Departmental Undertaking: Definition and Examples

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. 

Students must focus on this topic as well; this is an important topic in the study of business studies and holds weightage from the examination as well as a knowledge point of view.

Define 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 Organisations

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 company operations efficiently.

• 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.

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.

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