Sample Material of Public Administration Study Kit: Public Sector Undertakings: Problems of control

Sample Material of Public Administration Study Kit (Paper - II)

Public Sector Undertakings: Problems of control


The problem of control of public enterprises is thus not of a single uniform pattern. The channels of control vary with the organizational form of the enterprise. Even the substantive content of control varies from one public enterprise to another according to its exact socioeconomic role. Lastly, the very history of the organization of an enterprise in the public sector sometimes has a bearing on the system of control. Thus, while a departmental undertaking is under the full control of the minister, companies and corporations are free of detailed ministerial or parliamentary control and enjoy a large measure of operational autonomy. Secondly, there is no significant difference in the matter of control between statutory corporations and government companies. Thirdly, there exists some confusion in the matter of division of responsibilities between the government and the management of the enterprise in the field of public accountability. Instruments of Control Public control over public enterprises is exercised through three main agencies - the minister, the parliament and special agencies.

Ministerial Control

Generally, the ministerial Control is exercised in the fields of administration and finance. .In the administrative field the controlling powers of the minister concerned are exercised in the following matters:

1. The power of issuing directives is by far the most important power to be exercised by a minister. Clause 48 of the Damodar Valley Corporation enjoins upon it to be guided by such instructions on questions of policy as may be given to it by the Central Government. A sub-clause of the same clause lays down that, if any dispute arises between the Central Government and the Corporation as to whether a question is or is not a question of policy, the decision of the Central Government shall be final.

2. The government can institute enquiries into the working of a corporation. Such an inquiry committee was appointed in the case of the Damodar Valley Corporation in 1952.

3. The government is authorized to frame rules and regulations to facilitate the working of these enterprises. It can prescribe forms, lay down procedures and even prescribe the activities to be undertaken.

4. If a particular board of management fails to carry out the purposes for which it was set up or if it fails to carry out the directives issued by the government, the latter can supersede it and appoint a new board.

5. Under certain conditions, the government can remove from office any member of the management board.

6. The government is empowered to appoint the chairman and members of the board of management and the managing director. In addition, the government retains the power of approval of appointment to posts carrying salaries above a certain limit, namely, Rs. 2,250 a month.

Ministers exercise control over the working of public undertakings in the financial field as follows:

1. The government also controls the fixation of prices of goods produced by the enterprises as well as the quantum and rate of payment for services rendered. These matters cannot be settled on purely economic grounds and wider issues of public interest have to be kept in view.

2. The approval of the government is required regarding the forms for maintaining the accounts of the enterprise and for their audit. Usually the audit of accounts is done by the auditors appointed by the government.

3. The sanction of the government is necessary to (i) sanction capital expenditure above a certain amount, (ii) for approving variation in estimates of over 10%, and (iii) for matters connected with borrowings, investments, securities, distribution of profits, etc. For instance, in the case of the Hindustan Steel (Private) Limited, approval of the central government is necessary for increase of capital, issue of new shares, reduction of capital, borrowing of money and its terms, issue of bonds, debentures and other securities, any programme of capital expenditure for an amount exceeding Rs. 40 lakhs, winding up of the company, etc.

4. Ministers are authorised to appoint a financial adviser on the governing board of a corporation. Such adviser, as has been described above in the case of the DVC, exercises a sort of veto over matters affecting expenditure and the financial policy of the government.

Parliamentary Control

Public enterprises are owned by the state and are created by investment from public funds and must, therefore, be subject to the accountability to which all activities financed from public funds are subjected, namely., to the parliament which is not merely the custodian of public funds but also represents the shareholders, that is, the tax-payers. “The relation between the Parliament and public enterprises has to be considered within the overall equation of the parliament-ministerenterprise relationship. Members of parliament feel a keen sense of responsibility for the efficiency and achievements of public enterprises. They, therefore, want ministers to answer for the
shortcomings and difficulties and failures of the public enterprises. Faced with this detailed and continuous scrutiny by parliament, the responsible minister has little choice but to keep himself informed on all matters that relate to a public enterprise including matters of day-to-day administration."

Report on Public Undertakings, any act or omission of an act, which directly affects the fulfilment of (prescribed) objectives and obligations cannot be described as a mere matter of day-today administration. In the same way, all matters except those which have a bearing on any established policy of government, should ordinarily be treated as matters of routine administration. Parliamentary control over public enterprises is exercised principally through questions, adjournment motions, debates and parliamentary committees. We shall now briefly discuss these instruments.

Questions: There has been considerable discussion on the scope of admissibility of questions relating to the working of public corporations and government companies and certain broad principles have been laid down. These principles and guidelines do not make any distinction between a corporation and a company.

Debates: The performance of public undertakings can form the subject of debate in parliament in several ways, namely, raising half an hour discussion or of two hours’ debate on any enterprise, moving a motion of adjournment if the matter is of urgent public importance, debate on the president’s address, debates on bills and resolutions, and budget debates.

Reports: Every statutory corporation is obliged under law to submit an annual report on its policies, activities and programmes during the previous year to the government. This report is also expected to indicate the nature of activities and programmes to be undertaken next year. A copy of such a report together with the report of the auditors is laid before both houses of parliament.

Parliamentary Committees: The parliamentary committee on Public Undertakings consists of not more than fifteen members, ten from the Lok Sabha and five from the Rajya Sabha, elected by the concerned house every year from amongst its members according to the principle of proportional representation by means of the single transferable vote. However, a minister cannot be elected as a member and in case a member of the committee becomes a minister in future he ceases to be a member of the committee with immediate effect. The term of office is one year but there is no bar to re-election of the same members. One of the members is elected as the chairman of the committee.


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