Skip to content
Related Articles
Open in App
Not now

Related Articles

Departmental Undertaking: Features, Merits, and Demerits

Improve Article
Save Article
Like Article
  • Last Updated : 17 Oct, 2022
Improve Article
Save Article
Like Article

What is Departmental Undertaking?

This 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.

They have not been established as autonomous or independent institutions, and hence are not legal entities in their own sense. They act through government officers, and their employees are government employees. They are financed by Government budget. These enterprises may fall within the jurisdiction of the central / state governments, and the regulations of the central / state governments are applicable. They are suitable for public utility services and strategic industries. For example, railways, post and telegraph, defence, atomic power, etc.

Features of Departmental Undertaking

The features of Departmental Undertaking are as follows:

  1. Finance: These firms are funded directly by the Government Treasury through a yearly appropriation from the Government’s budget. The revenue generated by these is also paid into the treasury.
  2. Accounting and Audit: The departmental undertaking is subject to the standard budgeting, accounting, and audit processes that apply to Government departments.
  3. Appointment of Employees: The employees of the enterprise are Government servants, with the same recruitment and service conditions as other employees have under the Government. The appointments are made through Union Public Service Commission(UPSC) and Staff Selection Board(SSB). They are led by Indian Administrative Service (IAS) officials and civil servants who are transferable from ministry to ministry.
  4. Formation: It is often regarded as a crucial subdivision of the government department, and is directly controlled by the ministry.
  5. Minister Responsibility: The ultimate responsibility for the management of a departmental initiative rests with the minister in charge, who is accountable to the Parliament for the department’s affairs. In turn, the minister delegates his power to different other management levels in the departmental undertaking. They are responsible to the ministry since their management reports directly to the relevant ministry.

Merits of Departmental Undertaking

The merits of Departmental Undertaking are:

  1. Complete Government Control: Government has complete control over departmental undertakings, as it 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 has 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 lot of government interference. They had to take approval at every step. There is also political interference through ministry. 
  6. Insensitivity to Consumer’s 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.

Suitability of Departmental Undertaking

Departmental Undertakings does not meet the needs of autonomy, flexibility, and initiative, which are needed for a successful company venture. However, it is suitable in the following situations:

  1. Where absolute secrecy is essential, such as in defence production and nuclear energy.
  2. Where absolute government control of critical industries, such as broadcasting, telecommunications, public utilities, etc., is necessary.
  3. Where economic control is required, such as rationing and governmental trade in essential commodities.
  4. Industries where the private sector is unable to engage due to large capital investments, such as shipbuilding, aircraft manufacturing, iron and steel, and so on.
  5. Where the undertaking will be used as a source of revenue, such as Indian Railways.
My Personal Notes arrow_drop_up
Like Article
Save Article
Related Articles

Start Your Coding Journey Now!