- Yashaswini Agarwal
SNO. TOPIC PAGE NO.
1 What is Departmental Undertaking? 1
2 Characteristics of Departmental Undertaking 2
3 Advantages of Departmental Undertaking 3
4 Drawbacks of Departmental Undertaking 4
5 The Indian Railways 5
6 History 6
7 Indian Railways as a Government Body 7
8 Government Financing to the Railways 8
9 Railways – Accounts and Audits 9
10 Recruitment of Government Employees 11
11 Newer development in Departmental
12 Bibliography 13
13 Thank you 14
WHAT IS A DEPARTMENTAL UNDERTAKING?
It is a form of a public sector enterprise which is run as a department
of the Government. It is organized, financed and controlled like any
other Government department. A departmental undertaking is self-
contained but it is under the overall control of the departmental head
and the ministry concerned. It is a very old and traditional form of
public enterprise. It may be organized as a separate full-fledged
For instance, the Indian Railways is managed by the Ministry of
Railways through the Railway Board. The Railway Board consisting of a
Chairman, three members and a financial commissioner manages the
Indian Railways under the overall direction and control of the Railway
Minister. The Railway Minister is in turn responsible to the parliament.
The undertaking operates as a wing of the government with ultimate
control and responsibilities vested in the Minister concerned.
Similarly, Posts and Telegraphs are a department in the Ministry of
Communications. The postal service comes under the Department of
Posts which is a part of the Ministry of Communications and
Information Technology under the Government of India. The apex body
of the department is the Postal Service Board. The board consists of a
chairman and six members. The six Members of the Board hold
portfolios of Personnel, Operations, Technology, Postal Life Insurance,
Human Resource Development (H R D) and Planning functions. They are
in turn accountable to the Minister of Communications.
CHARACTERISTICS OF DEPARTMENTAL UNDERTAKING
1. They are a part of the government:
The undertakings are the major sub-division of one of the departments or
ministries of the Government. They are subjected to direct control by the head of
department. The concerned minister has the ultimate authority and is answerable
to the parliament or the state legislature. The undertaking has no separate entity
distinct from the Government.
3. Accounting and audit:
The undertaking is subject to the normal budgeting, accounting and audit
procedures applicable to other government departments.
4. Civil service code:
The recruitment and service methods of these government employees are like that
of any other government servant.
5. Sovereign immunity:
It means being an integral part of the Government; a departmental undertaking
cannot be sued without the consent of the government. The sovereign immunity
doctrine in India states that a State cannot be sued in its own courts without its
2. It has government financing:
The undertaking is financed through annual budget
appropriations by the Parliament or the State
Legislature. The revenues of the undertaking are
paid into the treasury. It is wholly owned by the
ADVANTAGES OF DEPARTMENTAL UNDERTAKINGS
1. Easy formation:
It is very easy to set up a departmental undertaking as no registration or special
law is required. The undertaking is created by the administrative decision of the
Government and no legal formalities are involved.
2. Direct government control:
The undertaking is under the direct and complete control of the State. Therefore,
it is more effective in achieving the objectives laid down by the Government.
3. Public accountability:
The departmental undertaking is totally and completely accountable to the
parliament as its management is under the ministry concerned.
4. Judicious use of money:
Due to strict budget, accounting and audit controls the risk of misuse of public
money is minimized and funds are used for the benefit of the public.
It is easy to maintain secrecy of policy because the Government can avoid
disclosure on the plea of public interest.
6. Instrument of social change:
The Government can promote economic and social justice through departmental
undertakings. It can also maintain effective control over the production and
distribution of essential goods and services.
DRAWBACKS SUFFERED BY DEPARTMENTAL
1. Lack of flexibility:
A departmental undertaking functions under strict Parliamentary control. The
minister and top officials also interfere frequently in its workings. The undertaking
is treated just like a government office. There is little delegation of powers. As a
result, the staff of the undertaking gets little opportunity to exercise initiative.
Lack of autonomy reduces the flexibility and efficiency of operations.
2. Lack of motivation:
In the absence of competition and profit motive, there is little incentive for hard
work and efficiency. There is hardly any link between reward and performance, and
promotions are based on seniority. This leads to complacent attitude. As losses are
borne by the Government treasury and tax payers, these are not taken seriously.
Employees try to shift responsibility and shirk duty.
3. Red tapism:
There is excessive centralization of control which results in red tapism. Decisions
are generally delayed due to bureaucratic procedures and political interference
and therefore the enterprise cannot run in a business-like manner. It fails to adapt
itself to changes in technology and market conditions.
4. Financial dependence:
A departmental undertaking deposits its earnings into the Government treasury. It
cannot take long-term investment decisions as it is financed by the government.
5. Inefficient management:
A departmental undertaking is managed generally by Government officials and civil
servants who are sent on deputation. Most of their time is spent in answering to
the parliamentary enquiries. These officials generally do not possess the necessary
expertise and experience in management. Moreover, their tenure is not stable and
they can be transferred at any time. Therefore they adopt a carefree attitude and
lack a sense of responsibility. Bureaucratic control and lack of incentive on the
part of officials make the undertaking inefficient and irresponsive to consumer
THE INDIAN RAILWAYS
The Indian railway is a government owned enterprise operating through the Railway
ministry. Initially a private owned company, it was taken over by the government in
1946 with the purpose to serve the countrymen. The first train ran from Bombay
to Thane (33.81 Km) on 16th
April 1853. Today, Indian Railway is the largest
railway network in Asia. It carries over 13 million passengers & 1.3 million tones of
freight every day. It runs about 14,300 trains daily.
Currently, the railway minister of India is Mukul Roy.
Now let us examine how it fits into the criteria of a government
The history of rail transport in India began in the mid-nineteenth century under the
British Empire. Indian businessmen also played a great role and took interest in
founding the railways. The Bengali merchant Prince Dwarkanath Tagore
(grandfather of poet Rabindranath Tagore) owned the company, Tagore &company,
which in 1844 had reported to raise 1/3th of the capital for a railway line from
Calcutta northwest to the coalfields above Burdwan. After his death the
other Indian businessmen played a passive role.
From 1857 onwards a British engineer, Robert Maitland Bereton was given the
responsibility for the expansion of the railways. The Allahabad-Jubbulpore branch line of
the East Indian Railway had been opened in June 1867. Brereton was responsible for
linking this with the Great Indian Peninsula Railway.
In 1900, the GIPR (Great Indian Peninsula Railway) became a government owned
company. The network spread to the states of Assam, Rajasthan and Andhra
Pradesh and soon various independent kingdoms began to have their own rail
Railway Board was constituted in 1905 but the powers were invested with Lord
Curzon. It served under the Department of Commerce and Industry and had a
government railway official serving as chairman, and a railway manager from
In 1907 almost all the rail companies were taken over by the government. The
government took over the management of the Railways and started to detach the
finances of the Railways from other governmental revenues.
INDIAN RAILWAYS AS A GOVERNMENT BODY
The Indian Railways Act of 1989 enacted by Parliament gives the Central
Government (Ministry of Railways) with powers over the functioning of Indian
The act provides for operational independence of IR. There are only few instances
when there is need for direct interaction with Parliament. They are related to
safety, and exemptions and amendments with respect to the Act.
The rail department organisation is as follows :
GOVERNMENT FINANCING TO THE RAILWAYS
The government of India allocates an annual budget to the railways which
is presented to the parliament separately from the annual budget presentation.
Apart from that the railway department is funded by The Indian Railways Finance
Corporation which was incorporated in 1986 to partly finance the plan outlay of IR
by raising funds from the market.
For example, on March 2001, the total fund inflow into IR had been Rs 99,542
crores. Out of this Rs 32,661 crores came in through budgetary support
(government), Rs 30,679 crores from internal resources which included the Railway
Capital Fund, Depreciation Reserve Fund and the Development Fund, Rs 21,707
crores from the IRFC route and the rest in the form of reserves, deposits and
current liabilities. Out of this money, Rs 35,554 crores was invested in buildings
and track, Rs 34,016 crores in rolling stock and Rs 11,516 crores used towards
procurement of plant and equipments. The rest of the money was spent on land,
investments, and deposits with the central government and in current assets.
RAILWAYS - ACCOUNTs AND AUDITS
Every expenditure in Indian Railways has to pass through Financial scrutiny. India Railways
Accounts Service cadre of Indian Railways is responsible for the Finance and Accounting
functions of the Railways. Core functions of this cadre include maintenance of accounts of
Indian Railways and Financial Advice to the executive. The IRAS cadre exercises
substantial control over the affairs of the Indian Railways.
A check is needed to ensure proper utilization of the fund to ensure that it serves the
purpose. This check is known as Audit. Railways Audit was separated from Accounts in
In Railways Auditing is done by two means viz. Internal and external Auditing.
Internal Auditing is done by Accounts department of Railways. It is done for the purpose
of giving financial advice, to consider proposals involving finance, to maintain accounts, and
to formulate Railway Budget. In the process records are scrutinized, executive orders
involving finance are verified, and traffic and transport earnings and accounts are checked
to avoid loss of revenue.
The Comptroller & Auditor General of India (CAG) controls External Auditing. All
expenditures incurred from consolidated fund of India are subjected to External Auditing.
The Director of Railway Audit of Railway Board is assisted by Chief Audit Officers,
Divisional Audit Officers, are responsible for the external auditing in Railways. Shri Vinod
Rai is the present Comptroller and Auditor General of India. Shri B.B.Pandit is the Deputy
Comptroller & Auditor General for Railways, Communication and Defense.
RECRUITMENT OF RAILWAY EMPLOYEES
The Indian Railway Personnel Service (IRPS) is a cadre of the Group-A
services of the Government of India. The officers of this service are
selected based on written and viva-voce test which is conducted by
the Union Public Service Commission (UPSC) of India along with other
Group A Services like IAS, IPS and IRS etc. The UPSC is responsible
for recruiting middle and top-level bureaucrats for the Government of
India. Indian Railways has a work force of about 1.4 million employees.
NEWER DEVELOPMENTS IN DEPARTMENTAL
A new development concerning departmental undertakings in India is the setting
up of corporations to raise loans from the public through the issue of bonds. For
example The Railway finance Corporation has issued railway bonds, Mahanagar
Telephone Nigam has also issued telephone bonds and it is coordinating the
telephone services in the metropolitan cities.
Through this the railways help to increase Government revenue
because their earnings are deposited in the Government treasury and
therefore it reduces the burden of tax on the public and serves public