After reading this article you will learn about:- 1. Meaning and Definition of Public or State Enterprises 2. Characteristics of State Enterprises 3. Objectives 4. Advantages 5. Disadvantages.

Meaning and Definition of Public or State Enterprises:

State enterprises as a form of business organisation occupy an important place in the economy of the country today. State enterprise is an undertaking owned and controlled by the Central or State or Local Government. Either whole or most of the investment is made by the Government. The fundamental objective of a state enterprise is to provide goods and services to the public at reasonable rate.

Some of the important definitions of state enterprise are given below:

1. According to A.H. Hanson,-“Public enterprises mean state ownership and operation of industrial, agricultural, financial and commercial undertakings.”


2. According to N.N. Mallya,-“Public enterprises are autonomous or semi- autonomous corporations and companies established, owned and controlled by the state and engaged in industrial and commercial activities.”

3. According to Roy, Chowdhury and Chakravorty,- “State enterprises in business denote an undertaking which is controlled and operated by the government as its sole owner or major shareholder.”

4. According to S.S. Khera,- State enterprises as “the industrial, commercial and economic activities carried on by the central or a state government, and in each case either solely or in association with private enterprises, so long it is managed by a self-contained management.”

5. According to Encyclopaedia Britanica,-“The term ‘public enterprise’ usually refers to government ownership and active operation of agencies engaged in supplying the public with goods and services which alternatively might be supplied by private enterprise operations, the same as private, are financed wholly or largely by receipts from sale of goods and services.”

Characteristics of State Enterprises:


The following are the main characteristics of state enterprises:

1. State Ownership:

These enterprises are managed by the government and not by any individual. In some cases government has set up enterprises under its own departments. Even autonomous bodies are directly and indirectly controlled by the government department.

2. Financing from State Resources:


State enterprises are financed by the government. Either whole or most of the investment is done by the government.

3. Service Objectives:

The primary objective of state enterprises is not to earn profits but to provide service to the society. A private entrepreneur will set up a business only if possibilities of earning profits are there but this is not the aim of state enterprises.

4. Monopoly Enterprises:


In most of the cases, these enterprises are monopoly enterprises. Private sector is not allowed to enter that line. Railways, every production and distribution, coal mining etc. are all monopoly enterprises and private sector is not allowed to enter in such enterprises.

5. Autonomous or Semi-Autonomous Bodies:

Public enterprises are autonomous or semi-autonomous bodies. In some cases they work under the control of government departments and in other cases they are set up under official status and under Companies Act.

Objectives of State Enterprises:

The main objectives of state enterprises are as follows:


1. The establishment of some enterprises needs heavy investments. It is not possible for private industrialists to make huge investments. In such a situation, government enters these fields and established its own undertakings to accelerate the rate of economic growth.

2. The objective of state enterprises is to provide various necessities like electricity, coal, gas, transport and water supply to the public at a cheaper rate.

3. They are set up to promote and protect small scale enterprises.

4. They are set up to avoid the concentration of economic power.


5. They are set up to promote self-reliance in strategic sectors of national economy.

6. They are set up to establish a socialistic pattern of society. The establishment of a strong public sector is a must for the equal distribution of wealth.

7. They are set up to increase the employment and to reduce the regional imbalances.

8. They are set up to exploit the natural resources. For example, Oil and Natural Gas Commission in India spends huge amounts for finding out new sources of oil and gas.


9. They are set up to take over the sick units.

10. Public sector aims at providing goods and services at reasonable rates so private sector will also sell goods on the same rates.

Advantages of State Enterprises:

The following are the main advantages of state enterprises:

1. Free from the Defects of Capitalism:

The establishment of private enterprises gives encouragement to the capitalism while the establishment and development of state enterprises eliminates the capitalism. In capitalism, people are exploited.

According to Bernard Shah,- “Capitalism has no conscience, its ambition is ‘profit’ and its god is ‘gold’ “. To avoid the defects of capitalism, the most of the countries are giving emphasis to the establishment of state enterprises.


2. Establishment and Development of Basic and Key Industries:

State enterprises are very much needed for basic and key industries. These basic and key industries are meant for the welfare of the people. To take the welfare of the people into consideration, government has developed the basic industries as water supply, electricity supply, transport industry, etc.

3. Establishing Enterprises Requiring Heavy Investment:

The establishment of some enterprises needs heavy investments. It is not-possible for private industrialists to make huge investments. In case of ship building, railways, energy-producing concerns, very heavy investment is needed and it is beyond the means of private investors to enter these fields. In such a situation, government enters these fields and establishes its own undertakings for the economic growth of the country.

4. Optimum Utilisation of Natural Resources:

State enterprises are necessary for utilising natural resources to the best national advantage. Optimum utilisation of natural resources leads to better and cheaper production. Only state enterprises can make the optimum utilisation of resources and not the private sector because private enterprises do not have sufficient funds to utilise the resources.


5. Balance in Demand and Supply:

Having established state enterprises, a balance in demand and supply is maintained. The reason is that the production will be according to the need.

6. Helpful in Implementing Government Plans:

Government plans and policies are better implemented through state enterprises. They help the government in achieving targets for output, employment, distribution, etc.

7. Eliminates Wasteful Competition:

State enterprises are usually big in size and are, therefore, able to enjoy the advantages of large scale economies. To provide goods and services at reasonable rates, state enterprises become essential to give monopoly rights to the enterprise so as to avoid wasteful competition which is usually seen in case of private enterprises.


8. For Establishing Socialistic Pattern of Society:

Under socialistic pattern of society the gap between the rich and the poor is reduced and the means of production are controlled by the state. The establishment of a strong public sector is a must for the equal distribution of wealth. The emphasis of government on the establishment of state enterprises is a right step towards establishing socialistic pattern of society.

Disadvantages of State Enterprises:

The disadvantages of state enterprises are given below:

1. Redtapism:

Redtapism is prevalent in state enterprises. The work which can be done in hours, takes weeks and months. There is a delay in taking important decisions. Commercial organisations cannot afford delay in taking decisions. So it is an hindrance in the progress of any enterprise.

2. Excessive Government Interference:


In state enterprises, there is an excessive government interference. The undertakings are not given freedom to decide their own policies.

3. Losses are Neglected:

In state enterprises, losses are clearly neglected, no step is taken to stop them and they are increasing. State enterprises are run as government departments and not as commercial undertakings.

4. Centralisation of Power:

All policies are decided at the ministerial level. The powers are centralised at the highest level. It adversely affects the efficiency of the concerns.

5. Inefficient Management:


In state enterprises, there is a shortage of competent persons who have commercial experience. Civil servants are not suitable for running commercial organisations. It deteriorates the structure of management.

6. Poor Returns:

State enterprises are required to protect the interest of the consumers. They have to spend more but in return they realise less. Pricing policy of state enterprises is always remains a topic of controversy. Whether these undertakings should take profits or should work on no-profit no-loss basis has always been debated. A sound pricing policy should aim at earning some profit so that these units become economically viable units.