Merits and demerits of departmental undertakings

  • 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.


  • 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.
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