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Departmental Undertaking : Meaning, Features, and Suitability

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What is Departmental Undertaking?

Departmental Undertaking is the most conventional and oldest method of organising public companies. These businesses are established as ministry departments and are considered a part of or an extension of the ministry itself. The government works through these departments, and the activities they carry out represent an integral part of the government’s functioning.

They have not been established as autonomous or independent institutions, and hence are not legal entities in their own sense. They act through government officers, and their employees are government employees. They are financed by the Government budget. These enterprises may fall within the jurisdiction of the central / state governments, and the regulations of the central / state governments are applicable. They are suitable for public utility services and strategic industries. For example, railways, post and telegraph, defense, atomic power, etc.

Departmental Undertaking

Features of Departmental Undertaking

The features of Departmental Undertaking are as follows:

1. Finance: These firms are funded directly by the Government Treasury through a yearly appropriation from the Government’s budget. The revenue generated by these is also paid into the treasury.

2. Accounting and Audit: The departmental undertaking is subject to the standard budgeting, accounting, and audit processes that apply to Government departments.

3. Appointment of Employees: The employees of the enterprise are Government servants, with the same recruitment and service conditions as other employees have under the Government. The appointments are made through Union Public Service Commission(UPSC) and Staff Selection Board(SSB). They are led by Indian Administrative Service (IAS) officials and civil servants who are transferable from ministry to ministry. 

4. Formation: It is often regarded as a crucial subdivision of the government department, and is directly controlled by the ministry.

5. Minister Responsibility: The ultimate responsibility for the management of a departmental initiative rests with the minister in charge, who is accountable to the Parliament for the department’s affairs. In turn, the minister delegates his power to different other management levels in the departmental undertaking. They are responsible to the ministry since their management reports directly to the relevant ministry.

Suitability of Departmental Undertaking

Departmental Undertakings does not meet the needs of autonomy, flexibility, and initiative, which are needed for a successful company venture. However, it is suitable in the following situations:

  1. Where absolute secrecy is essential, such as in defence production and nuclear energy.
  2. Where absolute government control of critical industries, such as broadcasting, telecommunications, public utilities, etc., is necessary.
  3. Where economic control is required, such as rationing and governmental trade in essential commodities.
  4. Industries where the private sector is unable to engage due to large capital investments, such as shipbuilding, aircraft manufacturing, iron and steel, and so on.
  5. Where the undertaking will be used as a source of revenue, such as Indian Railways.

Merits and Demerits of Departmental Undertaking

Merits and Demerits of Departmental Undertaking: The merits of Departmental Undertaking include fair practices, strict audit control, complete government control, etc., and its demerits include delay in decision-making, red tapism, undue government interference, etc. 


Last Updated : 28 Feb, 2024
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