(Online Course) Pub Ad for IAS Mains: Chapter: 3 (Public Sector Undertakings) - Forms of Public Sector Enterprises (Paper -2)

The organisation provides the framework, which substantially shapes interrelationships amongst the public enterprises as well as the government. The following are the major organisational forms of the public enterprises.

Departmental Organisation

It was, at one point of time, the prominent form of organisation of the public enterprises for two reasons. First; it was easy for a government to create an enterprise within the organisational framework of one of its already • existing departments. Secondly, in the initial stages of developmental planning, the -lumber of such enterprises with commercial functions was small.

The Major characteristics of Departmental enterprises are:

(a) The enterprise is financial by annual appropriation from the treasury and all or major share of its revenues are paid into the treasury.

(b) The enterprise is subject to budget accounting and audit controls applicable to other government activities.

(c) The permanent staffs of the enterprise are civil servants, the method by which they are recruited and the conditions of service under which they are employed are ordinarily the same as for other civil servants.

(d) The enterprise is generally organised as a major sub-division of one of the central government departments and is subject to direct control of the head of the department.

(e) Wherever this applies in the legal system of the country concerned. the enterprise possesses the sovereign immunity of the state and cannot be sued without the consent of the government.

Public Corporation

It is an autonomous form of the organisation “clothed with the power of the government, but possessed with the flexibility and initiative of-private enterprise” according to F.D. Roosevelt. the President of USA while discussing the Tennessee Valley Authority. Public Corporation may be understood in general terms as an autonomous commercial organisation established at government’s insistence outside the framework of government department and company legislation.

The following are the major characteristics of Public Corporations.

1. It is wholly owned by the State.

2. It is generally created by, or pursuant to, a special law defining its powers, duties, immunities and prescribing the form of the management its relationship to established departments and ministries.

3. As a body corporate, it is a separate entity for legal purposes and can sue and be sued, enter into contract and acquire property in its own name.

4. Except for appropriations to provide capital or to cover losses, a public corporation is usually independently financed.

5. It is generally exempted from most regulatory and propitiatory statues applicable to expenditure of public funds.

6. It is ordinarily not subject to budget accounting and audit laws and procedure applicable to non-corporate agencies.

7. In majority of cases employees of public corporations are not civil servants and recruited and remunerated under terms and conditions, which the corporation itself determines.

8. It may not be wholly owned by the State.

9. Every public corporation need not be the result of a special enactment.

10. Some of the restrictive regulations applicable to government departments expenditures and the audit system can also be imposed on pull corporations.

11. Some of the employees of public corporations, specially at the top level are from the civil services.

Government Company

The joint stock company is another organisational form of public enterprises. The ‘company form’ which may also be called a `government company’ is described in many countries as an enterprise registered under the Companies Act of the land in which the government and/or public enterprises hold at least 51 per cent of equity capital.

Advantages of Government Companies are as follows.

1. A government company is far easier to constitute than a public corporation, which requires specific legislation, while only seven signatories of the memorandum and articles of association are required to get a company, registered under the Companies Act in India.

2. The company farm enables the government to diversify its ownership in the company by either selling or buying equity shares. It can easily transfer the company to private sector by simply reducing its share capital to less than 50%.

3. The creation of a company form of public enterprise suggests the government’s will to allow the public enterprise to work under the same set of law as those applying to private sector enterprise.

4. The company form of organisation of public enterprise gives certain conveniences to government as far as its relationship with the enterprise is concerned.

Joint Enterprise

State participation in an economic activity along with the private sector has led to the creation of a specific type of organisational form, which is known as joint enterprise.

Factors responsible for the emergence of Joint Enterprises.

1. Government will to set up joint enterprises with private sector may be in context of the following situations:
   
   (a) Lack of initiative to participate in the private enterprises which can be secured by government’s participation; or
   (b) Government wants to conserve its limited resources and invite private capital so that the government can extend its coverage to more fields in the public sector.
    

2. The government’s decision to enter into partial ownership of a going, private enterprise may in the following situations.

3. For conversion of loans of the private sector into equity capital

4. For regulating the monopolistic operations or public interest potential or a enterprises;

• For overcoming the ‘sickness’ or `mismanagement’ of a private enterprise

• For governing profit in case of a private enterprise;

• For continuation of previous management, in case of nationalisation of private. enterprise; and

• For limiting cost compensation, in case of nationalisatioin or foreign private enterprise.

There has been a progressive increase in the number of, joint enterprises the world over, especially in the wake of privatisation wave.

Development Corporation

It is difficult to exactly define ‘Development Corporation’. On the basis of empirical evidence world over, especially in the developing countries, it may signify an autonomous agency-in the public sector, primarily to promote, rather than to operate, economic activities through a system of subsidizing.

The promotional activity of a Development Corporation is as follows.

1. It promotes an activity which otherwise might not come into existence.

2. It accelerates an activity which otherwise‘ would materialise at a small outputs and in a sectorally unbalanced manner.

3. It promotes a desired pattern of economic activity, meaning thereby the expansion of desired sector of activity, promotion of unites of desired sizes, attainment of desired balance of payments, development of certain economic activity in the desired region, etc.

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