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Forms of Organizing Public Sector

Last updated date: 16th May 2024
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A public sector enterprise is a government company which, as per section 2(45) of the Companies Act (2013), is any company in which the central government (or any state government or governments) holds paid-up share capital of 51% or more. It could be either totally by the central government or in parts by central and state governments. It also includes a company which is a government subsidiary company.

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Introduction to Forms of Organizing Public Sector 

The public sector meaning or concept is a broad one that may include or overlap with not-for-profit or private sector companies. It is a ring of organizations, which keeps expanding with the core government at the centre of it. It is followed by agencies and public enterprises. This ring has grey zones where lies the publicly-funded contractors or publicly owned businesses, that might, or might not be part of the public sector.

The public sector owes the responsibility of fabricating the infrastructure of different sectors of the economy and providing goods and services which are vital for the company. In the initial stages of the development of public sector companies, the five-year plan gave them a lot of significance.

Levels of Public Sector Organizations

The public sector organization may exist at different levels which are:

  • International - Multi-State entities or partnerships.

  • National - This encompasses an individual state.

  • Regional - Its area is a province or state within the national state.

  • Local - This is a body at the municipal level for example a county.

Different Forms of Organizing Public Sector Companies

An organizational framework is needed for the government to participate in the economic and business sectors of the country. 

The public sectors can have the below forms of organization:

Departmental Undertaking 

In this form, the public sector is run as a department within a government setting. It is directed by the concerned minister. Few of the departmental undertakings in the public sector are:

  • All India Radio.

  • The Indian post and telegraph.

  • The Indian railways.

  • The Doordarshan.

  • Atomic energy

Following are the main features of a departmental undertaking:

  • Formation - They are part of the government and linked with a specific ministry.

  • Control - They are under the direct control of the minister concerned and are a major subdivision of the ministry of government.

  • Appointments - The employees of this public sector undertaking are appointed by the Union public service commission and staff selection board. 

  • Management - IAS (Indian administrative services) officers and civil servants manage it.

  • Audit - CAG (Controller and auditor general of India) audits the accounts of these undertakings.

  • Finance - These companies are directly funded by the government treasury and the revenue from these undertakings goes into the government treasury too.

  • Autonomy - They are not autonomous but have a lot of political interference.

  • Accountability - They are accountable directly to the concerned ministry.

Statutory Cooperation  

They are also called public corporations and are created by either the state legislature or through a special act of parliament. The powers, functions, and roles of such companies are determined by the act that creates it. These are corporate bodies backed by the government. They enjoy considerable flexibility and have a separate legal existence of their own. The entire capital for these corporations comes from the government, and they can even borrow from the public. Some of the major statutory corporations in India are:

  • IDBI (Industrial Development Bank of India).

  • LIC (Life insurance corporation of India).

  • ONGC (Oil and Natural Gas commission).

  • RBI (Reserve bank of India).

  • UTI (Unit trust of India).

  • ESIC (Employee state insurance corporation).

  • FCI (Flood corporation of India).

Listed below are the main features of public corporations:

  • Formation - These are formed by state legislatures or special parliament act. The act defines the objectives and privileges of such corporations.

  • Control - They are controlled by either the central or the state government. The government owns the full authority to appropriate profits or bear losses. These corporations are completely accountable to the government. 

  • Appointments - They can appoint and fix remunerations of their employees by themselves. The employees of these corporations are not government employees and the board of directors frames their service conditions. The service conditions of the employees of this organization are also listed in the act that created the corporation. 

  • Management - IAS (Indian administrative services) officers and civil servants manage it.

  • Audit - CAG (Controller and auditor general of India) department audits the accounts of these undertakings. A professional CA (chartered accountant) does their audit like in any other establishments.

  • Finance - These companies are mostly funded by the government and they can also raise money through public borrowings. The management of profits from sales and goods lies in complete control of the corporation.

  • Body corporate - They exist as a separate legal entity and have the right to purchase properties in their names, enter into third-party contracts, can sue and be sued, etc.

  • Not bound by the government budgetary provision - They prepare their budgets and are not concerned or governed by the government budgets.

  • Free from government interference - Government does not interfere with the day to day activities of these autonomous bodies. Directors of these kinds of undertakings are appointed based on the act which formed the company.

Government Companies  

These are established as per the Indian Companies Act of 2013. They are established for business purposes and are eligible to compete with other companies in the private sector. The government holds the most shares in these companies and has full control over the paid-up capital of such companies. The shares of such corporations are bought in the name of the President of India. There are two types of government companies:

  • Wholly owned - In these government companies, the entire paid-up capital is held by the government.

  • Partly owned - In these companies major part of the capital is provided by the government but they are jointly owned by the government and the public.

Few examples of government agencies are:

  • Steel Authority of India Ltd. (SAIL)

  • State Trading Corporation (STC) etc.

  • Hindustan Machine Tools Ltd (HMT)

  • Gas Authority of India Ltd (GAIL)

  • Bharat Heavy Electricals Ltd (BHEL)

The government companies are characterized by the following features:

  • Formation - They are formed as per the provision under the Indian Companies Act, 2013.

  • Control - Since more than 51% of paid-up capital is by central government or state government, the government can wholly own these kinds of companies where the government has all the shares.

  • Appointments - These companies can appoint their employees as per their own rules and regulations. These rules are part of its articles of association and memorandum. They contain the objectives and internal rules and regulations of the company as well.

  • Management -The board of directors manages these companies. They are appointed by shareholders or nominated by the government.

  • Audit - The government appoints an auditor based on the recommendation of the CAG (Controller and auditor general of India) department. The annual report of this audit is presented in the parliament.

  • Finance - These companies get their capital from government shareholdings and also private shareholders. These companies can also raise funds from the share market.

  • A legal entity on its own - These companies can enter into third-party contracts, can sue and be sued, and hold property in their names.

  • Relaxations - If the parliament authorizes, these companies can get relaxation from the rules under the Companies Act.

  • Registration - It is registered with the registrar of companies like any other joint-stock company.

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FAQs on Forms of Organizing Public Sector

Q1: What is the Spectrum of Public Sector Accountability Reporting?

Ans. Since the public sector is complex with its myriad of objectives hence the overriding requirement for public accountability requires a multi-faceted reporting structure. The reporting is on various parameters like financial conditions, financial performances, non-financial performances, etc. The financial reporting in the public sector is a multidimensional accountability reporting with the following documents:

  • Financial statements.

  • Other information about the financial condition of the public sector company.

  • Supplementary information on financial performance.

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Q2: What Types of Organizations Lie in the Grey Zone of the Public Sector Area?

Ans. Outside the boundary zone of the public sector there exist mainly two kinds of organizations that may or may not be part of the public sector. They are:

  1. State businesses - These organizations are owned and governed by the government, and they sell goods and services for the profit of the private sector. Although they do not do conventional public sector activities like delivering public programs, goods, and services, yet they might be considered as part of the public sector.

  2. Public contractors - These legal entities lie outside the government and receive public funding (through contract or agreement). Their primary business is to deliver public programs, goods, and services. Since public control is limited in such organizations, they are considered as not-for-profit or private sector entities.