Forms of Public Enterprises PDF

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Forms of Public Enterprises

1. Departmental Undertakings This is the oldest and traditional form of public enterprises. According to Hugh Clegg, “ The departmental type of organisation for management is a hierarchical institutions at whose head is a minister answerable to canet and to parlament for its activities, the administration is naturally largely in the hand of the senior civil servants and financial control rest with treasury.” A Departmental Undertaking is a public sector enterprise which is run as a part of a government department and under the direction of the Minister concerned. For example - The Indian Post and Telegraph Department, All India Radio, The Doordarshan, The Indian Railways , Defence , Atomic Energy etc. Salient Features : 1. Formation – These form a part of government and are associated with a particular ministry. 2. Accountable to Parliament – These are considered as a major subdivision of a ministry of Government and are under direct control of the minister and accountable to parliament.

3. Recruitment of personnel by Government – These undertakings act through government officers. Their employees are appointed through the Union Public Service Commission and Staff Selection Boards. 4. Personnel Management – These are managed by IAS (Indian Administrative Services) officers and civil servants. 5. Accounts and Audits – The accounts of these undertakings are audited by the Comptroller and Auditor General of India (CAG). 6. Investment by Government – The funds of these enterprises come directly from the Government Treasury. The revenue earned by these is also paid into the Government Treasury. 7. Administrative Autonomy

– These do not have any

administrative autonomy, from the government department. There is a lot of political interference. 8. Accountability – These are accountable to the concerned ministry as their management is directly under the control of the concerned minister. Merits/Advantages : 1. Easy

Formation – These are established just by the

administrative orders of the Government.

2. Effective Control – Parliament can exercise effective control over them as the control is centralised in the hands of government. 3. Source of Revenue for Government – Revenue earned by these undertakings goes directly into Government Treasury. 4. Proper Utilisation of Funds – All actions are approved by the Government. There can’t be any misutilisation of funds. 5. Decrease in Tax Burden on Public – The departmental undertakings earn profit for the Government. The Government gets enough funds and there is little need for taxes. The tax burden on the public is reduced. 6. Accountability – These are accountable to the public through the parliament as these are established for public benefit. Demerits/Disadvantages : 1. Rigidity – These are not flexible due to strict government rules and regulations. Operations must be flexible for the smooth functioning of business. 2. Red-Tapism – There is a lot of red-tapism and excessive and slow paperwork leads to heaps of files moving at slow speed and no work is done on time.

3. Delay in Decision Making – Officers of such departmental undertakings are not allowed to take independent decisions without the approval of concerned ministers. It delays the decision making. 4. Lots of Political Interference – These undertakings are under the supervision of a minister who is politically active and gives priority to political parties over the country. 5. Insensitive to Consumer Needs – These undertakings don’t provide adequate services to the consumers directly because there is a lack of competition and profit motive. 6. Unable to Take Advantage of Opportunities – Sometimes good opportunities slip away because of the overcautious and conservative attitude of officials who don’t allow these undertakings to go in for risky business ventures.

2. Public Corporations It is known as Statutory Corporation. It is created by a special Act of Parliament or State Legislature. The Act defines their powers, functions, rules and regulations of governing them. These have a separate legal existence and have to act in their own name. These are backed by the power of government and have considerable flexibility as these are corporate bodies.According to M E Dimock, “ Public corporation is a public owned enterprise that has been characterized under federal state or local law for particular business or a financial

purpose.” According to Earnest Davies, “Public corporation is a corporate body created by public authority with defined powers and functions and financial independence.”According to M C Shukla, “ A public corporation is a corporate body created by legislative actions with defined powers and functions and financial independent having a clearcut jurisdiction over a specified area of a particular type of industrial or commercial activity.” The entire capital of statutory corporations is financed by the Government and these also have the right to borrow from the public.For example- Life Insurance Corporation of India (LIC), Reserve Bank of India (RBI), Unit Trust of India (UTI), Industrial Development Bank of India (IDBI), Oil & Natural Gas Commission (ONGC), Employee State Insurance Corporation (ESIC), Food Corporation of India (FCI) etc. Salient Features : 1. Wholly owned by the Government – These are owned and controlled by Central or State governments. The government has a complete authority to appropriate profits and also to bear losses. These are completely accountable to the Government. 2.Seprate legal entity – These are set up by the Special Act of the Parliament or State Legislatures. The Act defines the objects and privileges of these statutory corporations.

3. A Corporate Body– These have a separate legal entity. These can sue and be sued. These can purchase property in their own name and enter into contracts with third parties, and the contracts will be legally bound. 4. Independent Financial Management – These are not concerned with the budget of the government. These have a financial autonomy and prepare their own budgets. 5. No Interference – These are autonomous bodies. Government does not interfere in day to day working of these corporations. Directors are appointed according to the provisions of the Acts. 6. Personnel Management – These have their own rules regarding appointment and fixing of the remunerations of employees. The service conditions are framed by the Board of Directors. The employees of such organisations are not government employees. The service conditions are also given in the specific Acts under which they are set up. 7.Independent Financial Management – Financing is done mostly by the Government. These also have a right to borrow from the public. These have full authority to manage their profits earned from the sale of goods and services.

8. Audit – Their audit is conducted by the Comptroller and Auditor General (CAG) departments. It is done by professional chartered accountants as in other commercial establishments. Merits/Advantages : 1. Financial Independence – These do not get funds from the central budget. The government does not interfere in their financial matters. These have complete financial autonomy. 2. Autonomous Organisations – These have their own policies and procedures within the powers and duties assigned to them under Act. However, the Act provides for a few issues that require the prior approval of the particular ministry. These are autonomous and independent in their functioning. There is no interference from the government. These are free from unnecessary and undesirable government interference and regulations. 3. Social Service Motive – Their main aim is social service and their secondary objective is earning profit. Profit earned by such corporations is used for providing services to the society. 4. Protection of Public Interest – These are accountable to the Parliament. Thus, it is ensured that the public money is properly utilised.

5. An Instrument for Economic Development – These have the backing of government power along with private sector initiative. Thus, economic development is ensured. Demerits/Disadvantages : 1. Political Interference – Politicians have their own benefit in mind wherever huge funds are involved. They interfere in the working of these corporations for personal and party gains. 2. Ignoring Service Motive – The directors utilise their influence and powers for their own benefit instead of the social service. 3. Lack of Competition – This has led to carelessness and lethargy in their activities. There is always a fear of loss due to slackness. 4. Misuse of Financial Autonomy – These take loans at high rates of interest to meet urgent requirements due to delay in projects. This leads to an increase in cost of projects. It becomes difficult to pay back these loans. 5. Corruption – In public dealings there is bound to be corruption. These corporations are no exception. 6. Incomplete Operational Autonomy – The fact is that the operational autonomy which they have is only theoretical. Actually

there is government interference and the management is not free to take decisions. 7. Delay in Decision Making – The Government generally seeks professional advice which hinders the freedom of these corporations to enter into new contracts. The disagreement with the professionals further delays decision making.

3. Government Company This is also known as a joint company. A Government Company, According to Section 617 of the Companies Act,1956 “A Government Company means any company in which not less than 51% of the paid-up capital is held by the Central Government or by any State Government or partly by Central Government and partly by one or more State Governments.” It is established under the Indian Companies Act, and is managed by provisions of this act. These companies are established for business purposes and these can compete with companies in the private sector. The government is the majority shareholder in these enterprises and it exercises full control over paid up capital of the company. Its shares are purchased in the name of the President of India. For exampleSteel Authority of India Ltd. (SAIL), Hindustan Machine Tools Ltd (HMT), Bharat Heavy Electricals Ltd (BHEL), Gas Authority of India Ltd (GAIL),State Trading Corporation (STC) etc.

Government companies are of two types: (i) Wholly owned government companies where the entire capital is held by the government. (ii) Partly owned government companies where government and public are joint owners but major part of the capital is provided by the government. Salient Features : 1. Formation – It is formed according to the provisions of Indian Companies Act, 1956/2013. 2. Ownership – Minimum 51% of their paid-up capital is in the name of Central Government or State Government or partly in the name of Central Government and partly in the name of a State Government. It can be a wholly owned Government Company where all shares are held by the Government. 3. Management – It is managed by a Board of Directors who are appointed by shareholders or nominated by the Government.

4. Separate Legal Entity – It has a separate legal entity. It can sue and can be sued. It can enter into contracts with third parties. It can hold property in its own name. 5. Appointments of Employees – Its employees are appointed according to its own rules and regulations as contained in its Memorandum and Articles of Association which contain objective and internal rules and regulations of the company respectively. 6. Audit Procedure – These companies are also subject to accounting and audit procedures. An auditor is appointed by the Central Government on the recommendation of the CAG and an annual report is presented to the Parliament. 7. Financial Management – Capital of such companies comes from government shareholdings and private shareholders. It is allowed to raise funds from the share market. 8. Annual Reports – The annual reports are presented to the Parliament. 9. Relaxation – Relaxations from the rules under Companies Act can be given to them provided it is authorised by the Parliament. 10. Registration – It is registered like any other Joint-Stock Company with the Registrar of Companies.

Merits/Advantages : 1. Easy to Establish – The government companies can be established by following the provisions of the Companies Act 2013. No separate Act of parliament is required. 2. Separate Legal Entity – It has a separate legal entity. It can hold property in its own name. It can enter into contracts with third parties. It can sue and be sued by others. 3. Autonomy in Operations – They are free to conduct their activities. There is no departmental interference by bureaucrats. So they can take prompt decisions according to business needs as and when required. 4. Control Unhealthy Competition – These companies can control unhealthy competition by providing goods and services at reasonable prices to consumers. 5. Easy Financing – Their financial needs are met by the Government and they can also go to the capital market as and when they like. 6. Benefits of Private Participation – Since the private sector can have a share in such companies, professional managers from the private sector can be included in the Board of Directors. They can improve operational efficiency.

Demerits/Disadvantages : 1. Parliament Interference – The directors are nominated by the government. They work under the political pressure of the party in power. The directors who are chosen from various ministries, interfere in the operation of the company. 2. Lack of Continuity in Policies – The chairman and senior officers of government companies are frequently changed. The new persons try to run the company according to their own will. Political parties in power keep on changing, resulting in lack of continuity as the officers are changed with these changes. 3. Lack of

Professional and Managerial Efficiency –

Professional managers are required to run a company. Such proficiency and initiative are not found in bureaucratic directors of a government company. It works almost like a government department with the help of officers from the Indian Administrative Services (IAS). 4. No Say of Minority Private Shareholders – The private shareholders are in minority. They have no say in financial and administrative matters....