Merits and Demerits of Departmental Undertaking

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. For example, railways, post and telegraph, defense, atomic power, etc.

Merits of Departmental Undertaking

The merits of Departmental Undertaking are:

1. Complete Government Control: 

Government has complete control over departmental undertakings, as it is completely owned, managed and controlled by a government ministry. Effective control is exercised over the operations by Parliament.   

2. Fair Practices: 

These ensure a high degree of transparency because departmental enterprises are directly controlled by Parliament, and there are less possibilities for fraudulent and unfair actions.

3. Revenue: 

The revenue generated by the firm is immediately deposited into the treasury, and so serves as a source of income for the government.

4. Suitable for National Security:  

In regards to national security, this form is best suited since it is directly under the control and supervision of the relevant Ministry. Government departments can maintain secrets since they are directly under the jurisdiction of the relevant ministry. This is extremely important in terms of national security.

5. Strict Audit Control: 

The risk of misuse of public funds is further reduced because they are subject to strict accounting and audit standards. This format was preferred for operations that yielded money for the government, such as ordinance factories. Because their budgets are heavily subsidised by the state, most non-profit earning public utility services are similarly organised as departmental enterprises.

Demerits of Departmental Undertaking

Departmental Undertakings have several severe drawbacks, some of which are as follows :

1. Inflexibility of Operation: 

Departmental undertakings fail to provide the flexibility required for the successful functioning of business because departmental management suffers from operational rigidity. It becomes difficult to bring about fundamental changes, reformation, and innovation that are required from time to time.

2. Delay in Decision Making: 

Employees or heads of departments in such companies are not permitted to make independent decisions without the permission of the relevant ministry. This causes delays in situations where prompt decisions are necessary. 

3. Bureaucracy and Conservative Approach: 

These enterprises are unable to take benefits of business opportunities, as they are not allowed to take risky ventures because of bureaucrats’ overly cautious and conservative approach. 

4. Red Tapism: 

Centralization in departmental undertakings causes delays in decision-making. Decisions are also delayed as a result of red tape and strict adherence to rules and regulations. In day-to-day operations, there is red tapism, and no action can be taken until it passes through the correct channels of authority.

5. Undue Government Interference: 

There is a lot of government interference. They had to take approval at every step. There is also political interference through the ministry. 

6. Insensitivity to Consumer Needs: 

Departmental officials rarely care about this important aspect of business and are typically insensitive to the interests of consumers. These organisations are frequently insensitive to customers ’ demands and fail to deliver adequate services.