Administrative Law

ADMINISTRATIVE LAW
TOPIC
Role of Public Corporations in India and
their Relation To Their Internal And External Working With The
Ministers
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Role of Public Corporations in India
And Their Relation to Their Internal And External Working With The Ministers
CONTENTS
ACKNOWLEDGEMENT.........................................................................................................II
RESEARCH QUESTIONS......................................................................................................III
INTRODUCTION......................................................................................................................4
ROLE OF THE PUBLIC CORPORATIONS............................................................................5
To Achieve Social Goals........................................................................................................5
To Build Industrial Infrastructure..........................................................................................5
Wealth Generation.................................................................................................................6
Social Wealth Creation..........................................................................................................6
Economic Overheads.............................................................................................................6
Optimum Allocation of Resources.........................................................................................7
Umbrella Development..........................................................................................................7
Profits For Social Welfare......................................................................................................7
RELATION OF PUBLIC CORPORATIONS AND THEIR RALATION TO THEIR
INTERNAL AND EXTERNAL WORKING WITH THE MINISTERS.................................8
THE ISSUE OF INTERNAL AUTONOMY..........................................................................11
CONCLUSION........................................................................................................................13
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RESEARCH QUESTIONS
This project mainly tries to answer the following questions.
1. Why did India need Public Corporations?
2. What is the role of Public Corporations in India?
3. How does the ministers affect the working of the Public Corporations?
4. How does the Public Corporation is held accountable?
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INTRODUCTION
The development of public corporations was important because at the time of independence,
India was not an economic power. Therefore, to sustain our independence it was necessary to
build public corporations as a good economy would ensure both sovereignty as well as
stability.
At the time of independence, the basic aim of a public corporations was to make
infrastructure, generate employment and put the wheels of economy on track.
To showcase the necessity of public corporation we should look at the statement of Hanson.
Hanson told, “Whatever the ultimate perspective may be, the country anxious to develop
economically has no alternative but to use public enterprise on a considerable scale, at the
very least in order to get things going.” He has also gone to the extent of saying that “Public
enterprise without a plan can achieve something: a plan without public enterprise is likely to
remain on paper.”
Therefore, at that time the sole aim of the corporation was not to make profit, but rather it
was something to keep the company going on. Rather the main aim was to build
infrastructure, employment and promote the welfarism as well as to ensure the stability of the
country.1
To ensure the efficiency of the corporations it was necessary to keep them apart from the
government but also at the same time make the corporations accountable.
The seed of economic growth in the form of public corporations blossomed into a tree of a
great economy which was able to show resilience in the winds of economic breakdowns.
But with time, the Public Corporations (PCs) need to change so that they can adapt with the
demands of today since the Indian economy has gone a tremendous change
Now let us look at the characteristics of a public corporations which makes it different from a
private one.
(i) It covers the industrial, commercial and economic activities.
1
Department of Public Enterprises, Annual Report 2020-2021 ch1
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(ii) State ownership whether by the Centre or by the state is essential.
(iii) It is managed by a self-contained managerial cadre.
ROLE OF THE PUBLIC CORPORATIONS
As in the previous chapters we have talked much about why was it created, what were its
large motives. Now we will have look at what role does the public corporations play.
To Achieve Social Goals
No human society can maintain its humanness if there is no social responsibility towards one
another. India is fortunate that it understood this principle at its earliest. It was the
responsibility as well as the necessity for India to develop industries. The main aim of public
corporations is not only to make profit but also create a positive environment for industries.
To Build Industrial Infrastructure
This can be better explained by the observations made by the planning commission. The
Planning Commission observed “The public sector is expected to provide specially for the
further development of industries of basic and strategic importance or in the nature of public
utility services, other industries being also taken up by the Government to the extent
necessary.”
Public corporations are the frontrunner when it comes to areas which are not only complex
and difficult but also which takes a lot of time to show results. These time investing areas are
generally infrastructure, or capital-intensive greenfield industries. Therefore it turns out that
public corporations are responsible for making industrial infrastructure of the country
because it is the infrastructure which makes a conducive environment for further industries to
thrive.
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Wealth Generation
It is said that the best way to generate wealth is to invest them somewhere where their role is
passive. And what is better than investing in public corporations. Public corporations give the
people the opportunity to invest which is turn would turn into great wealth with time. Public
corporations do have various source of funds but funds through investing is a win-win for
both the public corporations as well as the citizens. This also ensures that there is a flow of
money.
Social Wealth Creation
There are many things like institutions, health, power, infrastructure etc which require a large
amount of money but has negligible profits. This is not possible for private players but is a
necessity for any society whose aim is to grow. Public corporations come to the rescue in
these areas.
Economic Overheads
Again, we have to understand one thing, any sector which requires a lot of capital and will
give returns after a long time is something out of the hands of private players. Here again the
only source is public corporations. Sectors like railways, ports, roadways, etc. come under
this area. These in turn will be a source of enormous economic activities.2
2
Rajiv Bhuva, ‘What makes PSUs the jewels of Fortune India 500’ (Fortune India, 16 December, 2020)
<https://www.fortuneindia.com/investing/what-makes-psus-jewels-of-fortune-india-500/104947> accessed 1
October 2021
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Optimum Allocation of Resources
We also should laude public corporations for one thing and that is its resources are used for
the larger welfare of the people as opposite to private players who uses the resources for their
profits. Due to its very nature public corporations walk on the path of social welfare.
Umbrella Development
One of the great benefits of public corporations is that it helps in the development of country
in a more uniform manner as it does not hesitate investing in areas which are backward
whether economically, or otherwise. Private ventures would unlikely will invest in areas
where the input is far higher than the output.
Profits For Social Welfare
One of the many advantages of public corporations is that while private enterprises uses it
profit for its own welfare, whereas the profits generated by public corporations is often used
in welfare programs.
Apart from these benefits of Public Corporations, there is now a trend of privatisation from
the government side. The PCs have great assets which includes land which has been acquired
from a long time. These lands can further be used by the government to build amenities
which will cater to the public at large such as hospitals, smart cities, etc.
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RELATION OF PUBLIC CORPORATIONS AND THEIR RALATION
TO THEIR INTERNAL AND EXTERNAL WORKING WITH THE
MINISTERS
Public corporations as a business model was incepted post 1950s. This was such a feat that
WA Roboson termed it as “the most important invention of the 20th century in the sphere of
government institutions.”
It was defined as a compilation of public ownership, public accountability with a tinge of

commercial acumen as required in private enterprises.
There are many public corporations in India such as Reserve Bank of India, Damodar Valley
Corporation, Indian Airlines Corporation, Air India International. From State Bank of India
to Life Insurance Corporation of India. All of these are examples of public corporations.
What basically defines the public corporation is that they are wholly funded by the
government. Apart from it they are made by a legislation by a central or a state government.
All the objectives, powers, duties as well as privileges have been enumerated in the act itself.
The act also describes the management form and its relations with other government
departments.
Public corporations are a separate legal entity, which means that they can sue as well get
sued. They can do contracts as well as take property in its name.
Its funds come from a wide range of sources. From borrowing, to the public exchequer, from
investments and to the sale of goods and services. They have full authorisation as to its use of
funds as well as their revenues.
One thing to note is that the employees of these corporations are not necessarily civil
servants. The corporation itself carries on the recruitment. Generally, its day-to-day functions
are independent of any head of department of the government, which ensures its functional
autonomy. The minister only publishes the policy at a formal level, apart from it the statue is
sufficient to show the path as regards it operation. The management is carried on by a board
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of directors which are appointed by the government. Within these board of directors, one is to
be the chairperson.3
Having this type of corporation makes sure that its efficiency remains that of a commercial
company while the accountability is also properly maintained. Now due to this pattern the
day-to-day administration would be saved from any political pressures, but for a more robust
change there has to be an amendment in the statute which would involve the active
participation of ministers and members of parliament, or members of legislature in case of a
public corporations formed through a state statute.4
Now let us look closely at the board of members. These people are responsible for the
governing of the company.
There we some problems related to the public corporations
1. The estimates committee pointed out that there was an absence of well-defined rules
to run the management. They recommended that it was better if the organizations
were based on statutory corporations. They cited the examples of defence, strategic,
or security departments which may have corporations as they were sectors of a
particular nature.
2. But we will see a distinction with this argument in Krishna Menon Committee Report.
This committee regarded departmental corporations as not so good, because the
employees were treated as civil servants so applicable to its rules and regulations.
Also the procedure of acquiring funds was not so efficient as it involved acquiring
through cash receipts which led to unwanted delays.
3. The third road for improvement was that in accounting as well as in auditing. This
was some sort of tardy.
3
Govind Bhattacharjee, Public Sector Enterprises in India: Evolution, Privatisation and Reforms (1st edn
SAGE Publications India Pvt Ltd) 101
4
Ajay Shankar, ‘Why India must strengthen its public sector’ (The Indian Express, 26 September 2021 ) <
https://indianexpress.com/article/opinion/columns/indias-public-sector-privatisation-economic-freedom-
7532870/ > accessed on 30 September 2021
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Nevertheless, of these roadblocks public corporations are a hit not only in India but also
abroad, such as in Britain, US, Italy, Canada, etc. few examples of successful public
corporations in India are as follows: British Broadcasting Corporation, British Overseas
Airways Corporation, Overseas Food Corporation, etc.
But since these roadblocks needed improvements, it fetched the attention of ARC. They
studied these roadblocks in depth. They found out that departmental corporations were good
when the departments provided services to the masses.
Whereas the sectors that needed space to grow should not be cloistered with departments as it
would hamper them being bold and free which are the requirement for these types of
industries.
Since flexibility and autonomy as well as accountability at the same time can be incorporated
in a public corporation, the commission recommended that public corporations can be used as
a model for all public undertakings.
The Administrative Reforms Commission itself in its report of 1968 recommended that:
(1) Undertakings which are predominantly trading concerns or areas of business, may have
the company form of organisation.
(2) Development agencies should, be run as statutory corporations or as departmental under-

takings.
(3) Statutory corporations should be adopted in the industrial and manufacturing fields.
(4) A government company form of organisation may be adopted for projects to encourage
private participation.
Now let us see what the government accepted from these recommendations.
1. The industries which cater to the infrastructure were kept as statutory corporations.
2. For the others operating in the commercial environment should be kept in the
company form.
The government, therefore, does not consider that this form of statutory corporation should in
general be adopted for public enterprises”. The government has thus decided to continue with
its earlier policy of supporting the company form of organisation for state undertakings.
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THE ISSUE OF INTERNAL AUTONOMY
The autonomy of public corporation raised a great debate about their internal working and
external relation with the ministers and the Parliament.
The concern in the internal autonomy was considered in Policy matters, daily routine
operations, employee policies, service conditions and audits.
Now let us look how ministers control the public corporations. There is a set of powers
conferred on the specific minister. Also, the government is responsible for making rules,
procedures, as well as the activities to carried on.
It is the government which appoints the board of members as well as the chairman and
managing director. Also, the post which crossed a certain level of salary has to be with
consent of the government. The government can also enquire about the working of the public
corporations by setting up enquiry commission.
Appointment as well as dismissal of board of members rests with the government. The
government can also dismiss the earlier board and replace it with a new. There are conditions
for these things.
The most important power in the hands of a minister is that it can issue directive to the public
corporations. Also, at the time of contention between board of members and the central
government it will be the later which will prevail.
The minister exercises tis powers through a financial advisor in financial matters. The advisor
has the power to veto over financial decisions. The sanction of the government is necessary to
sanction capital expenditure above a certain amount, and for matters connected with
borrowings, investments, securities, distribution of profits, etc.
The auditing is carried by auditors appointed by the government. From prices of goods to the
quantity as well as the rate of payment is decided by the government.
The journey of public corporations with the ministers was not always a smooth ride. The
most basic argument minister is that its directives as well as policies are subject to be
accountable in front of the parliament. The ministers exert their control through appointing
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officials of their choice and also through deputation of government officials to the executive
posts in public corporations.
Now let us also have a look as to how the parliament controls the public corporations. The
parliament controls the public corporations through question hour, adjournment motions,
parliamentary debates, discussions on reports, parliamentary committees especially the CPU.
It’s been seen that this type of control is often not systematic, is hazy as well as not very
effective.
But now we are seeing a positive trend from the government of India. Public enterprises is
said to be accountable but for it to run with full potential it has to have a mind of that of a
private organization. To ensure this thing government has merged the Department of Public
Enterprises (DPE) with the Finance Ministry to give it a better control over state-owned firms
which can then facilitate the privatisation of these firms.
CPSEs will continue to be an important part of the Indian economic landscape. Even if
privatisation is politically infeasible, at least the state can exit by shutting down those CPSEs
with a negative net worth. Many CPSEs sit on excessive amounts of land, acquired in
decades past when the state could acquire large amounts of land at a pittance. Given the high
financial and transactional costs of acquiring land today, using some fraction of this land for
broader public purposes as part of “smart cities” that are more inclusive, whether as public
hospitals or parks, or housing for public employees, would be one way to ensure that the
CPSEs serve the larger public good that was originally envisaged of them.
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CONCLUSION
Today there are approximately 331 PCs held by the central government. The total
investments stand at Rs 12, 50, 373 crores calculated on 31 March, 2017. Five of these are
related to agriculture, whereas 24 belongs to the mining sector. Majority of them are in
manufacturing and generation (96), services (119) and construction (76).
Our journey of exploring the role of public corporations in India started form knowing what
is public corporations, its basic characteristics. Then we moved to know the what role does it
play. We then headed on to see how the government controls it.
We saw how the development of public corporations was important because at the time of
independence, India was not an economic power. Therefore, to sustain our independence it
was necessary to build public corporations as a good economy would ensure both sovereignty
as well as stability.
The role played by public corporations is immense. From achieving social goals, building
industrial infrastructure, wealth generation, social wealth creation, economic overheads,
optimum allocation of resources, umbrella development and finally profits for social welfare.
There was a great debate as to if the governmental control is necessary or not. Since public
corporations is something which is funded by the government which means it derive its funds
from the public money, so it has to be accountable to the public through ministers.
But then should it work as that of an extended political wing. My opinion is no. public
corporations were created to carry on business. So, it should have a mindset of a commercial
giant but has to have a conscience of that of a public sector. This will not only ensure that the
company grows but also will be beneficial to the whole country. The one caveat minister is to
have been that they have to understand that the enterprises results come from it working as a
commercial company which requires non-interference with a political vendetta.
At last, we would like to say that public corporation is a boon to a country in the earlier days
of a country and is inevitable to create a good commercial environment in a country.
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ADMINISTRATIVE LAW

This project mainly tries to answer the following questions.

1. Why did India need Public Corporations?

2. What is the role of Public Corporations in India?

4. How does the Public Corporation is held accountable?

(i) It covers the industrial, commercial and economic activities.

ROLE OF THE PUBLIC CORPORATIONS

To Achieve Social Goals

To Build Industrial Infrastructure

Social Wealth Creation

Profits For Social Welfare

It was defined as a compilation of public ownership, public accountability with a tinge of

There we some problems related to the public corporations

(2) Development agencies should, be run as statutory corporations or as departmental under-

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