental Guidance: Public … It can sue and can be sued. Thus, the economic development is ensured. The fallacy of the ‘public sector.’. Registration – A government company is created under the Indian Companies Act, 1956. Emergency Services 4. 3. 3. Gas and Oil 6. Operations must be flexible for the smooth functioning of business. 2. Rigidity – These are not flexible due to strict government rules and regulations. Welcome to EconomicsDiscussion.net! 3. "The Center for Responsive Politics." ii. A Government company is a company in which more than 50 per cent of the paid-up capital is held by the Central Government, the State Government or jointly by the Central and the State Governments. Control – It is subject to direct control of the ministry as it is generally considered to be a major subdivision of the Government department. 1. The Five Year Plans gave lot of importance to the public sector in the initial stages of development. iii. Appointments – These undertakings act through government officers. Types of organisation. The activities performed by these departments are an essential part of the functioning of the government because the Government functions through these departments. Statutory Corporations are created by a special Act of Parliament or State Legislature. Formation – These form a part of government. It can sue and be sued by others. No separate Act of parliament is required. Facilitates economic growth – Since a statutory corporation has the power of the government, combined with the initiative of private enterprises it serves as a valuable instrument for economic development. iii. As a result, there is unnecessary delay in work performance. When some kind of monopoly is required in performing the activities. iv. Fire Service 5. This monopoly may be abused and may result in poor service to the public. There are three forms of organisations which are undertaking, statutory corporation and relevant to public sector enterprises – departmental Government company. Thus, many business opportunities may be lost. Public sectors include public goods and governmental services such as the military, law enforcement, infrastructure (public roads, bridges, tunnels, water supply, sewers, electrical grids, telecommunications, etc. Everything you need to know about the types of public sector undertaking. Operational freedom – They are free from undesirable government regulation and control of government and enjoy independence in their functioning and a high degree of operational flexibility. The annual reports of the Government companies are placed before the Parliament or State Legislature. These are backed by the power of government and have considerable flexibility as these are corporate bodies. Police Services 10. As a result, decisions are made in accordance with the needs of the business environment. Examples of Government companies are- Indian Oil Corporation Limited, Bharat Sanchar Nigam Limited, Gas Authority of India Limited, etc. Suitable form – It is the most suitable form of organisation where national security is concerned since it is under the direct control and supervision of the concerned Ministry. iv. An Instrument for Economic Development – These have the backing of government power along with private sector initiative. 3. However, the Act provides for a few issues that require the prior approval of the particular ministry. 3. 1. Ownership – A company is owned by a Government either fully or partially. Public or Statutory Corporations are the types of public sector formed by the parliament’s special action or state/central legislatures. Control – These are considered as a major sub-division of a ministry of Government and are under direct control of the minister. As a result, many politicians and civil servants find place in the Board of Directors. Protection of Public Interest – A Government company often works in a competitive environment. The government is the majority shareholder in these enterprises and it exercises full control over paid up capital of the company. Unable to Take Advantage of Opportunities – Sometimes good opportunities slip away because of the overcautious and conservative attitude of officials who don’t allow these undertakings to go in for risky business ventures. In the private sector, there are four major types of businesses: sole proprietorship, partnership, Limited Liability Corporation and corporation. Its main aim is to increase wealth. Merits of a statutory corporation are as follows: A statutory corporation enjoys operational autonomy as there is no interference in its working from the Government. Where absolute Government control is required because of the strategic nature of activities, for example, communication, broadcasting, public utilities, etc. Life Insurance Corporation of India (LIC), iv. The new persons try to run company according to their own will. There is always a fear of loss due to slackness. It is an artificial person with the flexibility of the private sector and the powers of the government . Incomplete Operational Autonomy – The fact is that the operational autonomy which they have is only theoretical. Red-Tapism – There is a lot of red-tapism and excessive and slow paper work leads to heaps of files moving at slow speed and no work is done on time. 8. Financing – Financing is done mostly by Government. 5. 9. 5. The revenue earned by these is also paid into the Government Treasury. Management – It is managed by a Board of Directors who are appointed by shareholders or nominated by the Government. Further, the accounts of Government companies are not subject to audit by Comptroller and Auditor General of India. Easy Financing – Their financial needs are met by the Government and these can also go to capital market as and when they like. 2. 2. Statutory Corporations are public sector enterprises brought into existence by a Special Act of the Parliament which defines its powers and functions, rules and regulations governing its employees and its relationship with government departments. OpenSecrets.org. Ellickson, R. C. (2017). Retrieved June 10, 2017, from, This page was last edited on 12 January 2021, at 23:10. Passing of this Act by the Parliament or State Legislature is a lengthy process. Rothbard, M. N. (1961). Such public sector reforms can be launched for a number of reasons. 5. Statutory Corporations 3. The service conditions are also given in the specific Acts under which they are set up. Red tapism – Since no action can be taken unless it goes through the proper channels of authority there working propagates red tapism in day-to-day operations. Government Financing – Since the Government fully owns a departmental undertaking, the concerned Government is responsible for financing it from the budget of the concerned ministry. It is free to utilise its profit in the way provided by the relevant Act. Limitations of Departmental Undertakings: The various limitations of a department and undertaking are discussed below: i. (a) The Indian Post and Telegraph Department. 2. It obtains funds by borrowings from the government or from the public through revenues, derived from sale of goods and services. 3. 7. Financing – Capital of such companies comes from government shareholdings and private shareholders. As a result, incompetent persons sometimes find a place on the Board of Directors. The public sector means the organisations run by government that exist to provide a service for the population and communities. (iii) Bharat Heavy Electricals Ltd (BHEL). 9. 5. At times due to disagreement the matters are referred to the government for final decisions leading to delayed action. South Africa’s public sector have suffered a lot of strikes across all sectors. 4. These have a financial autonomy and prepare their own budgets. Public sector companies serve the purpose of providing basic public services to larger people whereas private sector companies are entirely profit-driven. Murray N. Rothbard (May 1998). For managing a business undertaking, professionally competent managers are required while departmental undertakings are managed by civil servants. NYUJL & Liberty, 11, 371. Control Unhealthy Competition – These companies can control unhealthy competition by providing goods and services at reasonable prices to consumers. 6. 4. Lack of Competition – This has led to carelessness and lethargy in their activities. They work under the political pressure of the party in power. The various merits of a departmental undertaking are explained below: i. Centralised control – These are subject to effective control by the Parliament over their operations. Government does not interfere in day to day working of these corporations. Audit – The accounts of these undertakings are audited by the Comptroller and Auditor General of India (CAG). It is a corporate body has the capacity of acting in its own name is financially independent with a clear control over a specified area or a particular type of commercial activity. Collaboration – It is the only form of public sector enterprises which may form a collaboration with another party, either foreign or Indian. iii. Easy Formation – These are established just by the administrative orders of Government. Humanities Press 1982, New York University Press 1998. Their employees are appointed through Union Public Service Commission and Staff Selection Boards. The public sector might provide services that a non-payer cannot be excluded from (such as street lighting), services which benefit all of society rather than just the individual who uses the service. Accounting and audit – An auditor is appointed by the Central Government and the Annual Report is to be presented in the parliament or the state legislature however these companies are exempted from the accounting and audit rules and procedures. or the government holds more than 51% of the total share capital of the company which comes under various ministries. Finances through loans and other means of financing are arranged by the company. Such an undertaking is not an autonomous entity. After economic liberalisation, the number of Government companies with public participation in shareholding has increased substantially. Industrial Development Bank of India (IDBI), vi. 2. Annual Reports – The annual reports are presented to the Parliament. [3], "Any reduction of the public sector, any shift of activities from the public to the private sphere, is a net moral and economic gain. Self-governance of employees – The conditions of service of the employees of these enterprises are governed by the provisions of the Act itself. Web. There is a lot of political interference. iii. Delay in decision making – There may be delays in matters where prompt decisions are required as the decisions cannot be taken by the employees or heads of departments independently without the approval of the ministry concerned. In business there are different types of organisation categorised by different types of ownership. 3. ii. Usually, a statutory corporation undertakes business on a large scale. Before publishing your Articles on this site, please read the following pages: 1. Ownership – These are owned and controlled by Central or State governments. It is generally exempted from the rigid rules applicable to the expenditure of public funds. Center for Responsive Politics, 16 May 2017. Profit earned by such corporation is used for providing services to the society. Share Your Word File It is not answerable directly to the Parliament. For example, Reserve Bank of India is free to decide bank rate, cash reserve ratio, etc., according to the needs of business environment. (ii) Partly owned government companies where government and public are joint owners but major part of the capital is provided by the government. It becomes difficult to pay back these loans. Financial Independence – These do not get funds from central budget. Public employee unions represent workers. They play a crucial role in the economic development of the nation. No Say of Minority Private Shareholders – The private shareholders are in minority. Therefore, it may adopt a professional approach in managing its affairs. Delay in Decision Making – The Government generally seeks professional advice which hinders the freedom of these corporations to enter into new contracts. 5. Separate Legal Entity – It has a separate legal entity. They interfere in the working of these corporations for personal and party gains. For designing its management process, the company is free to do so. Most of the Governments have deficit financing leaving much lower scope for allocating funds to departmental undertakings. The Logic Of Action Two, Application and Criticism from the Austrian School. The following are major statutory corporations: i. Examples of public sector activity range from delivering social security, administering urban planning and organizing national defenses. either the Government fully finances them through the revenues they raise by collecting taxes, duties, fees, etc. Therefore, the top management of Government companies becomes overcautious and avoids taking risky decisions even though they may be quite relevant to the changing business environment. On paper, a Government company has autonomy. Like, any other public limited company the management of the company is regulated by the provisions of the companies act. In many cases, statutory corporations enjoy monopoly, for example, Food Corporation of India. Source of revenue – They serve as a source of income for the Government as the revenue earned by the enterprise goes directly to the treasury. Privacy Policy3. Registration – There is no need to pass a separate Act in the Parliament as a government company can be established by fulfilling the requirements of the Indian Companies Act. iv. This is the complete list of articles we have written about industries. It works almost like a government department with the help of officers from the Indian Administrative Services (IAS). They are not government or civil servants and are not governed by government rules and regulations but some of the officers of these enterprises are taken from government departments, on deputation, to head these organisations. The level of official corruption in some countries, notably in Africa, has driven foreign investors out of the market, and made it virtually impossible to conduct business. Departmental Undertakings 2. Some of the drawbacks of departmental undertakings are as below: 1. 4. Examples of statutory corporations are Reserve Bank of India, Life Insurance Corporation of India, Food Corporation of India, etc. There are two types of public sector organizations, i.e. For example, Diesel Locomotive Works (DLW) located at Varanasi (Uttar Pradesh) is a unit of Ministry of Railways. Where a departmental undertaking is to be used as a source of revenue, for example, Indian Railways. For selecting managerial and other personnel, statutory corporations generally prescribe professional qualifications. Public accountability in a departmental undertaking is high because it works like a Government department and the Government is accountable to the Parliament or State Legislature. 1. Therefore, it is in a better position to work according to the prescriptions set by the Government. There are certain provisions which are applicable to the appointment/retirement of directors and other managerial personnel. A Government company is formed and registered under the Companies Act, 2013 which contains provisions relating to Government companies. Levels of Public sector are organized at three levels: Federal or National, Regional (State or Provincial), and Local (Municipal or County). Its accounts are audited by a statutory auditor, for example, Comptroller and Auditor General of India in the case of Central Government’s statutory corporations. Regional (a province/state within a national state). Part of Government – A departmental undertaking is a part of the government and is organised as a unit of the concerned ministry. Decrease in Tax Burden on Public – The departmental undertakings earn profit for Government. Ignoring Service Motive – The directors utilise their influence and powers for their own benefit instead of the social service. There is no departmental interference by bureaucrats. Relaxation – Relaxations from the rules under Companies Act can be given to them provided it is authorised by the Parliament. Administrative Autonomy – These do not have any administrative autonomy, from government department. iii. A Hayekian Case Against Anarcho-Capitalism: Of Street Grids, Lighthouses, and Aid to the Destitute. Prompt Decision-making – In a Government company, there is ample scope for prompt decision-making because the usual process of decision-making in Government, which is quite slow because of bureaucratic structure, is not followed here. Its financial performance is subject to discussion in the Parliament or State Legislature as the case may be. Misuse of Financial Autonomy – These take loans at high rate of interest to meet urgent requirements due to delay in projects. The organization of the public sector can take several forms, including: Libertarian and Austrian economists have criticized the idea of public sector provision of goods and services as inherently inefficient. These organizations are controlled either by State or Central Government or Local Authorities. Postal Service 11. Red-tapism means the practice of excessive paperwork and tedious procedures before official action may be considered or completed. Law enforcement offers several types of employment in the public sector, such a Border Patrol Agents.. Education Science History Language Art Internet Technology Business Food Beauty Miscellaneous Industry Anatomy Health Crafts Cars Home Finance Medicine Fashion Fitness United States Environment … iii. The government does not interfere in their financial matters. Government control – The main purpose of a government company being registered like other companies, is defeated as the management and administration rests in the hands of the government since government is the sole shareholder. Easy Formation – Formation of a Government company is much easier as compared to a public corporation because the company is formed under the Companies Act. A statutory corporation has an independent accounting system and is not subject to budgetary, accounting and audit applicable to Government departments. It is managed in the same way as a Government department is managed. Political interference – In all the major decisions or where huge funds are involved the Government and political interference has always been there. Types of Companies: Private Sector and Public Sector ... Posted: (1 days ago) Companies can either be the private company or public company. 5. Formation – It is formed according to the provisions of Indian Companies Act, 2013. 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