Question

Choose the correct statement(s) regarding Private Organisations.

1. Private organisations can include entities like sole proprietorships, partnerships, and multinational corporations.

2. The New Economic Policy of 1991 restricted private sector participation in most Indian industries.

• A. 1 only
• B. 2 only
• C. Both 1 and 2
• D. Neither 1 nor 2

Answer 1

Answer:

A. 1 only

Explanation of Private Organizations

• Private organizations are business entities or associations that are not owned or operated by the government. Their primary goal is often to generate profit for their owners or shareholders, although some may operate on a non-profit basis.
• They play a crucial role in a market economy, contributing to innovation, job creation, and economic growth.
• Common forms of private organizations include:
  • Sole Proprietorship: Owned and managed by a single individual, who is personally responsible for all business debts.
  • Partnership: Owned and managed by two or more individuals who agree to share profits or losses. Liability can be unlimited.
  • Limited Liability Partnership (LLP): A hybrid structure offering partners limited liability, protecting personal assets from business debts.
  • Private Limited Company (Pvt. Ltd.): A company whose shares are not offered to the general public and are privately held, providing limited liability to its members.
  • Public Limited Company (Plc): A company that can offer its shares to the public through stock exchanges.
  • Multinational Corporations (MNCs): Large enterprises that operate in multiple countries, with headquarters in one country and significant operations or assets in others (e.g., Tata Group, Reliance Industries, Google, Microsoft).

Impact of New Economic Policy (NEP) of 1991 on the Private Sector

• The New Economic Policy (NEP) of 1991, often referred to as the LPG Reforms (Liberalization, Privatization, Globalization), marked a paradigm shift in India's economic policy.
• It was introduced by the then Finance Minister Dr. Manmohan Singh, under the Prime Ministership of P.V. Narasimha Rao, to address a severe economic crisis, including a balance of payments crisis and high inflation.
• Contrary to restricting, the NEP 1991 significantly expanded and encouraged private sector participation in almost all Indian industries.
• Key components of NEP 1991 that boosted the private sector:
  • Liberalization: This involved easing government regulations and restrictions on private businesses. A major reform was the abolition of the 'License Raj', which previously required industries to obtain licenses for production capacity, investment, and expansion.
  • Privatization: This policy aimed to reduce the role of the public sector by selling off Public Sector Undertakings (PSUs) to private entities and opening up sectors previously reserved exclusively for state-owned enterprises (e.g., telecommunications, power).
  • Globalization: This integrated the Indian economy with the global economy, encouraging Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII), and reducing trade barriers.
• Before 1991, the Indian economy was characterized by a 'mixed economy' with a strong socialist tilt, where the public sector dominated key industries and private enterprise faced numerous controls. The NEP aimed to unlock the potential of the private sector and integrate India into the global economy.
• The reforms led to increased competition, technological advancements, higher productivity, and significant economic growth in the decades that followed.