Financial independence – This type of enterprise is usually independently financed. Therefore, it may change its strategies and policies as required by the changing business environment. Law Enforcement 9. It delays the decision making. The disagreement with the professionals further delays decision making. 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 … Also, there are many types of public sector organizations such as departmental undertakings, government companies etc. Operations must be flexible for the smooth functioning of business. There are certain limitations or demerits of a departmental undertaking which are as follows: A departmental undertaking has no autonomy. Where absolute Government control is required because of the strategic nature of activities, for example, communication, broadcasting, public utilities, etc. Some of the drawbacks of departmental undertakings are as below: 1. Though the composition of every country's public sector … Web. Where the Government acquires a private sector company because of its mismanagement to protect the interests of the minority shareholders. Government spending types Example Social protection Personal social services Health Transport Education Defence Industry Agriculture, and Employment Housing and environment Public order and safety Debt interest Recreation, culture and religion Public sector pensions Ownership – These are owned and controlled by Central or State governments. There can’t be any misutilisation of funds. Appointments – These undertakings act through government officers. There is no need for registration and completion of legal formalities. Statutory Corporations are public sector enterprises brought into existence by a Special Act of the Parliament which defines its powers and functions, rules and regulations governing its employees and its relationship with government departments. Public Accountability – A Government company has public accountability. The public sector might provide services that a non-payer cannot be excluded from (such as street lighting), services which benefit all of society rather than just the individual who uses the service. Evades constitutional responsibility – It evades constitutional responsibility, which a company financed by the government should have. Safety and security. This is a fundamental feature of the bureaucracy which the Governments adopt. These are free from unnecessary and undesirable government interference and regulations. A departmental undertaking generates revenue for the Government because any surplus of the undertaking is treated as budget revenue. A statutory corporation is a separate legal entity with perpetual succession and a common seal. A statutory corporation has financial independence. The Act defines their powers, functions, rules and regulations of governing them. 6. Delay in Decision Making – Officers of such departmental undertakings are not allowed to take independent decision without the approval of concerned ministers. Social Service Motive – Their main aim is social service and their secondary objective is earning profit. The Government gets enough funds and there is little need for taxes. Government employees – The employees of the enterprise are Government servants and are headed by Indian Administrative Service (IAS) officers and civil servants who are transferable from one ministry to another. It works almost like a government department with the help of officers from the Indian Administrative Services (IAS). Once the coverage of the public sector is clearly defined, there is a need to classify public sector entities as either engaging in market or non-market production, i.e., as being in the public corporations sector or general government sector respectively. Though key personnel at the top management level are appointed by the concerned Government, the internal management process is designed by the corporation itself. 2. These persons may not be relevant to the business operations. The control is exercised in two forms- audit of accounts of the corporation by an auditor appointed by the Government and discussion of its performance in the Parliament or State Legislature. Unionised public-sector workers are also far more likely to have secure working conditions than private-sector and non-unionised workers. 10. companies are established for business purpose and these can compete with companies in private sector. These are created for merely business purposes and may be formed as a private limited company or a public limited company. It can be a wholly owned Government Company where all shares are held by the Government. It is generally exempted from the rigid rules applicable to the expenditure of public funds. This monopoly may be abused and may result in poor service to the public. Private sector companies are companies which are not run by the government. Separate legal entity – The company can file a suit in a court of law against any third party and be sued. National (an independent state). 9. There is quick decision-making in a statutory corporation because it is free from red-tapism. The employees of such organisations are not government employees. Its accounts are audited by a statutory auditor, for example, Comptroller and Auditor General of India in the case of Central Government’s statutory corporations. Retrieved June 10, 2017, from, This page was last edited on 12 January 2021, at 23:10. Government control – The main purpose of a government company being registered like other companies, is defeated as the management and administration rests in the hands of the government since government is the sole shareholder. These can sue and be sued. 5. For designing its management process, the company is free to do so. 1. The various features of a departmental undertaking are described below: i. iv. Such proficiency and initiative are not found in bureaucratic directors of a government company. Their employees are appointed through Union Public Service Commission and Staff Selection Boards. 4. Directors are appointed according to the provisions of the Acts. Legal entity – A statutory corporation is a body corporate and can sue and be sued, enter into contract and acquire property in its own name. 3. Thus, the economic development is ensured. The public school system, for example, provides education to members of the general public, while the police ensure the public's safety and enforces a country's laws. Whenever any change is required in any of these, an amendment to the concerned Act is required which is very time-consuming. The Act (also known as statute) defines the objectives, powers and functions of the corporation. They are the part of a country’s economic system and is run by individual and companies with the intention to earn the profit. In many cases, the Directors of a Government company are selected not on the basis of competence but on other criteria. Examples of public sector activity range from delivering social security, administering urban planning and organizing national defenses. Delay in decision making – There may be delays in matters where prompt decisions are required as the decisions cannot be taken by the employees or heads of departments independently without the approval of the ministry concerned. Memorandum of Association contains the objects of the company and Articles of Association contains its rules and regulations. 2. Delayed decisions – Due to the practice of appointing advisors to the Corporation Board by the government the freedom of the corporation in entering into contracts and other decisions is curbed. (d) Joint Enterprise. ii. Government Companies. 3. Appointments of Employees – Its employees are appointed according to its own rules and regulations as contained in its Memorandum and Articles of Association which contain objective and internal rules and regulations of company respectively. The general definition of the public sector includes government ownership or control rather than mere 2. 1.1 The Public Sector comprises all organisations operated directly or indirectly by the government or local services. 6. This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. Public sector business cases for projects, http://blog-pfm.imf.org/pfmblog/2008/02/a-primer-on-pub.html#more, http://www.privacysense.net/terms/public-sector/, Civil service reform in developing countries, https://en.wikipedia.org/w/index.php?title=Public_sector&oldid=999983916, Creative Commons Attribution-ShareAlike License. Government does not interfere in day to day working of these corporations. Fire Service 5. No Say of Minority Private Shareholders – The private shareholders are in minority. Organizations that are not part of the public sector are either a part of the private sector or voluntary sector. types of Public Sector organizations Public sector organizations may exist at any of four levels: International (multistate entities or partnerships). The various merits of the government companies are described below: i. Industries. Most of the Governments have deficit financing leaving much lower scope for allocating funds to departmental undertakings. A Government company is established under The Companies Act, 2013 and is registered and governed by the provisions of the Indian Companies Act. For example, Reserve Bank of India is free to decide bank rate, cash reserve ratio, etc., according to the needs of business environment. and are associated with a particular ministry. Its surpluses are also part of the concerned budget. private … Control – These are considered as a major sub-division of a ministry of Government and are under direct control of the minister. Corruption – Rampant corruption exists is where dealing with public is involved. The annual reports of the Government companies are placed before the Parliament or State Legislature. When it is partially held by the Government, there is more than 50 per cent shareholding of the Government. This leads to increase in cost of projects. Public employee unions represent workers. The various limitations of a statutory corporation are explained below: i. A statutory corporation has an independent accounting system and is not subject to budgetary, accounting and audit applicable to Government departments. A statutory corporation has an independent management and is managed by a Board of Directors. v. Accountability – Since their management is directly under the concerned ministry and are accountable to the ministry. It is managed in the same way as a Government department is managed. It is done by professional chartered accountants as in other commercial establishments. 3. Usually, a statutory corporation has to work under a rigid structure because its objectives, powers and functions are prescribed by the Act. Therefore, these resources are allocated based on actual needs, and budgetary control is exercised to ensure that the money is used for the same purpose for which it is allocated. It can hold property in its own name. conducted in different type of organisations, those two areas are the profit oriented organisations to the non-profit oriented organisations the profit that is profit oriented organisations is focused by a name on making money. It is free to utilise its profit in the way provided by the relevant Act. iv. v. Political interference – There is a lot of political interference through the ministry. They do not have any independent legal entity or have been established as autonomous or independent institutions. The Act defines the objects and privileges of these statutory corporations. The government is the majority shareholder in these enterprises and it exercises full control over paid up capital of the company. Protection of Public Interest – A Government company often works in a competitive environment. Paying for Europe’s healthcare infrastructure in a recession. Examples of Government companies are- Indian Oil Corporation Limited, Bharat Sanchar Nigam Limited, Gas Authority of India Limited, etc. Thus, it is ensured that the public money is properly utilised. These can purchase property in their own name and enter into contracts with third parties, and the contracts will be legally bound. Therefore, it is in a better position to work according to the prescriptions set by the Government. Audit Procedure – These companies are also subject to accounting and audit procedures. These are provided in the Act according to the specific needs of the corporation. Financial resources of a departmental undertaking are allocated through budgeting process of the Government. Difference Between Public And Private Sector Organization 740 Words | 3 Pages. These companies are established for business purpose and these can compete with companies in private sector. Share Your Word File It becomes difficult to pay back these loans. Lack of Continuity in Policies – The chairman and senior officers of government companies are frequently changed. As a result, incompetent persons sometimes find a place on the Board of Directors. It is not answerable directly to the Parliament. Privacy Policy3. ii. iii. Postal Service 11. When some kind of monopoly is required in performing the activities. 5. Public sector companies serve the purpose of providing basic public services to larger people whereas private sector companies are entirely profit-driven. It is allowed to raise funds from share market. Its shares are purchased in the name of President of India. 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