To undertake is often used in business, law, and everyday language. It generally refers to a responsibility, a task, or an obligation for which one takes responsibility and fulfils it. People, firms, and governments undertake various activities, such as establishing new initiatives or implementing government policies. In all professional, financial, and legal matters, undertaking ensures responsibility and systematic carrying out of commitments.
For example, a company that makes a new venture commitment toward planning, management, and efficient task execution. In India, an undertaking in the public sector means government-owned corporations are responsible for providing essential services. In the legal context, signing an undertaking certificate promises compliance with specific rules or regulations, and businesses, legal professionals, and policymakers must understand the term undertake. This article addresses the meaning, types, and significance of undertakings in different sectors.
Define Undertake
The undertaking is a word for accepting and committing to fulfil a task, duty or responsibility. This involves planning, executing and responding to the account to ensure that something has been done correctly. Businesses, governments, and individuals act as various responsibilities requiring strategic efforts and dedication.
For Example
- A company undertakes the development of a new software product by investing in research, workforce, and technology.
- A government may take up a health program, ensuring citizens’ access to cheaper medical facilities.
- An undertaking can be a loan that one offers for repayment whereby all repayments are made in time based on the agreement.
- Any undertaking can be a personal undertaking or a big project. An undertaking solely depends on proper planning, offering the correct resources and a clear objective.
A departmental undertaking is an organisation under government control and directly under a specific ministry or department. The undertakings undertake crucial public services but do not act as independent legal entities. They are run and funded by the government to carry forward national interests.
What is Undertaking?
An undertaking is a formal agreement, obligation, or commitment undertaken by a person, business, or government. It indicates the duty to perform an action or a duty, whether done with consent or compulsion, in a legal or contractual obligation. Undertakings are used for accountability in corporate transactions, legal agreements, and government projects.
Key Characteristics of Undertakings
In all professional, financial, and legal matters, undertaking ensures responsibility and systematic carrying out of commitments. There is no use in understanding the features of the undertaking.
Commitment to a Task
An undertaking is the most serious promise to execute an activity within a set period. Whether business growth, legal obligation, or government-initiated initiative, undertaking demands commitment from the relevant authority to complete its work within the agreed time. Such commitment often involves capital, human, and strategic resource input. Without the necessary commitment, an undertaking may experience delay and even failure due to the stake and results involved.
Legal or Voluntary Responsibility
Some engagements come under legal obligation, which means they legally bind their subject. For example, a letter of undertaking in banking ensures that a borrower repays a loan. Other engagements could be voluntarily driven and are mandatory; these are CSR initiatives done by a company. Even though voluntary, such engagements require dedication and resources to fulfil the objectives effectively.
Financial and Operational Involvement
Most ventures are high-investment proposals that call for precise planning in their operational structures. Business teams interested in mergers or acquisitions must be prepared to accept the resources, risk management, and regulatory framework surrounding such an option. Public sector undertakings in India, such as Indian Railways, also demand massive funds and operational management for efficient transportation across the country.
The undertakings affect various stakeholders, including employees, customers, investors, and the government. For example, if a company undertakes a new business, it affects the job market, supply chain, and customer experience. Similarly, a government undertaking an infrastructure project involves the local community and economic growth.
What is Departmental Undertaking?
A departmental undertaking is that kind of a public sector enterprise, which the government fully owns, controls and operates. These undertakings work as parts of a particular government department directly under the supervision of government officers. These are financed through funds from the government, and all the revenues go directly to the government treasury. These operate in a very narrow frame of regulation from the governments and are also accountable to a respective ministry.
Characteristics of Departmental Undertakings
A departmental undertaking is that kind of a public sector enterprise, which the government fully owns, controls and operates. The features of the departmental undertaking are:-
Government Ownership and Control
Departmental undertakings are owned and operated directly by the government. They work under a ministry’s direct control, meaning their policies and activities are all government objectives. Thus, the departments ensure public service distribution free from intervention from the private sector.
Government Funds Budget Allocation.
The government’s annual budget supports these undertakings. While private companies have to depend on profits, the departmental undertaking is run through public funds. This way, railways, postal services, and defence production would not be subject to financial turmoil.
No Separate Legal Identity
Departmental undertakings lack separate legal personalities; they are regarded as departmental or extended governments and hence cannot contract, sue, or be sued separately from the government. This ensures strict accountability but limits the flexibility of operation.
Public Service Responsibility
While private enterprises are interested in earning profit, departmental enterprises are concerned about the interests of the general public. They eventually provide public utilities such as transport, communication and safety. This is very important for nation-building and to ensure economic stability.
Departmental Undertaking of India
- Indian Railways: Ministry of Railways running national transport. Its operation brings considerable income to the nation’s economy.
- India Post: Run by Ministry of Communications. Provides post office services, banking, and finance, and conducts transactions throughout the Indian region.
- Ordnance Factories: Manufacture various armoury items under the Ministry of Defence for
- Indian Armed Forces: These departmental undertakings are significant for maintaining public infrastructure and national security.
Public Sector Undertaking
It is a government-owned company and operates in core sectors like energy, banking, telecommunication, and infrastructure. The companies are substantial in promoting economic growth and social welfare.
Characteristics of Public Sector Undertakings
The features of Public sector undertakings are listed below:-
Government Majority Ownership
At least 51% share ownership by the government in any PSU. Again, this ownership scheme maintains national interests and keeps PSU accounts financially sound in books. Additionally, this does not let even the government resort to undue practice of business operations along with their compliance in every regulation.
Developments in ocus of PSUs
PSUs are necessary for the nation’s progress related to employment generation, industrial development, and adding prices to GDP. PSU enters areas of restricted participation or strategic importance, such as defence, energy and telecommunications.
Autonomy PSU
works with autonomous management despite being belonging to the government. They apply corporate administration practices to ensure effective and efficient service distribution, increasing their competition in the market. In this regard, they can make independent business decisions while simultaneously being accountable to the government.
Profit for Public Good
PSUs generate revenues, but their ultimate goal is to serve the public interest. The purpose of private companies is only to maximise profits; PSUs are both financially feasible and socially responsible.
Classification of Public Sector Undertakings (PSUs) in India
Public Sector undertakings are government-owned companies operating in core sectors like energy, banking, telecommunication, and infrastructure. The types of public sector undertakings are as follows:-
| Type | Description | Eligibility Criteria | Financial & Operational Autonomy | Examples |
| Maharatna | Large PSUs with high revenue, global presence, and strategic importance. | Average annual net profit of ₹5,000 crore (over three years) | Can invest up to ₹5,000 crore or 15% of net worth, whichever is higher, in a single project without government approval. | ONGC, NTPC, BHEL, Indian Oil Corporation (IOC), Steel Authority of India (SAIL), Coal India Limited (CIL), GAIL |
| These companies have vast market capitalisation and contribute significantly to India’s economy. | Average annual turnover of ₹25,000 crore (over three years) | High level of operational and financial independence. | ||
| Average net worth of ₹15,000 crore (over three years) | ||||
| Presence in multiple international markets | ||||
| Navratna | Medium-sized PSUs with operational independence but slightly lower financial capability than Maharatnas. | Must hold Miniratna Category I status | Can invest up to ₹1,000 crore or 15% of net worth, whichever is lower, in a single project without government approval. | GAIL, Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL), Power Finance Corporation (PFC), Oil India Limited (OIL), Container Corporation of India (CONCOR) |
| They play a crucial role in industrial and infrastructure development. | Earn a minimum of ₹3,000 crore net profit over the past three years | More autonomy in capital expenditure and foreign joint ventures. | ||
| Maintain a net worth of ₹10,000 crore | ||||
| Have a consistent record of financial performance and profitability | ||||
| Miniratna | Smaller PSUs with limited financial autonomy but a strong regional/national presence. | Miniratna Category I: | Miniratna Category I: | Various PSUs across industries |
| These are further classified into Category I and Category II. | PSU should have earned profit for the last three years. | Can invest up to ₹500 crore or their entire net worth, whichever is lower, without government approval. | ||
| Must have a pre-tax profit of ₹30 crore or more in at least one of the previous three years. | ||||
| Miniratna Category II: | Miniratna Category II: | |||
| PSU should have earned a profit for the last three years. | Can invest up to ₹300 crore or 50% of net worth, whichever is lower. | |||
| Must have a positive net worth. | Have less autonomy than Maharatna and Navratna companies. |
Public Sector Undertaking in India
Some of the central PSUs in India are:
- Oil and Natural Gas Corporation (ONGC): India’s biggest oil and gas exploration company.
- Steel Authority of India Limited (SAIL): Company for steel manufacturing in India.
- State Bank of India (SBI): One of India’s largest public sector banks.
PSUs help strengthen the Indian economy and provide employment purposes, providing all the essential services to the people.
Define Undertake FAQs
1. What is an undertaking?
An undertaking or undertaking means formal commitment or liability undertaken by a person or government organisation. This shows that an undertaking accepts to complete a specific task or fulfilment of conciliation.
2. What is LoU?
A letter of undertaking or LoU is an advance payment guarantee banks give for international trade transactions. It shows that the borrower would pay the loan.
3. What is PSU in India?
PSU stands for Public Sector Undertaking. This is a central or state-owned commercial undertaking. A public sector undertaking is a PSU undertaking owned by the government undertaking businesses in energy, banking, and manufacturing areas. ONGC, SAIL, and SBI are examples.
4. What is an undertaking certificate?
An Undertaking Certificate is a Written Declaration by a person or an enterprise wherein the person or the Enterprise undertakes to comply with specific legulatory provisions.
5. What does the committee do on a public undertaking?
To ensure that management is efficient and transparent, the committee on public undertaking monitors psus’ Financial and Operational Performance.
