This article throws light upon the six main factors that influence the choice of the forms of organisation for state enterprises. The factors are: 1. General Factors 2. Considerations for the Choice 3. The Choice is More Difficult in India 4. In India Government Company Form is Popular 5. Preference to Company Form 6. The Administrative Reform Commission.

Factor # 1. General Factors:

The choice of one or the other of the three forms of organisation for government enterprises is not an easy task. Even from the experiences of foreign countries no clear conclusion is possible. In U. K. public corporations are the popular form for State undertakings.

In South East Asian countries Government company form has gained popularity. In many countries departmental type is adopted for running undertakings of strategic significance.

Factor # 2. Considerations for the Choice:

While adopting any particular form of organisation for the State enterprises following considerations should be kept in mind so that the enterprises established or taken over by the Government are run efficiently:


1. The nature of the undertaking.

2. Economic importance of the enterprise.

3. Democratic traditions of the country.

4. The anticipated social responsibilities of the State enterprises concerned.


5. Administrative ability and resourcefulness of the controlling machinery of the Government.

Factor # 3. The Choice is More Difficult in India:

In our country the choice of any particular form has been made more difficult by the fact of inadequate experience in the field of industrial management both from the point of view of personnel and new techniques or innovations in organisational matters.

The State also has to prove that its enterprises are run with equal and exemplary efficiency as compared to the private enterprises. Quick decisions, flexible policies, scientific planning and its effective execution, social justice, accountability to democratic institutions are the essential tests of a successful enterprise in the public sector.

The form of organisation which can stand these tests should be chosen keeping in mind the type of the business and the technical and managerial pre­requisites for its success. Thus, all the three forms have to be tried out and a uniform pattern has to be evolved in course of time on the basis of the experiences gained.

Factor # 4. In India Government Company Form is Popular:


The Government of India has tried all the three forms to run different categories of Public undertakings of different types. In its Industrial Policy Resolution it had declared that all the State enterprises would be organised into Public Corporation.

The Estimates Committee (1960) also had emphatically recommended that all the state-owned enterprises should be organised into Statutory Corporations, with adoption of company form only in exceptional cases.

But the trends in the organisation of Government enterprises show that the Company form has been adopted in case of majority of the State enterprises. At the end of the Third Five Year Plan there were 70 Central Government undertakings of which 64 were organised as Government companies.

According to recent figures there were 31 Departmental Undertakings, 27 public Corporations and 140 Companies for the State enterprises in India. Thus it is seen that State enterprises in India are mostly organised in the form of registered joint-stock companies and only in exceptional cases statutory Public Corporations have been established under the separate Acts of Parliament.

Factor # 5. Preference to Company Form:


The Government seems to have regarded the Company form convenient and advantageous due to the following considerations:

1. It is found flexible and autonomous enough for the successful operation of commercial enterprises, while providing for parliamentary control over the enterprises so organised under the special provisions of the Companies Act.

2. Experience of private businessmen can be availed of while retaining ownership and dominant controlling power.

3. In view of the dearth of technical know-how and necessary finance collaboration with foreign firms is necessary. In a developing country like India such collaboration has proved inevitable. Company form of organisation makes it constitutionally feasible to offer certain rights to foreign firms in the operation of the State enterprises.


Grave apprehensions have been expressed about the suitability of the Government company form for State enterprises on account of it proving impervious to public control and parliamentary review. Therefore, Public Corporation is considered a suitable form from the point of view of constitutional and financial considerations, autonomy and public accountability.

Public corporation set up under an Act of the Parliament is expected to grow into an autonomous unit flexible in its working within the framework of the Act and subject to review by the Parliament.

At the same time Departmental form of undertakings are found to be suitable for running those commercial and industrial activities for which direct Government control is essential or wherein secrecy of the strategy has to be ensured.

Thus the choice of the form of organisation for Government enterprises depends upon the nature and scale of the productive activity, operational requirements, financial facilities, technical necessities and the effect of the business policies on the community.


In the opinion of Shri A.D. Gorwala, public corporation form should be used “where the undertaking is discharging what is in effect an extension of the functions of the Government e.g., irrigation and hydro-electric project, transportation service whereas the government company form will be suitable for the enterprises discharging substantially commercial functions.'”

Factor # 6. The Administrative Reform Commission:

A Study Team on Public Sector Undertakings was constituted by the Administrative Reform Commission. The Study Team submitted its report in 1967. The Commission on the basis of the findings of the study team recommended that Public Corporation should be chosen as the prime form of organising State enterprises engaged in the ‘industrial and manufacturing field’ since the “form of Public Corporation is the one that is best fitted for such undertakings.”

The commission divided the State enterprises into five groups and recommended suitable form of organisation for each group:

1. Industrial and Manufacturing.


2. Public Utilities.

3. Promotional and Developmental,

4. Commercial and Trading.

5. Financial Institutions.

1 (a) For industrial undertakings the Commission recommended Statutory Corporation (Public Corporation) form.

(b) The Commission recommended formation of Sector Corporations for all the industrial and manufacturing concerns. All the industrial and manufacturing undertakings from the same area of industry are to be combined and integrated into one Sector Corporation.


2. For Public Utility and Service undertakings Public Corporation was deemed suitable.

3. (a) For promotional and developmental projects in which there is an element of private participation adoption of Government Company form was thought desirable.

(b) For promotional and developmental undertakings, as far as possible, Statutory Corporations or Departmental form was favoured.

The Government was advised to examine the desirability or otherwise of continuing the Government company form for such undertakings.

4. For commercial or trading concerns or concerns which are setup to improve or stabilise the particular areas of business Government Company form was suggested.

5. For financial institutions Statutory Corporation (Public Corporation) was recommended.


This would enable the Government to avoid duplication of efforts and to avail of the economies of large-scale operations by organizing common service facilities, research consultation, training of staff and sales promotion. Coordination would be easier and control would be more effective.

However, the Government did not agree fully with the recommendations of the Commission.

Firstly, the Government was of the view that only in certain circumstances formation of Sector Corporation may be advantageous. Each case has to be considered on its own merits.

Secondly, Public Corporations were found preferable for only certain enterprises providing public utilities intended to develop infra structure facilities.

The Government did not accept Public Corporation as a suitable form of organisation for all the State enterprises.

Thirdly, for State enterprises where commercial aspects are predominant Government Company form of organisation was found more suitable and flexible.


Thus it will be seen that the Government is in favour of Joint-Stock Company (Government Company) form of organisation in general with the Public Corporation preferred only for Public Utilities and Service undertakings.