Forms of Public Sector Undertakings | Public Administration Optional for UPSC (Notes) PDF Download

Introduction

Public sector undertakings are vital entities owned, controlled, and financed by the government of a country. These organizations play a crucial role in the economic development of a nation by providing essential goods and services and constructing infrastructure. In this article, we will delve into the various types of public sector undertakings, namely Departmental Undertakings, Statutory Corporations, and Government Companies. By understanding their unique characteristics and examining their merits and demerits, we can gain insights into the functioning and significance of these entities in the national economy.

Types of Public Sector Undertakings

Public sector undertakings can be categorized into three main types:

• Departmental Undertakings
• Statutory Corporations
• Government Companies

Departmental Undertakings

Departmental Undertakings are public sector enterprises that operate as a part of a government department under the supervision of the relevant minister. Some examples of Departmental Undertakings include the Indian Post and Telegraph Department, All India Radio, Indian Railways, and Atomic Energy. Let's explore the features, merits, and demerits of Departmental Undertakings.

1. Features of Departmental Undertakings

• Formation: Departmental Undertakings are established as an integral part of the government and are associated with specific ministries.
• Control: These undertakings are directly controlled by the minister of the concerned ministry.
• Appointments: The employees of Departmental Undertakings are appointed through the Union Public Service Commission and Staff Selection Boards.
• Management: They are managed by Indian Administrative Services (IAS) officers and civil servants.
• Audit: The accounts of Departmental Undertakings are audited by the Comptroller and Auditor General of India (CAG).
• Finance: The funds for these enterprises come directly from the government treasury, and their revenue is also deposited into the government treasury.
• Administrative Autonomy: Departmental Undertakings lack administrative autonomy as they operate under the control of the respective government departments, often experiencing political interference.
• Accountability: These undertakings are accountable to the concerned ministry, as their management is directly under the control of the relevant minister.

2. Merits of Departmental Undertakings

• Easy Formation: Departmental Undertakings can be established through administrative orders, simplifying the formation process.
• Effective Control: These undertakings can be closely monitored and controlled by the Parliament, ensuring transparency and accountability.
• Source of Revenue for Government: The revenue generated by Departmental Undertakings directly contributes to the government treasury, reducing the burden on taxpayers.
• Proper Utilization of Funds: All actions of Departmental Undertakings require government approval, minimizing the chances of fund misutilization.
• Decrease in Tax Burden on Public: By earning profits for the government, Departmental Undertakings reduce the need for additional taxes, lightening the tax burden on the public.
• Accountability: Departmental Undertakings are established for the benefit of the public and are accountable to the Parliament, ensuring responsible management.

3. Demerits of Departmental Undertakings

• Rigidity: Strict government rules and regulations often hinder the flexibility required for efficient business operations.
• Red-Tapism: Excessive paperwork and bureaucracy slow down decision-making processes and can impede productivity.
• Delay in Decision Making: Independent decisions cannot be made by officers of Departmental Undertakings without the approval of the concerned ministers, resulting in delays in decision-making and implementation of projects.
• Political Interference: Departmental Undertakings are susceptible to political interference, which can disrupt their operations and compromise their efficiency.
• Lack of Autonomy: These undertakings lack administrative autonomy and are subject to direct control and supervision by the respective government departments.
• Limited Scope for Innovation: Due to bureaucratic procedures and strict regulations, there may be limited opportunities for innovation and adapting to changing market dynamics.

Statutory Corporations

Statutory Corporations are public sector entities established by an Act of Parliament or State Legislature. They have a separate legal identity and operate independently, although they may receive financial support from the government. Let's explore the features, merits, and demerits of Statutory Corporations.

1. Features of Statutory Corporations

• Formation: Statutory Corporations are established through specific legislation passed by the Parliament or State Legislature.
• Separate Legal Identity: They have a distinct legal identity separate from the government, enabling them to enter into contracts, sue, and be sued.
• Board of Directors: Statutory Corporations are managed by a board of directors appointed by the government or as specified in the legislation.
• Financial Autonomy: These corporations have financial autonomy and can generate revenue through their operations.
• Audit: The accounts of Statutory Corporations are audited by the Comptroller and Auditor General of India (CAG) or other designated auditors.
• Government Participation: The government may hold a controlling stake in the corporation through the appointment of government nominees on the board of directors.
• Operational Autonomy: Statutory Corporations enjoy a certain degree of operational autonomy, allowing them to make decisions independently.

2. Merits of Statutory Corporations

• Efficient Operations: Statutory Corporations can operate with greater efficiency and flexibility compared to Departmental Undertakings due to their separate legal identity and operational autonomy.
• Professional Management: The presence of a board of directors comprising professionals and experts in the respective fields ensures better management and decision-making.
• Financial Autonomy: Statutory Corporations can generate revenue through their operations, reducing their dependence on government funds.
• Focus on Public Interest: These corporations are established to serve the public interest and can prioritize efficient service delivery and customer satisfaction.
• Flexibility in Resource Mobilization: Statutory Corporations can raise funds from various sources, including loans, bonds, and equity, to support their operations and expansion.

3. Demerits of Statutory Corporations

• Lack of Political Accountability: As Statutory Corporations enjoy operational autonomy, there may be a reduced level of political accountability compared to Departmental Undertakings.
• Limited Government Control: While operational autonomy is beneficial, it can lead to a lack of direct government control, which may result in challenges in aligning with government policies and objectives.
• Potential for Mismanagement: In some cases, Statutory Corporations may face issues of mismanagement or corruption, which can hinder their effectiveness.
• Risk of Regulatory Capture: Regulatory capture, where corporations influence or control the regulatory bodies overseeing their operations, can be a concern in some cases.

Government Companies

Government Companies are public sector enterprises established under the Companies Act, with the government holding a majority stake in the company's share capital. They function as independent legal entities and are governed by their board of directors. Let's explore the features, merits, and demerits of Government Companies.

1. Features of Government Companies

• Incorporation: Government Companies are incorporated under the Companies Act, 2013, or its predecessor, with the Registrar of Companies.
• Separate Legal Identity: These companies have a separate legal identity and can enter into contracts, sue, and be sued.
• Board of Directors: Government Companies are managed by a board of directors appointed by the shareholders, including government representatives.
• Share Capital: The government holds a majority share in the company's capital, providing it with significant control over the company's operations.
• Profit-Oriented: Government Companies aim to generate profits while fulfilling their social objectives.
• Audit: The accounts of Government Companies are audited by statutory auditors appointed under the Companies Act.
• Market Orientation: These companies operate in competitive markets and need to adapt to market dynamics to remain viable.

2. Merits of Government Companies

• Market-driven Operations: Government Companies operate in competitive markets, which encourages efficiency, innovation, and responsiveness to customer needs.
• Professional Management: The appointment of professional managers and experts to the board of directors ensures better corporate governance and management practices.
• Financial Autonomy: Government Companies can raise funds from various sources, including equity markets and borrowings, reducing their reliance on government funds.
• Accountability: Being governed by the Companies Act, Government Companies are subject to greater financial and legal accountability compared to Departmental Undertakings.
• Flexibility in Decision-making: These companies have the flexibility to make strategic and operational decisions based on market dynamics and business considerations.

3. Demerits of Government Companies

• Political Influence: The government's majority shareholding may result in political influence in decision-making processes, compromising the company's autonomy and efficiency.
• Risk Aversion: Government Companies may exhibit risk-averse behavior due to the fear of political repercussions, which can hamper their ability to take bold and innovative initiatives.
• Bureaucratic Procedures: Despite being incorporated under the Companies Act, government regulations and bureaucratic procedures can slow down decision-making and implementation.
• Conflict of Objectives: Balancing social objectives and profit orientation can be challenging, leading to conflicts in decision-making and resource allocation.

Conclusion

In conclusion, Departmental Undertakings, Statutory Corporations, and Government Companies are different forms of public sector enterprises in India, each with its own features, merits, and demerits. The choice of organizational form depends on various factors such as the nature of operations, sector-specific requirements, and government objectives. It is important for the government to consider these factors while establishing and managing these entities to ensure effective and efficient service delivery while promoting economic growth and development.