Everything you ought to know about Government Companies

A Government company is a company in which not less than 51 per cent of the paid-up share capital is held by the Central Government or by one or more State Governments or jointly by the Central and State Governments.

It is formed and registered under the Companies Act, 1956 which contains special provisions relating to Government companies.

A Government company may be either a public company in which both Government and private investors hold shares or a private company which is wholly owned by the Government.

In India most of the Government companies are private companies and their entire share capital is subscribed by the Government. Government companies are sometimes known as mixed ownership companies.

Some examples of government companies are Hindustan Insecticides Ltd, Hindustan Antibiotics Ltd, Hindustan Cables Ltd, Indian Drugs and Pharmaceuticals Ltd, Indian Telephone Industries Ltd. Indian Oil Corporation, Steel Authority of India Ltd (SAIL), Sindri Fertilizers Ltd, and State Trading Corpo­ration of India.

Features: The main characteristics of a government company are as follows:

1. Incorporation:

It is registered or incorporated under the Companies Act.

2. Separate legal entity:

It is a body corporate independent from the Government. It can acquire property, make contracts, sue and be sued in its own name. It enjoys perpetual existence.

3. Ownership:

It is wholly or partly owned by the Government. Where it is partly owned, the share of the Government is at least 51 per cent of the total share capital.

4. Management:

It is managed by a Board of Directors nominated by the Government and other shareholders.

5. Own Staff:

Its employees are not Government servants. Their appointment and service conditions are independently decided by the Government Company itself. The are not governed by civil service rules.

6. Financial autonomy:

It enjoys borrowing powers. It is not subject to budgetary, account­ing and audit controls applicable to Government departments.

7. Accountability:

It is accountable to the ministry or department concerned. Its annual report is placed before the Parliament or the State Legislature as the case may be.

Merits: The advantages of a Government company are given below:

1. Easy formation:

It can be easily formed as no separate statute is to be passed in the Parliament or State Legislature, It can be created by an executive decision of the Government.

2. Internal autonomy:

It is relatively free from bureaucratic control and political interfer­ence in day-to-day functioning. It is a separate entity and autonomous body.

In the absence of direct ministerial control, it can manage its affairs independently. It can be operated on commer­cial principles, and can be sensitive to the needs of consumers.

3. Flexibility of operations:

The objects, powers and organisational set up of a Government company can be altered easily as no stature has to be emended; only the provisions of the Companies Act have to be observed.

The company can take prompt decisions regarding manage­ment, finance and other related matters. Wherever necessary, the Government can exempt it from the provisions of the Companies Act, subject to the approval of Parliament.

4. Expert management:

It can appoint professional managers on high salaries. It can offer better conditions of service than those available to government officers. Therefore, efficiency of management can be high.

A Government company’s working can be compared with similar com­panies in the private sector. Parliamentary discussions on its annual reports tend to make the management cautious and efficient.

5. Prompt decision:

The management of a Government company can take quick decisions required for successful working of business.

6. Collaboration:

It is the only form of organisation by which the government can avail of the managerial skill, technical know-how and capital of the private sector and foreign counties. It can have access to global markets.

7. Public accountability:

The annual reports and working of government companies are discussed and debated in the Parliament. Therefore, it is accountable to the public and its man­agement has to remain alert.

8. Statutory discipline:

The management of a government company is governed by the Companies Act. The healthy discipline of the Act helps to keep the management active and efficient. It puts the enterprise at par with a private enterprise.

9. Financial control:

A Government company can have its own financial policy and control. It is free from Government regulations regarding accounting, budgeting and audit. In can ensure better control over its finances.

10. Protection of public interest:

A Government Company can be more sensitive to the changing needs, tastes and fashions of consumers.

Limitations: A Government company suffers from the following drawbacks:

1. Lack of accountability:

A Government company evades its constitutional responsibility to the Parliament. Being the major or sole shareholder, all decisions are under Government con­trol. Annual general meeting, election of directors, audit and other controls become a farce.

The Government can exempt a Government company from several provisions of the Companies Act. The Parliament is not taken into confidence in the creation of a Government company.

Its ac­counts need not be audited by the Comptroller and Auditor General of India. Therefore, a former Auditor General of India has called a Government company “a fraud on the Companies Act and on the Constitution”.

2. Autonomy in name:

The independent character of a Government company exists in paper only. Politicians, ministers and Government officials interfere in its working. Executive agencies of the Government can materially reduce its autonomy.

3. Board packed with yes-men:

The directors of a Government company are appointed by the Government. The board usually consists of politicians and civil servants who may not be able to follow sound business principles.

They are interested more in pleasing their political bosses than in efficient operation of the company. The key officials are often bureaucrats sent on depu­tation from Government departments. They may lack the necessary experience and commitment.

4. Fear of exposure:

The annual reports of government companies are placed before the Parliament. Therefore, their working is exposed to the glare of public and press criticism. The strong phobia of public accountability often results in undue publicity and unwarranted criticism of the companies.

Therefore, the management is often demoralised and does not take initiative to enter new areas of activity. This has an adverse effect on the efficiency and profitability of the enterprise.