Public enterprises are a formation of enterprises that are generally owned by the government.

One of such enterprises is the – departmental undertakings.

What is a Departmental Undertaking? The characteristics, advantages will be discussed in detail. 

Departmental Undertaking

Departmental Undertakings can be defined as the most common and established forms of public
enterprises of a country. Such an enterprise is financed as well as organized and managed by the
ruling Government of that country itself.

A prime departmental undertaking example is the Indian Railway. This enterprise is under the
ownership and control of the Indian Government. Not only was the Government body assisted in
setting up this organization but they are also responsible for its performance and finances
regarding its daily activities.

What is the Concept of Departmental Undertakings?

Departmental Undertakings are the most established and traditional form of an organization that
is owned and regulated by authoritative bodies of the public sector. Such organizations and
enterprises are financed and controlled, just like any other government-owned organization in a
country. Types of departmental undertaking are based on the type of organization and its primary
product.

These departmental undertakings in India are controlled by a specific department of the

Government. Such a department of the Government falls under the control of a Minister. All
policy matters and essential operative decisions are taken by the controlling Ministry. Such
policies are laid down by none other than the Indian Parliament.

Characteristics of Department Undertakings

Various features of the list of departmental undertakings in India are –
 Ease of Formation
Compared to a private organization, it is quite easier to form an organization under a
departmental undertaking. Since such an enterprise is being organized by the ruling
Government, there is no requirement for strict registration formalities. 

 A Traditional Form of Industrial Organizations

Departmental Undertakings are also referred to as the traditional form of most industrial
organizations as they are usually the oldest form of enterprise developed by concerned
Government bodies.
  Not Liable to Borrow From the Public
Departmental Undertakings cannot exercise the facility of lending funds from the public
or any other private body. The only means of access to additional funds are through
budget allocations sanctioned by the Indian Parliament. These enterprises are owned
partially or entirely by the Government and are also financed from the treasury of the
ruling party.

 Under Government Control

Such enterprises are subject to strict rules and guidelines issued by the directors and
officers, who are appointed by the concerned Ministry.

 Not a Separate Entity

Departmental Undertakings cannot enjoy the legal powers as a separate entity. Such
enterprises are regarded as a part of the Government and thus cannot be taken to court on
their own.

 Use of Revenue
All of the generated revenue from organizations under departmental undertakings are
deposited to the treasury of the Government.

 Monopoly
One of the main features of departmental undertakings is that they enjoy a monopoly.
However, in recent years, several organizations under departmental undertaking like
telephone, railway, airlines, broadcasting, etc. were privatized to a particular extent.

 Public Accountability
Departmental Undertakings are subject to strict budgeting, auditing, and accounting
procedures which apply to all other government departments. The employees or the civil
servants of such enterprises are required to be provided with the same rights and
privileges as offered to other government employees.

Advantages of Department Undertakings

There are several advantages of the enterprises under departmental undertakings.

These are –
 Such organizations allow the ruling Government body to take control of all the
undertaking operations efficiently. Ruling Government is elected by People of India and
People of India is ultimate source of power, thus it is justifies and ethical that enterprise
should be managed by elected representative.
 The Government is accountable for all the finances, effective decisions, marketing
strategies, etc. of these enterprises.
  The revenue generated from such enterprises is deposited to the Government treasury,
thereby becoming a legitimate source of income for the ruling Government. 
 Since departmental undertakings are subject to strict auditing and accounting procedures,
there is a comparatively lower chance of misuse of public funds.
 Role model of How Business should be done, Departmental undertaking provides quality
services to underprivileged section of the society either for free or at very low cost. For
Example – Indian Railway runs local Trains and General Coach nearly in all coaches at
very low price.

Disadvantages of Department Undertakings

With the help of the points discussed below, it is easier to identify the demerits of departmental
undertakings –
1. Lack of Flexibility
Lack of flexibility is a concerning issue in the case of workers of departmental
undertakings. Such enterprises are required to strictly follow the rules and guidelines of
the Parliament. Concerned ministers and top government officials tend to intervene
frequently with the work process.

2. Lack of Motivation
Since, there is a severe lack of competition and purpose for generating higher revenue,
employees of departmental undertakings fall prey to reduced motivation for hard work
and efficiency. In the case of most organizations under departmental undertakings,
employees are less likely to be rewarded for their value-added performances, and usually,
all promotions depend primarily on incentives.

3. Financial Dependence
Since the primary funding received by departmental undertakings are from budget
allocations by the finance sector of a government, such enterprises are unable to take
long-term decisions on business operations. Hence, they are financially dependent on the
ruling Government as the revenue generated cannot be used for business funding but
needs to be deposited to the National Treasury.

4. Managed by Generalist

Departmental Undertakings are managed by Ministers who are an expert of business;

they do not have business mastery or adequate experience. They manage with their
general understanding. However, few m9insters have done remarkable work.

5. Compliance Burden

There are lots of compliance burden for each activities. Too many procedural
requirements are there to be fulfilled due to transparency laws.
Indian Railway as a Departmental Undertaking

(A Case Study)