nd eontrol o

() mbined Alanugrtrn. he managonmont

he nomheOR of vew of
fepioRCntalives of the
enterpries lles will
privale bueineaenen,
nd the publlo,
Coverninenl, privato buslnes.
Cuvernme
() Ahate (uplhal The shares ofthe en, nnd
aro 20%, 25h, nnd 49% Teapectlvely, m
nd
'The
publle In the enpital Statem lo is
Is t
Hnd tochnlcal know-how of the nte and
the flnanclal resouree th6 po C

divdunl
prlva
P'ilvate, Pulblle, antd Jolnt Sector Lntornal. de
otnporann betneen
t
Publle Lnteprise Privute Fnterprle Jolnt Sector
Point ef Dintion W

Privnte prson
(hwneralhd Ciovernmont (lovernment and V

private both
Management lly overninent 1y privats owllers Both Clovernment t
private individunk
3, Capital $1% or moro by tho 1sy private investors Ciovernment and
overnnent
(lovørnmeh private both
4. Objec1 Servloe to the soeloty larning proflts Proflt and social
objoctives
S. Pariamenlary Control by Parllament No control by May or may not be
contol Parliament
6. Audit By Comptrollerand By practising chart By qualifled auditors
Audlior Clcneral, Gred uccountants.
C'ompulsory in ull Not compulsory In
CONCA all cascs
7. Accountability To the publie To the owners To both Government
and private owners

4.4 FORMS OF PRIVATE SECTOR ORGANISATIONS

The main forms of ownership in private soctor ure as follows:
() Sole Proprictorship
() Joint findu F'amily Firms
(h) Partnership
() Joint Stock Compuny
() Cooperative Society
1,Sole Proprietorshlp. In this
form of ownership, one person provides the
bears all the risks and
independently capita
manages the business. It is the most natural, tne
oldest, the simplest, and the most
. Jolnt Hinda popular form of business organisation.
Famlly Firm. It is a business owned and
controlled by a jo
lindu family which consists
The head of the of the father and his son, grandson and th
fumily, called Karta manages the business for the great granu
8 awhole.
The liability of benefit of tne
every member of the family except the Karta 18
 61
Introduction to Business Organisations
to his share in the family's assets. Hindu law has granted independent and corporate
existence to the family.
two or more persons enter intoo a
3. Partnership. In this form of ownership
some lawtul business jointly
and to share its profits. Each partner
contract to carry on has no legal entity
of the firm and of its partners. The firm
is considered as the agent is jointly and individually liable for the
that of the partners. Each partner
separate from The number of partners cannot be more than
the firm to an unlimited extent.
debts of of business. A partnership
of a banking business and twenty in other types
ten in case is known as a joint
for a specified time period or for a specific object
which is set up or on the completion
dissolved on the expiry of the period
venture. It is automatically
of the specified object. of two or more
is an incorporated association
4. Joint Stock Company. It of its members.
entity which is separate from the identity
persons. It has
a distinct legal of the lives
unlimited life. Its continuity is independent
Therefore, a company enjoys of Directors
and control lies in the hands of the Board
of its members. Its management several types of
elected representatives of the members. There are
consisting of the
companies. with the purpose of rendering
5. Cooperative Society. It is a society organised of
members and to the public in general. It is organised on the principle
service to its life.
incorporated association of persons, it enjoys perpetual
mutual self-help. As an
several
of its members is limited. There are
It has a distinct identity and the liability
societies.
types of cooperative
Forms of Business Organisation

Private Sector Joint Sector Public Sector

(No state participation) (Ownership and control (State ownership
shared by private business- and control only)
men, state, and public)

Departmental||Government Public
| Sole Joint PartnerJoint stockCoope-
trader| Hindu shipCompany rative undertakings companiescorporations
family society
firm

CHOICE OF THE FORM OF BUSINESS ORGANISATION

5
The choice of the most suitable form of business organisation is a crucial decision
it affects the rights and liability of the owners. Therefore, the choice should be
Decause
made with great thought and deliberations. Each form of business organisation has its
demerits. These merits and demerits should be duly considered before
Own merits and
selecting the form of organisation. The factors which affect the choice of the form of
business organisation are given below
 Public Enterprises, Public Utilities, and Public-Private
Partnerships 195
10.5GROw
10.5 GROWTH OF PUBLIC ENTERPRISES IN INDIA
time of independence, public sector in India was confined mainly to railways,
At the
and public utility services. Since then the
eommunications, defence production,
c o m m u n i c a t i

erowth ofpublic
growth enterprises has been very rapid. Now public sector consists of public
post, telegraph, etc.), manufacturing concerns (e.g., BHEL
lities (e.g., railway
organisations (e.g., STC, MMTC, etc.), service organisations
sSAIL. etc.), trading
NIDC, RITES, etc.).
(eg, in India:
an overview of the growth of public sector
The following table provides
Public Enterprises in India

As on April I Number of Enterprises Capital Employed

i n crore)
1951 5 29
1961 48 953
1981 168 18,207
1991 236 1,02,083
2001 242 2,74,114
2011 220 6,66,848

under
Since 1991 Government of India has been disinvesting public enterprises
in

the policy of economic liberalisation and privatisation.

10.6 FORMS OF ORGANISATION IN PUBLIC SECTOR

The main forms of organisation for public enterprises are as under:

1. Departmental Undertakings
2. Public Corporations
3. Government Companies
Public Enterprises

Departmental Public Government|

Undertakings Corporations Companies

1. Post and Telegraph 1. Reserve Bank of India 1. Steel Authority of India

2. Broadcasting 2. Small Industry Development
Bank of India 2. Bharat Heavy Electricals
3, Indian Railways 3, Life Insurance Corporation 3. Hindustan Machine Tools
4. Defence Undertakings 4. Damodar Valley Corporation 4. State Trading Corporation

10.7 DEPARTMENTAL UNDERTAKINGS

Meaning: Departmental undertaking is the oldest and traditional form of organising
public-sector enterprises. A departmental undertaking is organised, financed, and
 ISC Commercefor Class XI Government
departme.
196
any
other It may be
It i is
as
much the
same wáy government.
controlled in
the Central
Government
or by a

of the
state

head
of the
managed
departmenaged
the department
ter who 1s concemed
run either by
officials under the supervision control of a minister who i

akings are: Indianresponsibl

government ultimate
direct and IndioPOnsi
under the undertakings are:
undertaking is
The
to the Parliament.
examples of
Some
India Radio,
departmental

Doordarshan,
wer, ssecurity,
atomic power, ecur
pre
ete.
Railways,
All
Post and Telegraph,
. Part ofessential
Government. of departmental
The undertaking
characteristics
undertakings are
is organised as a major suh-d:lo
ct
givenb
Features: The
Government. It 1s subject to direosn of
by the headdepartments or ministries
of department. of the
The ultimate authority lies with the concerned
concerned minico control
one of the ith the ministerarate
wh
Legislature.
"The undertaking has no c
the Parliament or State
is responsible to
Government.
distinct from the through
entity The undertaking
is financed annual 1..

financing.
2. Government State Legislature. The
revenues
of the
Parliament or the
appropriations by the is owned by the Government
wholly
the treasury. It
undertaking are paid into IS set up by an executiv
A departmental undertaking
3. Executive decision.
without any legislation.
decision of the Government
the normal budgetino
and audit. The undertaking is subject to
4. Accounting
accounting, and audit applicable to other Government departments.
procedures
is
5. Civil service code. The enterprise managed
by civil servants whose methods
as for other civil servants of the
of recruitment and service conditions are the same
Government.
6. Sovereign immunity. Being an integral part of the Government, a departmental
undertaking cannot be sued without the consent of the Government.

Merits: Departmental undertakings enjoy the following advantages:

1. Easy formation. It is very easy to set up a departmental undertaking as no
registration or special law is required. The undertaking is created by the administrative
decision of the Government and no legal formalities are involved.
2. Direct Government control. The
undertaking is under the direct and compiete
control of the State. Therefore, it is more effective in achieving the objectives laid
down by the Government.
3, Public
on the
accountability. There is maximum degree of Parliamentary contro
undertaking. Such control keeps the
management
departmental undertakings to Parliament is complete as their alert. Accountabilny o
ministry concerned, management is under he
4, Proper use of
money. The risk of misuse of public
to strict
budget, accounting and audit controls. money is mininmisea u e
public funds. There is proper financial ver
discipline o
5, Secrecy, It is easy to maintain
avoid disclosure secrecy of policy because the 1O6
n
on the plea of
public interest. Governmen
 Public Enterprises, Public Utilitles,
and
Public-Prlvate Partnerships 197
l l e revenue. Departmental
to publl undertakings hclp to increase Government
Ald
their
evenuc bCCnusc the
6. earnings are deposited in the Government treasury. These
bect lo reduce the burden of tax on the public.
to reduce
kingshelp ent of social change. The Government can promote economic and
mel unden
7. Instr

SIDe 1. ce through departmental undertakings. It can also maintain effective control

cial
Ninl huction and tribution of essential goods and services. Departmental
o v e rt h e p r o d u c

the e
ndertakings serve
serve as an instrument of public policy.

low Public
interest. epartmental undertakings can better serve public interest.
seful for public utility services and defence industries.
nof
undertaking suffers from the following drawbacks:
T t h e yn r e

ntml A
Demerlts:AA departmental
A departmental undertaking functions under strict
who 1. Lackof of flexibility.
rliamentary control. The minister
and top officials also interfere frequently in its
Ante entary control. mere adjunct of the ministry and treated just
pari The undertaking is reduced to a staff of
workings.
There is little delegation of powers. As a result, the
gdget Covemment office.
ike a G o v e r n m e n t

initiative. Lack of autonomy reduces

the little opportunity to exercise
little
ndertaking gets
undertaking
gets
the of operations.
and etficiency
the flexibility there is
motivation. In the absence of competition and profit motive,
Jtive , Lack of
There is hardly any link between reward
incentive for hard work and efficiency.
tleincentive
are based on seniority.
This leads to complacency
ing. endDerformance, and promotions
the Government treasury and tax
care' attitude. As losses are borne by
anda'devil may
and
Employees try to shift responsibility and
shirk duty.
taken seriously.
nods navers, these are not centralisation of control which
results in red
There is excessive
the 3,Red tapism. due to bureaucratic procedures and political
generally delayed
tapism.Decisions are cannot be run in a business-like
manner. It fails to adapt
ental interference. The enterprise and strict
rules and
ith rules
Obsession with
strict
in technology and market conditions.
iselfto changes leads to loss of
business opportunities.
procedures of
adherenceto undertaking has no independence
A departmental
no 4.Financial dependence.are deposited into the Government treasury. It cannot
Ive fundsbecause all its earnings it is at the mercy of budgetary
decisions as
appropriations

takelong-term investment
of the Government. generally
lete departmental undertaking is managed
management. A They are
laid 3.Inefficient servants who are sent on deputation.
and civil The
DyGovernment officialswork and cannot pay undivided attention to management.
oDurdened with paper answers to
parliamentary enquiries.
trol time is spent in preparing in

of or portion of their the necessary expertise and experience

transfèrred at any
officials generally do not possess they can be
the UCSe tenure is not
stable and
entL. Moreover, their and lack a
sense of
responsibility.
carefree attitude undertaking is
often
ume, Therefore they adopt a A departmental
due consumers. who exercise
5ensitive to needs of The bureaucrats
of control and lack
consumers.
ver
Wards the needs and preferences Bureaucratic
Controlw rules and procedures. inetlicient and irresponsive
aCcording to prescribed
ofinncentive oi the undertaking
CaN
O n the part of officials make
the part
lo consumer needs.
 Commerce for Class XI
ISC
198 DEPARTMENTAL UNDERTAKINGSATA GLANCE

Advantages
Disadvantages
1. Bureaucratic control
formation
1. Ease of 2. Lack of incentive
control
Government
2. Full 3. Red tapism
3. Complete secrecy

use of public money

4. Inflexibility of operations
4. Proper
of
5. Insensitive to consumers
5. Generation
revenue
6, Inefficient management needs
6. Socio-economic objectives
7. Public accountability

does not Tulni the requirements n

Suitability: Departmental organisation busina aulono
essential for a successful business undertakin tonomy,
that are so
fiexibility, and initiative cases: a
suitable in the following
However, it is very
aerence production and atomi
1s required, eg,
1. Where utmost secrecy energy
stries isis necessary
Governiment control over strategic industriesi
2.
2. Where absolute
telecommunications, public utilities, etc.
eg, broadcasting,
control is necessary, e.g., state trading in essential.COM
3. Where economic
Eemodities and rationing.
Where the private sector is unable to enter due to huge capital investme
iron and steel, etc.; and
e.g,shipbuilding, aircraft manufacture,
Where the undertaking is to be used as a source of revenue, e.g., Indian
5
Railways. 016 21012r941.mum
10.8 PUBLIC CORPORATIONS

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, powen,
and functions. Apublic corporation seeks to combine the flexibility of private enterpnse
with public ownership and accountability. In the words of the late President Koosevd
of USA, "A publíc corporation is an organisation that is clothed with the powe o
the Government, but is possessed of the flexibility and initiative of private enterp
and
Apublic corporation is thus a combination of public ownership, public accounfabiny
DUSnes management for public ends. Life Insurance Corporation of India, Reserve n
Bank
of India, Employees State Insurance Corporation, Small Industries Developmeu
of India areexamples of public corporations. It must be remembered that an encterprise
does not become a public corporation
For example, the State
simply by using the word 'corporation and
d not 0
a

a public corporation.
Trading Corporation of India is a government compauy

Features: The essential features of a

publiccorporation are as under specialA d
1, Corporate body, It is a body corporate established
of Parliament or State Legislature. The Act defines its througnaand
and
and privileges
i
relationship with Government departments and Ministries.powers privi Co
 Public Enerprises, Pubic
Utihies, and Pubic-Prhrate
Partnerships 19
2. Legal entity.
entity. ItIt enjo
enjoys a separate legal entity with
eeal. It can acquire and ow property in its own name. perpetual succession and
Commonseal. It can sue and be
into contracts in its own name. It sued
and canenter enjoys perpetual existence.
and Ca Government ownership. The publiccorporation is wbolly owned by the Central
3.
and/or State Govemment(s).

ancial independence. It enjoys financial autonomy. Iis initial capital and

Finand
4.
owings are províded by the Government but it is supposed to be self-supporting.

borrow money from the public and is empowered to plough back its earnings
It can
system. he corporation is not subject to the budgetary, accounting
5. Accounting
regulations applicable to Government departments. It is generally exempt
andaudit of public funds.
applicable to the expenditure
therigidrules.
from A public corporation is managed by a Board of
Tndependent management.
îts need not necessarily
appointed by the Government. However, employees laid down
Directors on terms and conditions by the
servants. They can be employed
be civil
corporation itself
is service rather
The primary motive of the corporation public
1.Service motive.
It is expected to provide quality
goods at reasonable prices. It is,
than private
orofits. manner of India
to operate in a business-like
however, expected accountable to the
accountability. A public corporation is fully
8. Public submitted to and discussed in the
Its annual report is
State legislature. Auditor General of India.
Parliament or the Comptroller and
accounts are audited by
Parliament. Its advantages:
corporation enjoys the following
Merits: public
A internal autonomy as there
A public corporation enjoys
1. Operational autonomy. be run in
interference in its day-to-day
working. Therefore, it can
is no Parliamentary degree of freedom, boldness and enterprise
There is "a high
a business-like
manner.
from the caution and
undertakings and the desire to escape
of Freedom
in the management Government departments".
circumspection which
is considered typical of initiative and eficiency.
control encourages
interference and bureaucratic
from political
There is independent management. from prohibitory rules
A statutory corporation is free
2. Quick decisions. of public funds. It can take prompt decisions and easily
applicable to the expenditure and fewer
market conditions. It has less red tapism
in technology and
adjust changes
to
bureaucratic procedures. are better than
those of
service conditions of employees
3. Motivation. The and retain talented
servants. Therefore, a public
corporation can attract
GOveroment incentive for hard work
and performmance.
and experienced managers. There is greater is subject
The performance of a statutory corporation
4. Parliamentary control. control helps in
Parliament. Such Parliamentary
D
SCrutiny and discussion by the performance in the public
interest.
and improving
uring proper use of public money the inherent services
motive.
are protected due to
nlerests of consumers
executives of a statutory
The directors,and top
. Eficlent management.
Professionals and experts
can be
poration can be drawn from different occupations.
 Commerce for Class XI
200 ISC The corporation
positions in
the corporation. can borrow Mon
without und
appointed at important
thus finance
expansion
programmes
undue delay. oIt c
freedodelay
from
run
the public and
in a
manner and
business-like

A statutory
usets funds
with greater

corporation is generally
m.
larpe
rge in size an
Economics ofscale. e c o n o m i e s of large.cr and
Operat eni
le operation
6. the
avail of
It can easily it ke
can take long-tern
long-term decisions
monopolistic power. its stability,
do not affect
changes in Government
is continuity of policy.
7. Flexibility of operations. Being relatively free from bureaucrati. n experime
contro
Co
flexibility and initiative in affairs. It ca
business:affairs,
publiccorporation enjoys and decisions can be taken
ut undue delavperi
without delay.
in new lines of activity 1s often granted special
8. Special
The special law
privileges.
by which
A public corporation
it is created can be
tailor-made to meet the s privilegs
of the particular situation. weaknesses:
the
suffers from following
Demerits:A public corporation
is dificult and time-consuming to set un
1. Dificult formation. It very
aa

in the Parliament or State Ieoic

corporation because a special law has to be passed
2. Nominated board. The
directors of a corporation are appointed by th
appointed required sti
who do not possess
Government. Quite often civil servants
are
is low. Lack of competition and
and experience in management. As a result, efficiency
There is lack of personal touci,
profit motive also lead to slackness and ineficiency.
3. Rigid structure. The constitution of a statutory corporation is rigid. Its óbjet
Amendment of the statute
and powers cannot be changed without amending the statute.
1S a time-consuming and cumbersome process.
4. Abuse of monopoly. A statutory corporation may misuse its monopolistic po
Itm
toexploit consumers. It may charge unduly high prices to cover up inefficiency.
also indulge in antisocial practices causing injury to public interest
5. Excessive accountability. There are frequent debates and discussions ou
reports and workings of public corporations. Ministerial and political interterene
day-o-day working do not allow internal autonomy in actual practice.
constituted to
6. Clash of divergent interests. When the Board
of directors is o er theb
give representation to divergent interests, a conflicetmay arise. This will na an
service motive
smooth and eficient functioning of the corporation.
lack of incentive may further reduce Emphasis on service u
the profitability of
On the whole, a operations. nershij

statutory corporation is a combination of puo

public accountability, and business management for public endsnitiative
vested wu
the powers of the Government ofthe
but also the flexibility and
tiative

private sector. It provides a combination possesses t and,

efficient business managi and p
anagement
service. A statutory of
corporation is suitable for organising
of national importance. enterp
b l i c e n t e r p r s

The public
large-scale p
corporation is
powers, e.g, public utilities. It is also suitable for undertakings r
monopo

Cxercise

power to be conferred by also useful for olye e

undertakings
andhave to be financed legislature and enterprises which may wniehe self-sue l f - s u p p o r u

be
by regular grants no
by the State.
 Public Enterprises, Public Utilities, and Public-Private Partnerships 201
GLANCE
PUBLIC CORPORATION AT A

Adventages
Disadvantages
1. Difficulty infomation
1. Operational autonomy
2. Nominated board
2. Quick decisions
3. Rigid structure
Motivation to work
3 4. Abuse of monopoly
4. Public accountability
5. Excessive accountability
5 Efficient management
6. Clash of interests
Economies of scale

7. Flexibility of operations
8. Special privileges

10.9 GOVERNMENT COMPANIES

which not less than 51%
of the paid-up
is a company in
company State Governments
A govermment Government or by one or more
is held by the Central
share capital under
and State Governments. It is formed and registered
Central
or jointly by the relating to Government
special provisions
2013 which contains
the Companies Act, in which both
company may be either a public company
companies. A govermment which is wholly
investors hold shares or a private company
Government and private
Government companies are private
the Government. In India most of the
owned by Govemment. Govermment
share capital is subscribed by the
companies and their entire Some examples of
known as mixed ownership companies.
sometimes
companies are Ltd.,
Hindustan Antibiotics
Government companies are Hindustan Insecticides Ltd.,
Pharmaceuticals Ltd., Indian Telephone
Hindustan Cables Ltd., Indian Drugs and
Electricals Limited (BHEL),
Industries Ltd., Indian Oil Corporation, Bharat Heavy
and State Trading Corporation of India.
National Thermal Power Corporation (NTPC),
Features: The main characteristics of a government company are as followws:
Act.
1. Incorporation. It is registered or incorporated under the Companies
2. Separate legal entity. It is a body corporate independent from the Government.
can acquire property, make contracts, sue and be sued in its own name. It enjoys
perpetual existence.
3. Ownership. It is wholly or partly owned by the Government. Where it is partly
OWned, the share of the Government is at least 51% of the total share capital.
4. Management. It is managed by a Board of Directors nominated by the
Government and other shareholders.
S.Own staff. Its employees are not Government servants. Their appointment and
SErVice conditions are independently decided by the government company itself. They
ATe not
govemed by civil service rules.
6, Finapcial autonomy. It enjoys borrowing powers. It is not subject to budgetary,

NCCOunting and audit controls applicable to Government departments.

 202 1SC Come
accountabie
to0 ne minisuy
U
parun
Uei

mentconc
It is State Legislath
tate Legislature as the
Aconntability. or the
7,
annual report
is placed
before the
Parliament
company
are given below.
given below: case
government
ofa sto.
Merits: The
advantages
It can be easily
formed as no
separate
atute is to
to b
an eva

in the
1. Easy
formation.

Parliament orState
Legislature.
It can be
created by an
executive decision
the Govemment

2. Internal autonomy. It
is relatively
free from bureaucratic
and auton
ontrol and popoliti
nd

interferencein day-to-day
functioning. It is a separate entity
its affairs indeno omous bobody,
theindependenty
needs tofy . It ca
ministerial control,
it can manage
the absenceof direct and can be sensitive to the neede
beoperated on
commercial principles,

3. Flexibility of operations.
The objects, powers and organisational consset uupmers
govemment company
can be altered easily emended of a
nas to be emended. of
as no stature has
tolly only the
Companies Act have to be observed. The company can take promy
provisions ofthe related matters. WhereverPOm
decisions regarding management, finance and other erever necessg
the Government can exempt it from the provisions of the Companies Act, subject t
the approval of Parliament
management. It can appoint proressional managers on high sala
4. Expert
Itcan offer better conditions of service than those available to Government ofice
Therefore, efficiency of management can be high. A govermment company's workino
can becompared with similar companies in the private sector. Paliamentary discussion
on its annual reports tend to make the management cautious and efficient.
5. Prompt decisions. The management of a government company can take quick
decisions required for successful working of business.
6. Collaboration. It is the only form of organisation by which the Governmen
can avail of the managerial skill, technical know-how and capital of the private sector
and foreign counties. It can have access to global markets.
1. Public accountability. The annual reports and working of Governmen!
are discussed and debated in the Parliament.
companies
the public and its management has to remain alert.
Therefore, it is accountable to
8. Statutory discipline. The
management of a government company is Governu
bythe Companies Act. The healthy discipline of the Act helps to keep the manageun
active and efñicient. It puts the
enterprise at par with a private enterprise.
9. Financial control. A
government company can have its own financial po
and controlL It is free from
Government regulations regarding accounting, Duuggeting
and audit, In can ensure better
control over its finances,
10, Protection of
to the
publie interest, A government company can be more se sitive
changing needs, tastes and fashions of
Demerits: A government consumers
1. Lack of
company suffers from the following drawbacks:
accountability, A government company evades its consu
responsibility to theParliament. are

Govemment control. AnnualBeing major sole shareholder, all decisions

under the or

controls become a farce. The general meeting, election of directors, audit ane
'provisions of the CompaniesGovernment mpt a government company from sev
can exemp
Act. The Parliament is not taken into coptidence the
 Public Enterpre, ubl Unae ad Pub
Pte Pwtr n
govemmer
ent company. Tts arcounts
ot a need not e auuditedd by the (
atr
(rration
r General
tor Cienetal ofIndia.
India. Therefore, a omsptnller
forner Auditor Cieneral of lndia has
and nent conuny "affraud on the Companies Act and on the calleda
a n dA i t o

gorer 2. Autonumy
utonomy in ln aname. The Censtitution.
oien
independent character of a governient conpany
a r only. Politicians, ministers and Govemment ofheials intetfere m tts
xecutive agencies of the Gov ernnment can
eTist

materially reduce its autmwny.

wOrking
3. Boardrd pac
packed with yes-inen. The directors of a government con1pany
he the Government. The board usually consists of politicians and civil1 are
who may not be able to follow sound business principles. They are interested
a p p o i n t e

their politica bosses than in

in pleasing
mo ficials are often bureaucrats
more
sent
efficient
operation of the company. The
ofti
on deputation from Government departments.
Aey
Theymay lack the necessary experience and commitment.
may lack
F e a r of exposure. The annual reports of government companics are placed
Therefore, their working is exposed to the glare of public and
the Parliament.
before the Parliament.
are
eeriticism. The strong phobia of public accountability often results in undue
press criticisn

and unwarranted of the companies. Therefore, management is

publicity
criticism the
and does not take initiative to enter new areas of activity. This has
ubl

often demoralised
on the etnciency and profitability of the enterprise.
an adverse effect
GOVERNMENT COMPANY AT A GLANCE

Advantages Disadvantages
Ease of formation
1. Lack of accountability
1.
2. Operational autonomy 2. Autonomy in name
3. Board packed with yes-men
3. Flexibility of operations
4. Expert management 4. Fear of exposure
5. Private participation
6. Public accountability
7. Statutory discipline
torm of organisation
Suitability: Despite the above limitations, government company
is suitable in the following cases:
in the private sector
. the Government wants to control a company
Where
financial employment crisis. In order to protect
without nationalisation because of
or

interests of workers and the public the Government may

acquire the majority of
De Iron and Steel Co., Swadeshi Cotton Mills,
and Easterm
Indian
company's shares.
Shipping Co., are examples of this type.
collaboration with
Government wants to launch an enterprise in
.where the Machine Tools, Hindustan
Steel,
private interests, private, foreign. Hindustan
rain
and Hindustan Cables were set
or

up for this purpose. an enterprise entirely

that it is necessary to start
mLre Lhe Government feels self-supporting and to eventually
transter
venture in order to first make it
it to liC
it the private sector.
ot e c o n o m i e
to promote and develop a field
the Government wishes
of India and Export
Creit
activity inin the
activity
and
thepub
C public sector. The State Trading Corporation
Guarantee Corporation are examples of such a case.
 for ClassXI planning nd
of p l a n n i n g ;and
204
ISC
Commerce

is in the
earliest
stage
requires the un
5. Where the project
fun esti

Public Entern:
G o v e r n m e n t .

attention
of the Forms of Public
of Enterprises in
and Different

between

Government Companpany
Comparison
Public Corporation
fins
S Departments

ent
Basis of Compariso Undertaking
I t is formed under
u n d e r aa |It is formed by

separate
1s
tormed

fo
formed as a of Parliament registration under
It is special Act an
1. Formation
wing of a
ministry
or Legislature Companies Act the hiE
Separate legal entity Separate legal entity
legal entity
2. Legal status
No separate Initially by the
Government provides
finance Out
of
Government
Government major part of
3. Source of
budget capital equity
or capital
Nominated Board of Majority of directors
Government officials
Directors
nominated by
4. Management
Government
and control
Separate Separate staff
Separate staffstaf
employees
5.
Statt/employeesGovermment
To Parliament or To Government
To Government
6. Accountability Legislature
autonomy hut
of Substantial autonomy butLimited
and No autonomy, lack sufficient flexibility
7. Autonomy little flexibility
flexibility flexibility Parliament or By the central ministry
By the
8. Control Direct control of ministry Legislature
Reinvestment in business Reinvestment in business
9. Distribution of Deposited in Govermment
earnings treasury Separate budget
Part of general budget Separate budget
10. Budget Steel Authority of India,
Reserve Bank of
Indian Railways, Posts
11. Examples India, Life Insurance
Hindustan Machine Tools,
and Telegraphs, Atomic
ordinance Corporation of India, State Trading Corpo-
power projects, State Bank of India rations, Cochin Refinery
factories
Industrial and commer-
Strategic industries like | Industrial and cial enterprises with
12. Suitability
defence, railways, atomic commercial enterprises
private participation
energy, public utilities of great significance