Departmental Undertakings

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.

Immediately after Independence, the Government of India nationalized many enterprises and also established many new undertakings. The industrial policy resolutions of 1948 and 1956 assigned dominant roles to public sector enterprises. Many areas of business were reserved for the public sector. The entry of the private sector was restricted in the form of licensing limits on expansion etc.

In spite of the restricted role, the private sector continued to grow and contribute to the economic development of the country. In spite of giving priority to the public sector, this sector could not do much for the economic development of the country. That is why in 1991 the Government of India adopted the policy of liberalization and globalization. Under this policy, the private sector was assigned an important role.

Many entry barriers in the private sector were removed. Industrial licensing was abolished except in areas related to security and strategic concerns. The areas reserved for the public sector were reduced. The limit of expansion was raised by amending MRTP (Monopolistic and Restrictive Trade Practices Act).

Departmental Undertakings

This is the oldest form of public sector enterprise. The departmental undertaking is considered as one of the departments of government. It has no separate existence than government. It functions under the overall control of one ministry or department of government. For example, Railways, Defence, Post and Telegraph, Broadcasting, Telephone services, etc.

Features of Departmental Undertakings

The main features of departmental undertakings are

  1. They operate under the overall control of one of the ministries of central or state government.
  2. They are a part of government only, there is no separate entity.
  3. They are financed from the annual budgets of the government.
  4. The revenues of departmental undertakings are deposited in the treasury of the government.
  5. The staff of departmental undertakings are civil servants and are recruited and compensated as per the rules of civil servants.
  6. They are under the direct control of the departmental head, who is accountable to the concerned minister.
  7. They can be sued in the same manner as one can file a suit against the government. Merits/Advantages of Departmental Undertakings

Advantages of Departmental Undertaking

A departmental undertaking has the following advantages:

  1. Easy Formation – It is very easy to form a departmental undertaking as no registration is compulsory.
  2. Effective Control – The control on the departmental undertaking is very effective as it is direct.
  3. Optimum Utilisation of Funds – There is proper utilization of funds as financial matters are subject to ministerial sanction, budget, accounting, and audit control.
  4. Accountability – There is direct parliamentary control. The performance of departmental undertakings can be discussed in parliament. So there is public accountability.
  5. Public Revenue – The revenue of departmental undertaking is deposited in the treasury of the government. So these undertakings help to increase government revenue.
  6. Secrecy – The activities, and performance of the departmental undertakings can be highly secret, as government can avoid disclosure on the plea of public interest. Due to secrecy, only the most sensitive area i.e. defense is operating as a departmental undertaking.
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