Meaning and Features of Departmental Undertaking

25/12/2020 2 By indiafreenotes

Under departmental form of organisation, a public enterprise is run as a separate full-fledged ministry or as a major sub-division of a department of the Government.

For example, the Indian Railways are managed by the Ministry of Railways. Post and Telegraph services are run as a department, in the Ministry of Communication.

The Delhi Milk Scheme, All India Radio, Doordarshan are other examples of departmental undertakings.

Features of Departmental Undertaking:

The salient features of a departmental undertaking are as follows:

(i) Formation:

A departmental undertaking is established either as a separate full-fledged ministry or as a sub-division of a ministry (i.e. department) of the Government.

(ii) No Separate Entity:

A departmental undertaking does not have an independent entity distinct from the Government.

(iii) Ultimate Responsibility with the Minister:

The ultimate responsibility for the management of a departmental undertaking lies with the minister concerned; who is responsible to the Parliament or State Legislature for the affairs of the departmental undertaking. The minister, in turn, delegates his authority downwards to various other management levels, in the departmental undertaking.

(iv) Governmental Financing:

The departmental undertaking is financed through annual budget appropriations by the Parliament or the State Legislature. The revenues of the undertaking are paid into the treasury.

(v) Accounting and Audit etc. as Applicable to Government Departments:

The departmental undertaking is subject to the normal budgeting, accounting and audit procedures, which are applicable to Government departments.

(vi) Managed by Civil Servants:

The departmental undertaking is managed by civil servants, who are subject to same service conditions as applicable to civil servants of the Government.

(vii) Sovereign Immunity:

A departmental undertaking cannot be sued at all, without the consent of the Government.

Advantages of Departmental Undertaking:

Following are the advantages of the departmental undertaking:

(i) Easy Formation:

It is easy to set up a departmental undertaking. The departmental undertaking is created by an administrative decision of the Government, involving no legal formalities for its formation.

(ii) Direct and Control of Parliament or State Legislature:

The departmental undertaking is directly responsible to the Parliament or the State legislature through its overall head i.e. the minister concerned.

(iii) Secrecy Maintained:

The departmental undertaking can maintain secrecy of important policy matters; as the Government can withhold any information, in public interest.

(iv) Lesser Burden of Tax on Public:

Earnings of departmental undertaking are paid into Government treasury, resulting in lesser tax burden on the public.

(v) Instrument of Social Change:

Government can promote economic and social justice through departmental undertakings. Hence, a departmental undertaking can be used by the Government, as an instrument of social change.

(vi) Lesser Risk of Misuse of Public Money:

As the departmental undertaking is subject to budgeting, accounting and audit procedures of the government; the risk of misuse of public money is relatively less.

(vii) Guided by Rules and Regulations of the Ministry:

The officers of the departmental undertaking are under the direct administrative control of the ministry. They are guided by the rules and regulations of the ministry, framed with a focus on public welfare.

Limitations of Departmental Undertaking:

Following are the major limitations of the departmental undertaking:

(i) Read-Tape and Bureaucracy:

Departmental undertaking is run in a way other department of the Government are run. Its management and functioning are subject to excessive red-tap and bureaucracy. (Red-tape means unnecessary and complicated officials rules which prevent things from being done quickly). As a result, the departmental undertaking loses all flexibility desired of a business enterprise.

(ii) Incidence of Additional Taxation:

Losses incurred by a departmental enterprise are met out of the treasury. This very often necessitates additional taxation the burden of which falls on the common man.

(iii) Lack of Competition:

A departmental undertaking often enjoys monopoly in its field. As a result, it tends to become indifferent to the quality and price of its goods and services; and may not hesitate to exploit the society.

(iv) Casual Approach to Work:

As officers of a departmental undertaking are subject to frequent transfers; they develop a sense of casual approach to work. As a result, the operational efficiency of the undertaking suffers a lot.

(v) Political Influence:

A departmental undertaking is subject to excessive political influence. Its fate depends on the balance of power between the ruling party and the opposition. As such, a departmental undertaking becomes a political organisation rather than an economic or business organisation.

(vi) Lack of Professional Management and Fear of Criticism:

A departmental undertaking is managed by civil servants, who do not possess professional management skills. Moreover, these managers could not afford to be innovative, because of a fear of criticism by the minister or the Parliament.

(vii) Financial Dependence:

A departmental undertaking is financially dependent on the Government’s budgetary allocations. As such, it cannot have its own independent long range investment decisions, which may bring enormous prosperity to the undertaking.