Departmental Undertaking | Features | Merits | Demerits

What is Departmental Undertaking?

It is the oldest method of organizing State enterprises. The agencies performing similar services are grouped into departments, the departments are linked together and placed under the leadership of a Chief Executive. A departmental undertaking is under the overall control of one of the departments of the government.

e.g. Indian Railways, Post and Telegraph, Electricity Boards, Defence undertakings, Ordnance Factories, Telecommunications, Broadcasting, Hospitals, Atomic power projects etc.

Features of Departmental Undertaking

1. It is structured as a sub-division of a Central Government department and is subject to its direct control.

2. The management of the departmental undertakings is in the hands of civil servants. They are brought over from other departments on deputation and transfers for a specific period of time and are changed after a regular period of time.

3. It is totally funded by the government and all their income go into the State treasury.

4. Since departmental undertakings directly come under some ministry, they are subject to government audits. Their performance is discussed in the parliament and other forums.

5. They represent the government in the services they provide. They use the insignia of the government.

6. They are subject to budgetary control, government audits etc.,

7. It possesses sovereign immunity of the government. Therefore it cannot be sued without the consent of the government.

Merits or Advantages of Departmental Undertaking

1. Rules, regulations, processes and procedures are well established. Clear cut systems and policies ensure smooth functioning and effective management.

2. Financial records are subject to government audit. Therefore there is less risk of misuse of funds.

3. They are a source of revenue to the government. Earnings of the departmental undertaking go into the government treasury.

4. They are important tools to implement government policy. For e.g. electricity supply to the rural areas is possible only because electricity boards were government departments.

5. In areas where secrecy is of utmost importance (defence, atomic power, nuclear power projects etc) departmental undertakings are most suitable.

6. In case of services where public welfare is of utmost importance, departmental undertakings are the most suitable form of organization.

Demerits or Disadvantages of Departmental Undertaking

1. Due to centralization of control, there is lack of flexibility in operations.

2. There is lack of initiative and prompt action to adapt to changing environment.

3. Since profit motive is missing, there is not much focus on cost control, cost reduction and improvements in efficiency.

4. Losses incurred by the departmental undertakings are borne by the government. This places a great strain on government’s finances. To make good the loss, the government might impose additional taxes on the public.

5. Due to red-tapism and bureaucracy, decision making is delayed and the organization is not able to capitalize on new opportunities.

6. It is unsuitable to run commercial undertakings because of lack of autonomy and flexibility.

7. Complicated procedures are to be adopted for all activities which result in inordinate delays.

8. The civil servants who run the department may not possess knowledge of the business in which the undertaking is involved. They are transferred frequently from one undertaking to another. Therefore they may not be able to run the business in an efficient manner.

9. Excessive controls in the form of Parliament scrutiny, government audits etc stifle creativity and increase the amount of paper work and records maintenance.

10. Departmental undertaking are run based on policies, rules and procedures laid in the past. Many of the policies and procedures may not be applicable in the current context.

11. The ultimate control is in the hands of politicians. Therefore political high handedness, corruption, nepotism etc are common occurrences.

12. They are suitable only for monopoly sectors because the capabilities required to compete in a competitive market is lacking in them.

13. They are dependent on the government for funding. In case government does not provide adequate funding due to financial crunch, they would be starved of funds.

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