6. Soverign immunity:
Being an integral part of the Government, a departmental undertaking cannotbe sued at law without the consent of the government.
The main advantages of departmental organisation are as follows:
1. Accountability :
Departmental organisation ensures maximum degree of parliamentary control. Inthe words of Krishna Men on Committee, “accountability of departmental undertakings to Parliament iscomplete, their management being under the Ministry concerned”
2. Effective control:
The management of the undertaking is under the absolute control of the Ministerconcerned. Therefore, there is maximum degree of government control on the enterprise.
3. Financial discipline :
Tight budgetary, accounting and audit controls ensure that public funds arenot misused. There is unified and centralized management and any surplus earned by the undertakinggoes to the government treasury.
4. Policy instrument :
The Government can realize its social, political and economic objectivesthrough departmental undertakings.
A departmental undertaking suffers from the following drawbacks:
1. Loss of autonomy:
Excessive public accountability and Parliamentary control result in loss of freedom which is essential for efficient business operations. Frequent investigations by Parliamentarycommittees hamper the efficient functioning an growth of departmental undertakings.
2. Political influence:
The undertaking is subject to political changes and its fate depends on thebalance of power between the ruling party and the opposition. There is lack of continuity inmanagement due to frequent changes in the Cabinet. Political considerations affect the policy mattersand long range planning is not possible.
3. Lack of flexibility:
Complete centralisation of control and political interference in day-to-dayoperations lead to lack of flexibility. There is bureaucracy and red-tape in day-to-day administration. Asa result decisions get delayed. Rigid adherence to time-consuming procedures an formalities make itdifficult to run the undertaking in a business like manner.
4. Lack of professional management:
The undertaking is managed by civil servants who do notoften possess managerial knowledge and skill. Frequent transfers and seniority based promotions tendto lower their motivation and morale. There is lack of initiative because the civil servants are afraid of breaking new ground due to fear of criticism by the Minister and the Parliament.
Bureaucratic management, undue delays and insensitivity to consumer needs, andcumbersome regulations result in low efficiency of operations. There is a tendency not to take thelosses seriously as these are borne by the treasury.
In general, the structure and working of a departmental undertaking is incompatible with the financialand operational requirements of a business enterprise. Departmental organisation is in many ways thedirect negation of the requirements of autonomy and flexibility. A departmental undertaking tends toraise the power of the government tot the maximum and reduce its initiative and flexibility to theminimum. It should, therefore, be “the rare exception, and not the general rule”. The exceptional caseswherein the departmental organisation is suitable are as follows: