Departmental organisation does not fulfill the requirements of autonomy, flexibility and initiative that are so essential for a successful business undertaking. However, it is very suitable in the following cases.
1. Where utmost secrecy is required, e.g., defence production and atomic energy.
2. Where absolute government control over strategic industries is necessary, e.g., broadcasting, telecommunications, public utilities, etc.
3. Where economic control is necessary, e.g. state trading in essential commodities and rationing;
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4. Where the private sector is unable to enter due to huge capital investment, e.g., shipbuilding, aircraft manufacture, iron and steel, etc; and
5. Where the undertaking is to be used as a source of revenue, e.g., Indian Railways. 10.8 Public Corporations
A public or statutory corporation is an autonomous corporate body set up under a special Act of Parliament or State Legislature. The Act or statute defines its objectives, powers and functions. A public corporation seeks to combine the flexibility of private enterprise with public ownership and accountability.
In the words of the late President Roosevelt of USA. “A public corporation is an organisation that is clothed with the powers, of the government, but is possessed of the flexibility and initiative of private enterprise.”
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A public corporation is thus a combination of public ownership, public accountability and business management for public ends.
Life Insurance Corporation of India, Reserve Bank of India, Employees State Insurance Corporation, Industrial Development Bank of India is examples of public corporations.
It must be remembered that an enterprise does not become a public corporation simply by using the word ‘corporation’ in its name. For example, the State Trading Corporation of India is a government company and not a public corporation.
State the features of a public corporation?
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The essential features of a public corporation are as under:
1. Corporate body:
It is a body corporate established through a special Act of Parliament or State Legislature. The Act defines its powers and privileges and its relationship with government departments and ministries.
2. Legal entity:
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It enjoys a separate legal entity with perpetual succession and common seal. It can acquire and own property in its own name. It can sue and be sued and can enter into contracts in its own name. It enjoys perpetual existence.
3. Government ownership:
The public corporation is wholly owned by the Central and/or State Government(s).
4. Financial independence:
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It enjoys financial autonomy. Its initial capital and borrowings are provided by the government but it is supposed to be self-supporting. It can borrow money from the public and is empowered to plough back its earnings.
5. Accounting system:
The corporation is not subject to the budgetary, accounting and audit regulations applicable to government departments. It is generally exempt from the rigid rules applicable to the expenditure of public funds.
6. Independent management:
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A public corporation is managed by a Board of Directors appointed by the Government. However, its employees need not necessarily be civil servants. They can be employed on terms and conditions lay down by the corporation itself.
7. Service motive:
The primary motive of the corporation is public service rather than private profits. It is expected to provide quality goods at reasonable prices. It is, however, expected to operate in a business-like manner of India.
8. Public accountability:
A public corporation is fully accountable to the Parliament or State legislature. Its annual report is submitted to and discussed in the Parliament. Its accounts are audited by the Comptroller and Auditor General of India.
Merits: A public corporation enjoys the following advantages:
1. Operational autonomy:
A public corporation enjoys internal autonomy as there is no Parliamentary interference in its day-to-day working. Therefore, it can be run in a business-like manner.
There is “a high degree of freedom, boldness and enterprise in the management of undertakings and the desire to escape from the caution and circumspection which is considered typical of government departments”.
Freedom from political interference and bureaucratic control encourages initiative and efficiency. There is independent management
2. Quick decisions:
A statutory corporation is free from prohibitory rules applicable to the expenditure of public funds. It can take prompt decisions and easily adjust to changes in technology and market conditions. It has less red tapism and fewer bureaucratic procedures.
3. Motivation:
The service conditions of employees are better than those of Government servants. Therefore, a public corporation can attract and retain talented and experienced managers. There is greater incentive for hard work and performance.
4. Parliamentary control:
The performance of a statutory corporation is subject to scrutiny and discussion by the Parliament. Such Parliamentary control helps in ensuring proper use of public money and improving performance in the public interest. The interests of consumers are protected due to the inherent services motive.
5. Efficient management:
The directors and top executives of a statutory corporation can be drawn from different occupations. Professionals and experts can be appointed at important positions in the corporation.
The corporation can borrow money from the public and thus finance expansion programmes without undue delay. It can be run in a businesslike manner and use its funds with greater freedom.
6. Economies of scale:
A statutory corporation is generally large in size and enjoys monopolistic power. It can easily avail of the economies of large-scale operations. As changes in Government do not affect its stability, it can take long-term decisions. There is continuity of policy.
7. Flexibility of operations:
Being relatively free from bureaucratic control, a public corporation enjoys flexibility and initiative in business affairs. It can experiment in new lines of activity and decisions can be taken without undue delay.
8. Special privileges:
A public corporation is often granted special privileges. The special law by which it is created can be tailor-made to meet the specific needs of the particular situation.
Demerits: A public corporation suffers from the following weaknesses:
1. Difficult formation:
It is very difficult and time-consuming to set up a public corporation because a special law has to be passed in the Parliament or State Legislature.
2. Nominated board:
The directors of a corporation are appointed by the Government. Quite often civil servants are appointed who do not posses required skills and experience in management. As a result, efficiency is low. Lack of competition and profit motive also lead to slackness and inefficiency there is lack of personal touch.
3. Rigid structure:
The constitution of a statutory corporation is rigid. Its objects and powers cannot be changed without amending the statute. Amendment of the statute is a time- consuming and cumbersome process.
4. Abuse of monopoly:
A statutory corporation may misuse its monopolistic power to exploit consumers. It may charge unduly high prices to cover up inefficiency. It may also indulge in antisocial practices causing injury to public interest.
5. Excessive accountability:
There are frequent debates and discussions on the reports and workings of public corporations. Ministerial and political interference in day-to-day working do not allow internal autonomy in actual practice.
6. Clash of divergent interests:
When the Board of directors is constituted to give representation to divergent interests, a conflict may arise. This will hamper the smooth and efficient functioning of the corporation. Emphasis on service motive and lack of incentive may further reduce the profitability of operations.
On the whole, a statutory corporation is a combination of public ownership, public accountability and business management for public ends. It is vested with the powers of the Government but also possesses the flexibility and initiative of the private sector.
It provides a combination of efficient business management and public service. A statutory corporation is suitable for organising large-scale public enterprises of national importance.
The public corporation is also suitable for undertakings requiring monopoly powers, e.g., public utilities. It is also useful for undertakings which involve exercise of power to be conferred by legislature and enterprises which may not be self-supporting and have to be financed by regular grants by the State.