Question

Answer the following in detail.

Explain merits and demerits of Government Company.

Answer 1

(A) merits of Government Company:

1. Profitability and Accountability: It works on business principles and follows a commercial approach. Though not profit-oriented like the private sector, it does make reasonable profit which is used for public welfare, modernisation, renovation, and development. Moreover, its performance can be evaluated by the Parliament as it has public accountability.
2. Internal Autonomy: Government Company enjoys financial and administrative autonomy. Its dependence on Government authority is minimum. It has its own capital structure, financial plan, borrowing powers, and so on.
3. Government Ownership: The ownership of the government company rests with Central or State Government who owns the major capital of the company and as such looks after its management and control. The government always promotes the public welfare.
4. Foreign Capital and Technical Know-how: As the government provides 51% of the capital, the rest 49% can be raised through foreign investment. By seeking foreign capital, Government companies bring advanced technology and technical know-how.
5. Acquisition of Sick Units: A government company can acquire a sick unit in the private sector without rationalisation. It can be acquired by purchasing 51% of the share capital of a private company.
6. Concessions and Privileges: As the government owns Government companies, it enjoys various concessions, privileges, subsidies, etc. It may also get orders for the products or services from various government departments and agencies. It also has access to use the financial resources of the Government.
7. Efficiency: Government Company has to compete with private sector companies. Hence, it tries to promote efficiency at all levels and avoids wastages wherever possible. It tries to improve its services to consumers and promotes consumer satisfaction by providing quality goods at reasonable prices. From the above points, it could be seen that the Government Company enjoys various benefits as it is owned by the Government and blends the objectives of privately-owned companies with State-owned control and maximise public welfare.

(B) Demerits of Government Company:

Though Government Company enjoys various benefits due to Government ownership and autonomy, it has following limitations:

1. Inefficiency and Corruption: The Directors have no financial stake in the company and as a result, they are indifferent towards the working of the company. Due to limited autonomy and petty politics, the efficiency of the enterprise is affected. It results in corruption.
2. Lack of Professional view: There is a lack of devotion, dedication, and Systematic approach. In fact, there is no professional approach in various operations and working of the company. Thus, from the above points, it could be seen that there is a lot of government and political interference in the Government Company which brings about its inefficiency and ineffectiveness.
3. Domination of Ministers and Politicians: The ministers of the concerned departments are in charge of the Government Company. In view of Government ownership, political interference is quite common. The Directors try to serve and achieve their political motives rather than the realisation of business goals as they are nominated for political gains and not on merits.
4. Red Tapism and Delay: The bureaucratic management delays in taking decisions and implementing. There is no time frame and the employees are not devoted. There is often delay in preparing various documents and forwarding the same for taking action. Thus, delay, red tape, corruption, avoidance of work, and shirking from the responsibility is a common sight in Government Company
5. Autonomy only in Name: Though there is administrative autonomy, these companies face a lot of interference from the government in all the matters. Appointment of Directors, employees, and its working, there is no autonomy. Autonomy is only on paper and not in practice.
6. Weak Public Accountability: Absence of Government audit is a major drawback in the case of Government Company which does not assure proper Utilisation of funds. There is no control over the misappropriation of funds which leads to weak public accountability.
7. Fear of Exposure: The working of Government companies like the annual report is placed before the Parliament or State Legislature. It is exposed to press and public criticism. Therefore, the management of the government company often gets demoralized.