Here is a compilation of essays on ‘Public Enterprises’ for class 9, 10, 11 and 12. Find paragraphs, long and short essays on ‘Public Enterprises’ especially written for school and college students.
Essay on Public Enterprises
Essay Contents:
- Essay on the Profitability Profile of Public Enterprises
- Essay on the Public Enterprise’s Policy of Profit
- Essay on the Case against Earning Profits
- Essay on the Role, Rationale and Objectives of Public Sector in India
- Essay on the Objectives of Public Enterprises
- Essay on the Organisation and Management of Public Enterprises
- Essay on the Difficulties in the Management of Public Enterprises
Essay # 1. Profitability Profile of Public Enterprises:
The public enterprises, even though not to be commercially profit-oriented ventures like the private enterprises, are also expected to give an adequate or reasonable return on investment made on them. The profitability, for evaluating the performance of public enterprises, can be viewed from various angles.
Gross margin, which does not takes into account the elements of depreciation (the wear and tear cost of the capital asset) and interest (financial cost of the capital), is generally regarded by the economists as a reasonable measure of the return on investment to the national economy. The accountants, on the other hand, lay greater emphasis on the gross profit concept which takes note of depreciation but overlooks the change on account of interest.
The tax collector looks at the profit from his own viewpoint as a source of revenue and hence is more concerned with pre-tax profits. Pre-tax profits assume greater importance as a yardstick for judging the operational efficiency of management since the level of tax rate, at any given point of time is determined by the Government and, therefore, constitute an extraneous factor beyond the control of the management.
In absolute terms, the gross profits of public enterprises have increased substantially from a low figure of Rs. 1420 crores in 1980- 81 to Rs. 11102 crores in 1990-91 and then further to Rs. 30570 crores in 1996-97. However, since these enterprises have mainly financed their investments through borrowing rather than equity participation, the interests paid out by them have been quite large. Consequently, the next pre-tax profits which were almost insignificant amounting to barely Rs. 19 crores in 1980-81 have shown improvement since 1990-91 onwards and have increased from Rs. 3500 crores in that year to Rs. 15400 crores in 1996-97.
If we analyse group/sector-wise figures, we find that only four such industrial, groups viz., petroleum, power, minerals and metals and engineering industries (both light and heavy engineering goods industries) have shown some reasonable profits over the past few years.
And of these, the largest share of profits is accounted for by the Oil and Natural Gas Commission. Other important sectors such as steel coal, fertilizers, pharmaceuticals, transport equipment etc., have either shown persistent losses or have only recently started earning some insignificant profits.
The performance of the public sector enterprises as judged from the rate of return on investment has not been satisfactory. The gross rate of return (gross profits as a percentage of capital investment) has been very low. For example, during 1970-71 the gross rate of return (before tax) was 4.2 per cent.
There was some increase in profitability of these enterprises in 1980-81, when the gross rate of return went up to 7.8 per cent. In 1990-91.the gross rate of profit was 10.9 per cent which increased to 15.8 per cent in 1995-96. It marginally dropped to 15.1 per cent in 1996-97.
Net profit (after tax) for these enterprises presents a very dismal picture. For number of years it was negative showing losses to most of these concerns. However, in 1981-82 and 1982-83. these enterprises recorded some net profits, and the rate of return (after tax) has turned positive though still very low at only 2.0 per cent and has varied between 2 and 4 per cent ever since then. The rate of return on investment is thus very disappointing from commercial point of view.
Essay # 2. Public Enterprise’s Policy of Profit:
Public enterprises, as already pointed out are those enterprises which are set up by the state for the welfare of people. Sometimes, these are set up to fill gaps which are created by the private enterprises for one reason or the other, usually with profit motive. Sometimes these enterprises are set up because the state feels that it should not entirely depend on the private enterprise and must regulate its behaviour. Sometimes these enterprises are set up because the capital costs are heavy and a private enterprise is not in a position to invest in that.
There can be also another reason namely that public enterprise can have better facilities, as compared with the private one, and as such the state may be tempted to start an enterprise, which private enterpriser may decline. But a basic problem which has been raised is whether a private enterprise should not earn profits. Should it run on profit and loss basis or the basis of ‘No Profit, No Loss.’ Similarly the problem is, if it is to earn profits then to which extent and if not why not.
1. Welfare of the People:
Those who argue that public enterprises may earn profit argue that the profit will be used for welfare of the public. The public will be benefited either by 1 of reduction in cost or by depositing amount in the public funds. In both the cases it is desirable that the public enterprises should earn profit.
2. Expansion Becomes Possible:
In case it is desired that public enterprise should expand, it is most desirable that it should try to become self-generating and self-supporting. It should not always depend on the government both for maintenance as well as expansion. It can do so only when it is earning profit. Even if it is running on ‘No Profit, No Loss Basis’ it cannot think of expansion.
3. Suited to Poor Countries:
In poor countries national economy is also under heavy strains. The government is required to deal with many priority programmes and each programme in its own turn is a pressing and immediate. In case each enterprise begins to depend on the government, then financial difficulties for the state will increase many fold. It is, therefore, essential that the enterprises should be run on profit and loss basis, so that each enterprise becomes self-supporting and gradually becomes in a position to set up subsidiary undertakings.
4. Relief in Taxation:
If public enterprises begin to run on profits, then the tax payer will get some tax relief. In case it is not earning profits, then the tax payer will be required to pay for maintenance and expansion. The amount saved can be used for other purposes and to that extent also the tax payer will be saved and less burdened.
5. Encouragement in Nationalisation:
There is a general feeling that as far as possible industries and enterprises should be nationalised, so that the consumer is saved from exploitation. But if the public enterprises begin to fun in loss or just maintain themselves, then tax payer will grumble and the whole process of nationalisation will receive a serious setback. For the promotion nationalisation it is essential that the public enterprises should be run on ‘Profit and Loss’ basis.
6. Essential for Labour Welfare:
Usually there is a charge against the private sector that it squeezes the blood of the workers. It is expected of public sector enterprise that it will steps for labour welfare. But facilities can only be provided when adequate funds are available. For providing better facilities introducing welfare schemes it is essential that the enterprise should show positive gains.
7. Expansion of Employment Opportunities:
Public enterprises provide employment opportunities. If these are earning profits and expanding, then these shall be in a position to absorb more and more people. In case these run into losses, then there will be a widespread demand that there should be retrenchment and shrinking. Therefore it is profit alone which can help in providing employment opportunities to the workers and can prove socially useful and advantageous.
8. Indication of Efficiency:
In an enterprise, profit is a safe yard stick of measuring efficiency both of the managerial staff and also that of the workers and their sense of involvement in the work.
In case the enterprise is incurring losses, it can be presumed that the managerial staff is inefficient and has not been in a position to win the co-operation of the lower staff or the enterprise is not giving production to its capacity or that the workers have no sense of involvement.
This can also lead to the conclusion that there is some drainage on the resources of enterprise, which are either being misused or used for personal interests and so on. Profits can thus be used as a measuring yard stick of the efficiency of a public enterprise.
9. Provision of Social Securities:
Every public enterprise by law is required to provide certain social securities. These include age pension, disability pension, provident fund benefits, medical benefits to the employees and also the members of their families. Though old age pension and provident contributions etc. are deferred payments, yet ultimately the enterprise is to pay amounts to the workers.
Essay # 3. Case against Earning Profits:
We have already said that there is a section of the society which strongly feels that public enterprises should not at all earn profits. At the most these should be run on ‘No profit, No Loss Basis’.
They have their own lines of arguments. Some of the arguments which can be advanced in this regard are all under:
(a) No Real Relief to Tax Payers:
One of the arguments which are advanced in favour of profit earning of private enterprises is that it will provide relief to the tax payer. But in actual practice it does not so happen. What happens is that when the enterprise is in profit, the workers begin to put forth demands for additional wages and other facilities. Since the enterprise is in a position to pay the demands are accepted without much inconvenience.
(b) Continuance of Exploitation:
Public enterprises are set up so that the consumers are saved from exploitation of the private enterprises. If these enterprises also begin to earn profit and exploit the workers, then the exploitation of the workers will continue as it was. Simply hitherto he was being exploited by the private enterprise and now he will be victim of exploitation of public enterprise. Thus no profit can be justified in so far as exploitation is concerned.
(c) Defeat of the Purpose:
Basic purpose of setting up public enterprises is that gaps which are created by private sector enterprises should be filled. With the private sector these gaps remain unfilled up simply because either there is no profit or the margin of profit is so low that a private enterpriser does not feel tempted to invest. In case public enterprise is also guided by profit motives, then the basic idea and purpose of setting up a private enterprise will be defeated.
(d) Slow Development of Industries:
In case public enterprises run on ‘profit and loss’ basis, then these will also be guided by profit motives. Like private sector enterprise these sectors will also produce only few commodities in limited quantity which can give them better results. In many cases there is certain subsidiary industries which are dependent on the material produced in a public enterprise.
In case in a bid to earn profits, public sector enterprises restrict supply of some material, then subsidiary industries will receive a serious setback. This attitude and policy will very much retard economic progress of the country.
(e) Power to Discriminate:
In public enterprises monopoly situation prevails and in that situation it is possible to discriminate. When profit is the motive, then discrimination becomes guiding force and factor, which no society can afford.
Whether public sector enterprises should or should not be guided by profit motives is of course a controversial issue, but the fact remains that every society will like that there should be no losses, so that the society is not forced to bear for the inefficiency of the workers, or the managerial staff, which is loaded with the responsibility of running the enterprise.
Essay # 4. Role, Rationale and Objectives of Public Sector in India:
Public sector in the Indian economy has registered a phenomenal growth since Independence. The number of public enterprises under the Central Government was only 5 at the beginning of First Five- Year Plan in 1951. Not much of industrial development took place during the first Plan.
The expansion of public sector started from the Second Plan (1956) onwards. Rapid expansion of public sector undertakings under the Central Government stood at 236 with an investment of Rs. 202000 crores.
Public sector has to play an important role in India. It is through the expansion of public sector that the state can assume commanding heights of the economy and give practical shape to its socio-economic policies designed at economic development with social justice.
Public sector is important due to the following reasons:
1. Accelerated Economic Growth:
To ensure a high rate of economic growth it is necessary that the state must actively participate in the programmes of economic development. The direct investment by the government in new industrial undertakings would lead to a rapid pace of industrialisation. Therefore, the government has stepped up the rate of investment in the economy and consequently much expansion is witnessed in the public sector enterprises.
2. Socialist Pattern of Society:
Achieving a socialist pattern of society has been accepted as the ultimate object of economic policy in India. The attainment of this objective involves the setting up of more and more industries in the public sector. The sphere of private industry must contract and that of the government enterprises must expand if the State has to exercise a greater control over the economic activity in the country.
3. More Equitable Distribution of Economic Power:
The expansion public sector was also thought to be desirable because it ensures a more equitable distribution of economic power. If industry is left entirely in the private hands, it leads to monopolistic tendencies which are against the interests of the masses.
Therefore, to avoid exploitation by the capitalists, the economic power must not be allowed to concentrate in a few hands. The public enterprises, either by replacing or by offering competition to the private industries, can serve the best interests of the consumers.
4. Balanced Regional Growth:
The expansion of public sector Industries is also necessary to ensure a balanced regional growth. While industries concentrate in certain parts of the country the others parts may remain backward in this field because of a number of economic and non-economic factors. Therefore, the state must start new industries in those regions which have so far remained neglected.
5. Foreign Aid:
One of the reasons for the expansion of the public sector industries is the aid for industrial development given to the government by the foreign countries. The Socialist countries give aid to the public sector industries only, while other countries also think it feasible to deal with the government rather than with the individual entrepreneurs. Therefore, many of the public sector industries have come up because of the foreign aid to such industries.
6. Nature of Investment:
Public sector industries have been considerably expanded because some of these industries are such that they can be started only by the government. For example, major irrigation projects, steel, plants or heavy industries require a huge investment which may be beyond the capacity of the private people. Further, such investment does not give quick returns while the private people want to maximise profits within the shortest possible period of time.
7. Ploughing Back of Resources:
Expansion of public sector industries may also be partly attributed to the ploughing back of the profits by such industries. While, in the private sector, most of the profits are distributed by way of higher dividends, in the public sector industries they are invested for further expansion.
However, in India, only a few public sector industries have shown any significant amount of profits. Many of them are actually running at a loss. Therefore, ploughing back of profits does not constitute any major factor responsible for the expansion of public sector.
The public sector has thus been designed to play a significant role in India’s socio-economic development. It is through the public sector that the government can help, promote, guide and control the economy to attain its social and economic goals.
Essay # 5. Objectives of Public Enterprises:
The public enterprises comprise all those industrial and commercial undertakings whose ownership belongs to the government and whose management is done either by the government itself or by any other agency appointed by the government for this purpose. All the industrial and commercial undertakings established and run by Central Government, the State Governments and by the Municipal Committees or Corporation come under the category of the Public Enterprises.
Public ownership and management of industries is not something unknown to India. Even before Independence, railways, post and telegraph, broadcasting and irrigation works were owned and managed by the government. But, barring a few exceptions, the government generally followed a policy of non-interference in economic matters.
However, after independence, the government had to assume direct control of a large number of industrial and commercial enterprises for accelerating the rate of economic growth and for achieving the object of setting up a socialist pattern of society. It was realised that to lay down a healthy industrial foundation in the country, the government must play an active part in its Industrial development.
The major objectives of public enterprises could be summarised as follows:
(i) To help in the rapid economic growth and industrialisation of the country and create the necessary infrastructure for economic development;
(ii) To earn return on investment and thus generate resources for development;
(iii) To promote balanced regional development;
(iv) To assist the development of small-scale and ancillary industries;
(v) To promote redistribution of income and wealth;
(vi) To create employment opportunities; and
(vii) To promote import substitution, save and earn foreign exchange for the economy.
Essay # 6. Organisation and Management of Public Enterprises:
From the point of view of management, the public sector undertakings in India can be classified into three categories:
(1) Departmental Undertakings:
The departmental undertakings include those enterprises whose management is done by a department of the government itself. The minister in-charge of that department is the chief executive of these enterprises. The budget of these undertakings is discussed and passed by the Parliament of India and all their revenue receipts are deposited with the government treasury. The Indian Railways, the Chittaranjan Locomotive Works, etc. are the examples of departmental undertakings in India.
(2) Public Corporations:
The Public Corporations are established by special Acts of Parliament, to run the corporate form of public undertakings. These corporations are those organisations of public enterprises whose ownership belongs to the Government but whose management is given in the hands of a Board appointed by the government under an Act of the Parliament.
Even though these corporations are fully accountable to Parliament, the government however does not much interfere in their day-to-day working, as is the case with the departmental undertakings. Indian Airlines Corporation, Life Insurance Corporation and the Industrial Finance Corporation of India are some of the examples of public corporations.
(3) Joint Stock Companies:
One of the important forms of public sector undertakings in India is the Joint Stock Companies. These companies are established under the Indian Companies Act and are organised like any other private sector companies wherein the individuals or the business houses contribute to the stock of capital and have a share in profits and management.
However, in the case of Public Sector Joint Stock Companies, the entire stock of the company may be contributed by the government and consequently, all the Directors are appointed by the government. This represents the full ownership and complete control of government and are thus, known as fully owned government companies.
Sometimes, the government may subscribe only to a major share of the company’s capital (by purchasing not less than 51 per cent of the company’s share capital) and thus gain the control of the company’s working, while the private individuals contribute the remaining part capital of the company.
This type of company is known as a company of mixed ownership. The main advantage of this form of undertaking is that here the government can gain a major share in the control and management of the company, and can also avail of the private domestic capital, foreign capital and foreign expertise in the field of industry.
Essay # 7. Difficulties in the Management of Public Enterprises:
The management of public enterprises in India has posed a number of problems. In most of the cases such establishments have been running inefficiently. Very often they have been incurring heavy losses.
The inefficiency in the management of public enterprises can be attributed to the following reasons:
(a) The person in-charge of public enterprises is the civil servants who do not have the experience of running commercial establishments. More often they follow a timid policy and are under the constant fear of being censured by the superiors and the political bosses.
(b) The civil servants in charge of the public enterprises-have no incentive to work hard because their promotion depends upon their seniority and not on their work. Further, the sense of security in the public service makes them all the more lethargic.
The private sector enterprises attract the best of the talent by offering salaries which are many times higher than those offered by the government. There is a general dearth of management personnel in the public sector industries.
Redtapism and delay is a most common evil of public enterprises because the managers of such establishments are subject to a number of checks and controls from their superiors. Much of the time is lost in the movement of files. No on-the-spot decision can be made. This naturally results in inefficiency.
A constant interference by the politicians into the affairs of public enterprises poses a big obstacle in their efficiency.