A departmental undertaking is one form of public enterprise directly owned, controlled, and managed by the Government. It is an operating unit that falls under a department of the Government and has no separate legal personality. The Government controls all functions, funding, decision-making, and policy formulation. Some notable departmental undertakings include Indian Railways, Post and Telegraph Services, and Defence Ordnance Factories. All these organisations directly operate under the Government’s supervision and contribute very much to the welfare of the public and economic growth.
In this article, we’ll discuss the definition of a departmental undertaking and its characteristics, advantages, and disadvantages. We will also learn why people, in any work, must always be alert to how the departmental undertakings function since they affect all aspects of society and the economy.
What is Departmental Undertaking?
The state owns a departmental undertaking; however, it’s believed to deliver an improvement to the state department. They are not held any legal identity by the Government. Their finances and policies are everything controlled by government officials. In short, this departmental undertaking is mainly for providing key public services to the state rather than serving profits.
These enterprises are owned and managed by ministries of the Government, so they operate according to the country’s national policies and public welfare requirements. A few of these departmental undertakings include Indian Railways and the Postal Department, which mail and communicate daily with millions of persons. All these business ventures raise their finances from the Government through budgetary allocations annually, and any surplus revenue earned goes to the government treasury.
Since the Government owns a departmental undertaking, it is strictly bound to rules and procedures on the administrative side. That is one facet of efficiency and accountability that, at times, can delay bureaucratic procedures. Examples of departmental undertakings, however, go a long way in the development of any economy by offering all the essential services to every citizen, including those staying in remote locations.
Features of Departmental Undertaking
There are marked characteristics that will make this a departmental activity and not part of the rest or other business forms. They provide operating efficiencies within government control and maintain this service mission under their flag.
Within Complete Governmental Control
It is a fully owned, controlled, and operated government agency. Its policy, administration, and finance are decided by the ministry of the Government in which it operates. Departmental undertakings are not equipped with a board of directors or independent management group like private companies.
Lack of Separate Legal Entity
A departmental undertaking is not a legal entity; it does not stand separately from the Government. It cannot enter into contracts, own property, sue and be sued in its name. All its activities are carried out in the name of the Government. Therefore, all losses, liabilities, and debt incurred by the undertaking are the responsibility of the Government.
Funded From the Government Budget
A departmental undertaking cannot raise its funds. It is wholly financed directly from the government budget. Its revenue and expenditure are always charged against government accounts, and surplus earnings form part of the treasury. The undertaking thus operates strictly within the limits prescribed by the Government.
Public Service Before Profit
While private sectors rely on a profit maximisation principle, a departmental undertaking relies on rendering crucial services to the masses. It mainly emphasises proper service distribution, from transportation to communication and defence. For instance, examples of departmental undertakings include postal services offered by India, such that mail delivery becomes cheaper and easier for people living in the rest of the country.
Government Staff
The employees recruited from departments are government employees. Their recruitment goes through government recruiting processes, and the pay structure also remains as per government regulations for pay scale, allowance, and others. They work as departmental employees entirely bound by government rules; their accountability level and job security also become higher than any other employment from private industries.
Strict Accountability and Monitoring
Being a governmental enterprise, a departmental undertaking attracts more critical reviews and accountability. The authorities always watch the performances of these organisations, and they function in well-organized policy frameworks and government directives. Of course, the plus side also gets enjoyed as transparency sometimes makes it drag through heavy red tape, which sometimes becomes time-consuming.
Departmental Undertaking Vs Other Modes of Public Enterprise
Public Enterprise can be broadly categorised into three types based on the structure and degree of its autonomy and Financial Autonomy- Departmental undertaking, Public or Statutory corporation, and Government company. All have standard features and advantages and disadvantages. A Summary comparison of three types is listed below:
| Criteria | Departmental Undertaking | Public Corporation | Government Company |
| Ownership | Wholly owned by the government | Owned by the government but operates independently | The government holds at least 51% of the shares |
| Legal Identity | No separate legal identity | Separate legal entity | Separate legal entity |
| Management | Managed by a government ministry | Managed by a board of directors | Managed by a board of directors |
| Funding | Financed through the government budget | Generates its revenue but may receive government aid | Raises capital through shareholding |
| Decision-Making | Government-controlled, slow decision-making | Independent decision-making | More autonomy than departmental undertakings |
| Profit Motive | No profit motive focused on public service | Partially profit-oriented along with public welfare | Profit-driven along with public service |
| Examples | Indian Railways, Indian Post, Defence Ordnance Factories | Life Insurance Corporation (LIC), Airports Authority of India (AAI) | Hindustan Aeronautics Ltd, ONGC |
Advantages of Departmental Undertaking
A departmental undertaking offers various benefits, making it an effective tool for delivering vital public services. The benefits promise the smooth running of government enterprises and citizen welfare.
Citizen Welfare
The essential advantage of a departmental undertaking is service for public benefit. As the undertaking happens to be the Government, the first concern is the supply of services instead of profits in the form of dividends to its shareholders. Take examples like transport, postal communication, defence, and services whose rates are so low that ordinary people enjoy the benefit of such utilities.
Direct Government Control Increases Efficiency
Since the above enterprises are under governmental control, all their policies relate to national interest. The Government ensures that these enterprises work effectively and meet the people’s requirements. Such control does not permit mismanagement but ensures the use of funds collected from the people.
No Financial Risk for the Organization
A departmental venture does not take financial risks associated with private corporations. Since the Government finances it, such an enterprise does not require itself to issue shares or become profitable. They have funds based on the governmental budget, so they are financially secure and always working.
Reliable and Stable Services
In the case of the Government taking a departmental venture, the services provided are stable and reliable. Railway transport, as well as postal communication, reaches villages as well as remote areas. Departments do not shut down as private companies would close their departments in the event of financial losses and thus break service to the public.
High Accountability and Transparency
A departmental undertaking adheres to the strict policies of the Government. This makes the department responsible and transparent. The operations are free from fraud and corruption through regular audits and government monitoring. In this manner, the enterprise is trustworthy and reliable for the citizens.
Disadvantages of Departmental Undertaking
Though a departmental undertaking has its advantages, it also has several disadvantages. Excessive government control, bureaucratic delays, and lack of innovation cause these disadvantages.
Bureaucratic Delays Slow Down Operations
Over-bureaucracy is one of the significant drawbacks of a departmental venture. Being government-regulated, such ventures are characterised by delayed decision-making and implementation. All critical decisions have to pass through higher authorities, which hurts operations.
Lack of Financial Autonomy
A departmental undertaking depends upon the government fund, so it cannot be that flexible about the funds. Since a government enterprise does not generate revenue, it has to follow the budget, whereas a private enterprise generates revenue by producing many goods or services. When the Government reduces its funds, services provided by this undertaking may become weak.
Fewer Innovations and Technology
Government undertakings are mainly focused on essential minimum services and do not have any competition in the market. Therefore, the company will lag behind innovation and technology. A private firm invests money in R&D and other sectors, whereas in departmental undertaking, because of less budgeting and bureaucratic hassles, they might adopt old methods while performing routine jobs.
Poor Resource Exploitation
Since the motive of taking a departmental activity is neither profit nor loss, it can’t utilise resources efficiently. In the case of government employees, fixed wages and benefits are received irrespective of performing well or less, and the result is often inefficient. Lack of competition also increases motivation and productivity.
Higher Costs
Since government undertakings have to follow very rigid administrative and labour laws, their operation is expensive. Compared to a private enterprise, a departmental undertaking can be more costlier because of the heavy restrictions built around it. This may include inefficiency in financial management and waste more resources.
Departmental Undertaking FAQs
1. What is a departmental undertaking?
One of the Government-owned enterprises is a departmental undertaking. It functions directly under a Government Department. Such an enterprise lacks separate legal identities and is wholly under the direct control of the Government for providing most of the indispensable public services.
2. State 3 Characteristics of Departmental Undertaking.
The characteristics of the departmental undertaking are that it is government ownership, there is no separate legal existence, there is government appropriation, and it shall focus on public welfare.
3. What is a departmental undertaking?
Indian Railways is one of the most common examples of a departmental undertaking, which provides transport services all over India under government control.
4. What are the disadvantages of a departmental undertaking?
The main disadvantages include bureaucratic delays, financial dependence, lesser innovation, unproductive use of resources, and high operational costs due to stringent government regulations.
5. Why is the departmental undertaking significant?
The departmental undertaking is significant as it ensures government control over essential services, maintaining public welfare, accountability, and economic stability.
