Question

Answer the following in detail.

Explain merits and demerits of Statutory Corporation.

Answer 1

(A) Meaning:

Statutory Corporations are autonomous bodies established under special legislative Acts. A statutory corporation is formed under a Special Act of Parliament or State Legislature. The powers, duties, functions, and scope of operations are laid down in the Act. LIC, IFCI, SBI, UTI, Air India are examples of a public corporations. Statutory Corporation is a body with a separate existence, which can sue and be sued and is responsible for its own finance. It is administered by a board appointed by a public authority to which it is answerable.

(B) Merits of Statutory Corporation:

1. Professional Management: Statutory Corporations are managed professionally. The directors and other executives are highly trained and specialize in their respective fields. This leads to efficiency in working.
2. Rapid Decisions: Statutory Corporations enjoy autonomy. They can take quick decisions. There are less file work and less formalities to be completed before taking decisions.
3. Efficient Staff: In Statutory Corporation, employees are given fair wages, better working conditions, and proper training and development programs are initiated for the employees. As a result, employer-employee relations are very cordial and the staff is highly motivated to perform better.
4. Motivated Staff: I Statutory Corporations, employees are given fair wages, better working conditions, and proper training and development programmes are initiated for the employees. As a result, employer-employee relations are very cordial and the staff is highly motivated to perform better.
5. Service Motive: They are formed to provide public utility services and promote consumer satisfaction. It provides essential commodities to people at reasonable rates.
6. Easy to Raise Capital: Being owned by the government, these corporations can raise the required funds by floating bonds at a low rate of interest.
7. Administrative Autonomy: Due to administrative and financial autonomy, statutory corporations take quick decisions and are flexible in its policy framing and working as per the changing business needs.
8. Public Accountability: These organisations enjoy public accountability, flexibility, and autonomy in their work. The accounts are audited by Comptroller and Auditor General of India and final accounts are tabled before Parliament or Legislature.
9. Initiative and Flexibility: Statutory Corporation has an independent identity different from the government. Though the overall business policies are formulated by the government, they have administrative autonomy and hence operational flexibility.
10. Enjoys Economies of Scale: As these organisations are large scale undertakings which promote social welfare, it enjoys economies of large scale business operations.

(C) Demerits of Statutory Corporation:

Though statutory corporations are autonomous bodies and enjoy flexibility in their working, they have certain limitations which are as follows:

1. Clashes amongst Interests: All or majority directors of Statutory Corporations are appointed by the Government from different fields. As there are many members it is quite possible that their interests may clash. The smooth functioning of the corporation may be hampered.
2. Autonomy on Paper Only: Ministers, government officials, and political parties often interfere with the working and decision-making policies which affects the autonomy and flexibility of it.
3. Rigid Structure: Though statutory corporation-have operational flexibility, they are subject to many rules and regulations. Any changes in the constitution, objects, powers, duties, etc., require amendments to be passed in the parliament which is a difficult task. This reduces its flexibility.
4. Lack of Initiative: The statutory corporation has no profit motive. There is no competition between them. So employees do not take initiative to increase the profit.
5. Unfair Practices: Before 1991, these corporations enjoyed a monopolistic and semi monopolistic position. They were charging high prices from the consumers to cover up their inefficiencies. After 1991, due to liberalization, most of them lost their monopolistic position but skill, in practice the lack of competition as they are not aware of consumer needs.