Chapter 6

Sectors of Business Organization

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 6.3 Forms of Organising Public Sector Enterprises

Public sector enterprises are organized in three different forms:

a. Departmental undertakings

b. Pubic corporations

c. Government companies

6.3.1 Departmental Undertaking

This is the oldest form of state enterprise. A departmental undertaking is formed as a government department. In India, railways, post and telegraphs, ordinance factories etc. are organized as government departments.

Features

1. Treated as a Department

A departmental undertaking is part of a ministry. It is under direct administration of the ministry concerned.

2. Head of Department is the Chief Executive

A high raking government official is appointed as the departmental head who is the chief executive officer of a departmental undertaking.

3. Finance allocated by the govt. budget

The funds for the department are allocated by the budget provisions. The income of the departmental undertaking is deposited into government treasury. The funds for the department are released by the treasury.

4. Accounts and audit control by the government.

Accounts of the department are maintained according to the standards set for government department. They are audited by the staff of the Comptroller and Auditor General.

5. Employees are government servants

Employees of the departmental undertakings are government servants. Their salaries and service conditions are according to the general rules of employment by the government.

Merits

1. Direct control by the Government

There is direct control by the government. There is effective. This leads to more effective management. Centralized control also results in faster decision making and implementation of decisions.

2.         Officers strictly follow government directives

The officers of the departmental undertakings are bound to follow the government regulations. They are generally familiar with the rule

3. Less chance of misuse of funds

Since the departmental undertakings are subject to ministerial control, budget and approvals there is less change of misusing public funds.

4. Revenue to the Government

Revenue of the departmental undertakings is added to the government funds. This increases the revenue of the Government. This theoretically reduces the tax burden of the public.

Limitations

1. Lack of flexibility

There is excessive control by the government. Excessive centralization reduces flexibility. A business organization should be flexible to be successful. Departmental undertakings lack this flexibility.

2. Less interest for profit maximization

Revenues of the departmental undertakings go directly to government treasury. When the departmental undertaking needs finance it has to be approved by the government. Since the undertaking does not have the right to freely utilize the finance it generates, the interest for generating that finance will reduce.

3. Losses not taken seriously

Losses made by the departmental undertaking are not taken seriously. When it makes profit there is no appreciation. When it makes loss there is not accountability. Such an atmosphere leads to inefficiency, which is the primary feature of departmental undertaking.

4. Burden to public

Losses made by departmental undertakings are compensated by public fund. Government does not generate money of its own. It gets money by taxing the public. Ultimately the public pays for the inefficient public undertaking. They take double punishment, first by way of poor service and secondly by paying extra tax to compensate the loss of that departmental undertaking that gave them bad service in the first place.

5. Lack of personal touch

Old habits vanish very slowly; bad habits stay longer. Government officers in Indian still think that they are masters of the public. They need many years of education to fully appreciate their role as public servants. Until such time comes, departmental undertakings sad reminders of our colonial past.

6. Red tapism and bureaucracy

Red tapism is a common term used in India which refers to rigid compliance of official formalities that unnecessarily delay decisions. This is a common problem with most of the government offices. The problem is more serous in economically backward countries. Departmental undertakings are the glaring monuments of red tapism.

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