Departmental undertakings are the oldest among the public enterprises. A departmental undertaking is organised, managed and financed by the Government. It is controlled by a specific department of the government. Each such department is headed by a minister. All policy matters and other important decisions are taken by the controlling ministry. The Parliament lays down the general policy for such undertakings.

Features of Departmental Undertakings

The main features of departmental undertakings are:

  1. It is established by the government and its overall control rests with the minister.

  2. It is a part of the government and is managed like any other government department.

  3. It is financed through government funds.

  4. It is subject to budgetary, accounting and audit control.

  5. Its policy is laid down by the government and it is accountable to the legislature.

Merits of Departmental Undertakings

The following are the merits of departmental undertakings:

  1. Fulfillment of Social Objectives: The government has total control over these undertakings. As such it can fulfill its social and economic objectives. For example, opening of post offices in far off places, broadcasting and telecasting programmes, which may lead to the social, economic and intellectual development of the people are the social objectives that the departmental undertakings try to fulfill.

  2. Responsible to Legislature: Questions may be asked about the working of departmental undertaking in the parliament and the concerned minister has to satisfy the public with his replies. As such they cannot take any step, which may harm the interest of any particular group of public. These undertakings are responsible to the public through the parliament.

  3. Control Over Economic Activities: It helps the government to exercise control over the specialised economic activities and can act as instrument of making social and economic policy.

  4. Contribution to Government Revenue: The surplus, if any, of the departmental undertakings belong to the government. This leads to increase in government income. Similarly, if there is deficiency, it is to be met by the government.

  5. Little Scope for Misuse of Funds: Since such undertakings are subject to budgetary accounting and audit control, the possibilities of misuse of their funds is considerably reduced.

Limitations of Departmental Undertakings

Departmental undertakings suffer from the following limitations:

  1. The Influence of Bureaucracy: On account of government control, a departmental undertaking suffers from all the ills of bureaucratic functioning. For instance, government permission is required for each expenditure, observance of government decisions regarding appointment and promotion of the employees and so on. Because of these reasons important decisions get delayed, employees cannot be given instant promotion or punishment. On account of these reasons some difficulties come in the way of working of departmental undertakings.

  2. Excessive Parliamentary Control: On account of the Parliamentary control difficulties come in the way of day-to-day administration. This is also because questions are repeatedly asked in the parliament about the working of the undertaking.

  3. Lack of Professional Expertise: The administrative officers who manage the affairs of the departmental undertakings do not generally have the business experience as well as expertise. Hence, these undertakings are not managed in a professional manner and suffer from deficiency leading to excessive drainage of public funds.

  4. Lack of Flexibility: Flexibility is necessary for a successful business so that the demand of the changing times may be fulfilled. But departmental undertakings lack flexibility because its policies cannot be changed instantly.

  5. Inefficient Functioning: Such organisations suffer from inefficiency on account of incompetent staff and lack of adequate incentives to improve efficiency of the employees.