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Forms of Organizing Public Sector Enterprises

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  • Last Updated : 27 Jun, 2022

Some kind of organizational framework is needed for the Government’s participation in the business and economic sectors of the country to function. In the Public Sector, Government plays a major role in organizing and formulating the key points related to an organization. These public enterprises are owned by the public and accountable to the public through the parliament. A public enterprise may take any particular form of organization depending upon the nature of its operation and its relationship with the government. The forms of organization  that a public enterprise may take are as follows:

  1. Departmental Undertaking
  2. Statutory Corporation
  3. Government Company

1. Departmental Undertaking:

Departmental enterprises are established as departments of the ministry and are considered part or an extension of the ministry itself. They have not been constituted as autonomous or independent institutions and as such are not independent legal entities. These undertakings are under Central or State Government and the rules of Central/State Government are applicable. Eg. Railways

Features: The main characteristics of Departmental Undertaking are as follows-

  • The funding of these undertakings comes directly from the government.
  • They are subject to accounting and audit controls applicable to other govt. activities.
  • The recruitment and conditions of employment are the same as any other employee directly under the government.
  • It is subject to direct control of the concerned ministry.
  • Accountability of such enterprise is to the concerned ministry.

Merits: Departmental undertakings have certain advantages which are as follows-

  • These facilitate the Parliament to exercise effective control over its operations.
  • These ensure a high degree of public accountability.
  • The revenue earned is a source of income for the govt. as it goes directly to the treasury.
  • National security is not at all at risk as it is under the direct control of the government.

Limitations: This form of organization has some drawbacks too, which are-

  • It fails to provide flexibility.
  • No scope for the employees and heads to take independent decisions.
  • These enterprises fail to take advantage of business opportunities.
  • There is red-tapism involved.
  • It also suffers from a lot of political interference.

2. Statutory Corporation:

Statutory Corporations are public enterprises that are brought into existence by a Special Act of Parliament. The Act defines its powers and functions, rules and regulations governing its employees, and its relationship with government departments. It enjoys the legal identity of a corporate person and has the capacity of acting under its name.

Features: Statutory Corporations have certain distinct features, which are discussed below-

  • These are set up under an Act of Parliament and are governed by the provisions of the Act.
  • This type of organization is wholly owned by the state.
  • These act as a corporate body and can sue or be sued, enter into a contract, and own property in its name.
  • This type of organization is usually independently financed.
  • These are not subject to the same accounting and audit controls applicable to other govt. departments.

Merits: This form of organization enjoys certain advantages in its working which are as follows-

  • They enjoy independence in their functioning and a high degree of operational flexibility.
  • Govt. interference in these types of organizations is less.
  • They frame their policies and procedures within the powers assigned to them.
  • It plays a vital role in economic development.

Limitations: This type of organization suffers from several limitations, which are as follows-

  • All actions of a Statutory Corporation are subject to many rules and regulations.
  • Government and Political inferences are always there in major decisions.
  • Where there is dealing with the public, rampant corruptions exist.
  • Any important decision or action is always delayed due to advisors appointed by the govt. in the corporation board.

3. Government Company:

A Government company is established under the Indian Companies Act and is registered and governed by the provisions of the Indian Companies Act. According to the Indian Companies Act 2013, any company in which not less than fifty-one percent of the paid-up share capital is held by the Central Government, or by any State Government or Government, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company is called Government Company.

Features: Government Company has certain characteristics which makes them distinct from other forms of organizations. These are discussed as follows-

  • It is an organization created by the Indian Companies Act 2013.
  • It has a legal identity.
  • The management of the company is regulated by the provisions of the Companies Act, like any other Public Limited Co.
  • The employees of the organization are appointed according to their own rules and regulations.
  • These companies are exempted from the accounting and audit rule procedures. An appointed auditor by the central or state govt. presents the Annual Report directly in the parliament or state legislature.

Merits: Government companies have certain advantages which are as follows-

  • A separate Act in the parliament is not required to set up a  Government Company.
  • It has a separate legal entity, apart from the government.
  • It enjoys autonomy in all management decisions.
  • These companies provide goods and services at reasonable prices and curb unhealthy business practices.

Limitations: Despite the autonomy given to these companies, they have certain disadvantages-

  • Since the Government is the only shareholder in some of the Companies, the provisions of the Companies Act are not of much relevance.
  • As it is not answerable directly to the parliament, it evades constitutional responsibility which a company financed by the govt. should have.
  • The management and administration of such companies rest in the hands of govt., so the main purpose of a Government company, registered like other companies is defeated.

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