BBA 1st Year Business Environment Section Economic System Long Question Answer
BBA 1st Year Business Environment Section Economic System Long Question Answer: BBA First, Second, Third Semester Important Notes Question Answer Study Material in the English Language.
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Q. 1. What are the different sectors of the Indian economy? What do you mean by
privatization? What are the different forms of privatization? Discuss the merits and demerits of the private sector and privatization.
Ans. Different Sectors of Indian Economy There are three sectors in the Indian Economy:
The private sector, public sector, and joint sector. When productive resources are owned, managed, and controlled by private enterprises, it is called the private sector and when they are owned, managed, and controlled by the state it is called the public sector and when resources are owned, managed, and controlled by both jointly, it is called a joint sector.
Meaning of Private Sector
When the ownership, management, and control of the business and industrial enterprises are in the hands of private enterprises, it is called the private Sector. However, it should not be understood that private enterprises work freely without any government control or regulation. The government controls and regulates the activities of private enterprises through various policies and acts.
In a narrow sense, privatization implies the introduction of private ownership in publicly owned enterprises, but, in a broader sense, private ownership is the induction of private management and control in the public sector enterprises.
“Privatisation is the general process of involving the private sector in the ownership or operation of a state-owned enterprise.”
Thus privatization covers three types of measures:
- The measures which transfer ownership of public enterprises. Fully or partially to the private sector
- Leasing or restructuring.
- Injecting the spirit of commercialization in public sector units.
- The privatization may take the following forms:
- To appoint private entrepreneurs as franchise dealers for public sector industries.
- To give public assets on lease to private entrepreneurs.
- To permit new enterprises in the private sector.
- To invite private entrepreneurs to participate in. the sector which is reserved for the public sector.
- To disinvest the shares of public sector units.
Merits of Private Sector and Privatization
Merits or benefits derived from the private sector can be discussed as follows:
- The incentive for Greater Efficiency and Hard Work: Private sectors inspire both enterprises and workers to become more efficient and do more work. The entrepreneurs try to get maximum output to get maximum profit and workers try to achieve maximum efficiency for more remuneration.
- Increase in Productivity and Production: As both the entrepreneurs and workers try to work with the greatest efficiency, the result is that the productivity of all the resources of production increases considerably.
- Efficient Utilization of Resources: All the resources of production are used most economically. No part of these resources is allowed to waste. These resources are utilized to the maximum extent.
- Minimum Cost of Production: As the private sector encourages maximum and most efficient utilization of resources, it results in maximum cost of the production.
- Higher Capital Formation: Private entrepreneurs try to save a major part of their income so that they may invest it in their business, in order to earn more income in the future and save more. This all leads to a higher rate of capital formation.
- The incentive to take Risk and Bear Uncertainty: Private sector provides due incentives to undertake enterprise and bear risks. Enterprises introduce new innovations. These all lead to further development.
- Economic Growth and Affluence: It has promoted rapid economic growth. Many countries of the world have become rich and affluent on the basis of success achieved by their private-sector enterprise. Due to this, the standard of living of the people of these countries has also increased.
- Helpful in the Development of the Public Sector: Public sector and private sector are closely interrelated. How the growth of the private sector is helpful in the development of the public sector is as follows:
- Reducing the burden of loss-making public sector units. Making public sector units more competitive
- Enable profit-making public sector units to modernize and diversi1i their business. (iii) Enable government to increase investment in remaining public units.