The oldest and most traditional form of organizing public sector enterprises, established as departments of the ministry and are considered part or an extension of the ministry itself.Identify and discuss its merits and limitations.
Departmental undertakings are the oldest and most traditional form of organising public sector enterprises which are established as departments of the ministry and are considered part or an extension of the ministry itself.
Merits
(i) Easy Formation It is very easy to set up departmental undertakings as no registration or special law is required to create such enterprises.
(ii) Government Control Such undertakings are directly controlled by the State or Central Government. Thus, they are more effective in achieving the objectives laid down by the government.
(iii) Suitable for National Security It is most suitable for operations where national security is concerned, because of direct control of ministry.
Limitations
(i) Lack of Flexibility A departmental undertaking functions under strict parliamentary control which reduces the flexibility and efficiency of operations.
(ii) Financial Dependence All the earnings and profits of such undertakings are deposited in the government treasury. They cannot take long-term investment decisions. They totally depend on the mercy of the government.
(iii) Red Tapism There is red tapism in day-to-day operations and no action can be taken unless it goes throtigh the proper channels of authority.