Merits and demerits of departmental undertakings

Merits

• Achievement of Objectives: Departmental undertaking is in the direct and complete government control over them which makes it easy to achieve its economic, political and social objectives.
• Direct control: The management of the enterprise can be regulated the way the ministry likes because it exercises a direct control on the administrative staff of the enterprise.
• Suitable for Public Utilities and Defence Industries: Departmental undertaking is the oldest form of managing public enterprises.
• Secrecy: Government departments, being directly under the control of concerned ministry, are in a position to keep the secrets intact. This is especially necessary from national security point of view.
• Revenue: The revenue earned by these departments’ acts as a source of income for (he government, as it goes directly to government treasury.
• Fair Practices: As departmental undertakings are under direct control of Parliament, there are fewer chances of fraudulent and unfair practices.
• Strict audit control: The risk of misuse of public money is further minimised, as these are subject to strict accounting of audit controls.
• This form was favourably chosen for those activities that were either yielding revenue to the government, eg., ordinance factories.
• Most of the non-profit earning public utility services are also organised as departmental enterprises because their budgets are substantially subsidised by the State.
• Useful in Stable Government: Departmental undertaking is most suited to India because the risk of misuse of public money is very much reduced due to direct control of the Ministry concerned and the CAG.

Demerits

• Due to excessive government control and lack of financial and administrative autonomy, this form of government enterprises suffers from some serious limitations.
• Delayed Derision-making: Centralisation in departmental undertaking delays decision-making process. Decisions are also delayed due to red-tapism and excessive adherence to rules and regulations.
• Inflexibility of Operation: It becomes difficult to bring about major modifications, reformation and innovation which are needed time to time because departmental management suffers from the rigidity of operations.
• Personal Motives: Departments are not able to take independent decision without the consent of ministries which are more concerned about their personal motive rather than commercial motives of organisations.
• Lack of Autonomy: Under the departmental undertaking, the control lies in the hands of the government officials, who work according to laid down procedures that results in delays in taking important decisions.
• Absence of competition and profit motive makes departmental organisations inefficient and irresponsive to consumer needs. This may ultimately harm the government enterprise.
• Political Interference: There is a lot of political interference in departmental undertakings through ministerial control.
• Poor Management: Departmental organisations suffer from lack of initiative and motivation. Promotions are seniority based rather than merit based.
• No Incentive to maximise its Profits: Since Departments has no power to utilise its resources for maximizing the profit, Political considerations weigh more than sound economic and commercial considerations in determining their policies.
• Undertakings tend to raise the economic power of the government to the maximum and reduce initiative and flexibility required of a business adventure to the minimum.
• Insensitivity to Consumer’s Needs: Under departmentalism, the officials rarely care for this important aspect of business and are generally negligent towards the needs of the consumers.