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Different Form of Public Enterprise

Different Form of Public Enterprise



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Published by Manikrant Kumar

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Published by: Manikrant Kumar on May 27, 2010
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The term 'Public enterprise' refers to such industrial and commercial enterprises which are owned andcontrolled by the central and/or State Governments.According to A.H. Hanson, “Public enterprise means State ownership and operation of industrial,agricultural, financial and commercial undertaking.” In the words of S.S. Khera, “by State undertakingsis meant the industrial, commercial and economic activities carried on by the Central Government or bya State Government, and in each case, either solely or in association with private enterprise, so long itis manged by a self-contained management'. In the Encyclopedia Britannica public enterprise has beendefined as “an undertaking that it is owned by a national, State or local government, supplies servicesor goods at price, and is operated on a more or less self-supporting basis.” 
(A)Departmental rganisation
Under this form of organisation, a public enterprise is run as a department of the Government. It isorganised, financed and controlled like any other Government department. A departmental undertakingis self-contained but it is under the overall control of the departmental head and the ministryconcerned.It has, however, its own management incharge of and responsible for the undertaking. For example,Posts and Telegraphs are a department in the Ministry of Communications. Similarly, the ChittranjanLocomotive Works and the Integral Coach Factory are parts of the Ministry of Railways. The OrdnanceFactory the Gun Carriage Factory, the Delhi Milk Scheme, the Tarapur Atomic Energy Plant, All IndiaRadio, Doordarshan, the Government Printing Press and Mint are other examples of departmentalundertakings.Where a public enterprise is of national significance in view of its giant size or nationwide operations. Itmay be organised as a separate fullfledged ministry. For instance, the Indian Railways is managed bythe Ministry of Railways through the Railway Board. The Railway Board consisting of a Chairman , threemembers and a financial commissioner manges the Indian Railways under the overall direction andcontrol of the Railway Minister. The Railway Minister is in turn responsible to the parliament. There is nobasic difference between departmental setup and the ministerial set-up and in both the cases, theundertaking operates as a wing of the government with ultimate control and responsibilities vested inthe Minister concerned.
Salient Features
The essential features of departmental organisation are as follows:
1. Line authority:
The ultimate responsibility for management lies with the Minister concerned. TheMinister in turn delegates his authority downward to the various levels, e.g., the departmental head,the chief executive of each undertaking, etc.
2. Government financing:
The undertaking is financed through annual budget appropriations by theparliament or the State Legislature. The revenues of the undertaking are paid into the treasury.
3. Executive decision :
A departmental undertaking is set up by an executive decision of theGovernment without any legislation.
4. Accounting and audit:
The undertaking is subject to the normal budgeting, accounting and auditprocedures applicable to other government departments.
5. Civil service code:
The enterprise is manged by civil servants whose methods of recruitment andservice conditions are the same as for other civil servants of the government.
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.
5. Inefficiency:
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:
in defense industries on account of their strategic importance and the need for utmost secrecy
for the operation of economic controls like rationing, State trading, etc., which involve exercise of monopoly power and the use of governmental authority
for the operation of public utilities
for projects not really ripe for technical and financial sanction because they have not been workedout in detail, e.g., control body for river valley projects
for projects which have reached the stage of technical or financial sanction of which the requisitefinancial provision is not assured.A new development concerning departmental undertakings in India has been the setting up of corporations to raise loans from the public through the issue of bonds. For example The Railway financeCorporation has issued railway bonds Mahanagar Telephone Nigam has also issued telephone bondsand it is coordinating the telephone services in the metropolitan cities
(B) Public Corporation
A public or statutory Corporation is an autonomous corporate body set up under a special Act of Parliament or State Legislature.The Act or statute defines its objectives, powers an functions. A public corporation seeks to combine theflexibility of private enterprise with public ownership and accountability. In the words of the latePresident Roosevelt to U.S.A., “a public Corporation is an organisation that is clothed with the power of the government, but is possessed of th flexibility and initiative of private enterprise.” A publicCorporation is thus a combination of public ownership, public accountability and business managementfor public end. Life Insurance Corporation of India, Reserve Bank of India, Employees State InsuranceCorporation, Industrial Development bank of India are examples of public Corporation. It must beremembered that, an enterprise does not become a public corporation simply by using the word'corporation' in its name. For example, the Stat Trading Corporation of India is a government companyand not a public corporation.
The essential features of a public corporation are as under:
1. Corporate body:
It is a body corporate established through a special Act of Parliament or StatLegislature. The Act defines its powers and privileges and its relationship with government departmentsand ministries.
2. Legal entity:
It enjoys a separate legal entity with perpetual succession and common seal. It canacquire an own property in its own name. It can sue an be sued and can enter into contracts in its ownname.
3. Government ownership:
The public corporation is wholly owned by the Central and/ or StateGovernment (s).
4. Financial independence:
It enjoys financial autonomy. Its initial capital and borrowings areprovided by the government but it is supposed to be self-supporting. It can borrow money from thepublic an is empowered to plough back its earnings.

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