Government Company

A country’s economy is driven by its corporate enterprises. These corporate play a very vital role in managing the index and GDP of the country. These organizations affect the economic conditions of the country. One such enterprise is a Government Company. Let us learn more about them.

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Government Companies

Government Company is a company or an organization in which at least 51% of the paid up share capital is held by the central government or the state government or partly by both central and state government. These are many government companies, few of them are, Steel Authority of India Limited, Bharat Heavy Electricals Limited, Coal India Limited, State Trading Corporation of India, etc.

The public sector companies in India were incorporated into two main objectives:

• To achieve more equity in the distribution of wealth and income amongst the citizens of the country.
• To gain the momentum in the growth of the nation.

(Source: stockguidance)

Features of a Government Company

• It is a separate legal entity.
• It is incorporated under Companies Act 1956 & 2013.
• The management is governed and regulated by the provisions of Companies Act.
• The Memorandum of Association and Articles of Association govern the appointment of employees.
• A government company gets its funding from government shareholding and other private shareholdings. The company can also raise money from the capital market.
• A government company is audited by the agency appointed by the central government. This agency is mainly Comptroller and Auditor General of India (C&AG).

Merits of a Government Company

• To incorporate a government company, all the provisions of the Companies Act are to be followed.
• The government organization enjoys all autonomy in management decisions and flexibility in day to day activities.
• These companies control the local market and sustain it to curb the unhealthy business practices.

Limitations of a Government Company

• These companies face a lot of government interference and involvement of government officials, ministers, and politicians.
• As these companies are financed by the government, so these companies evade all constitutional responsibilities of not answering to the parliament.
• The efficient operations of the company are hampered, as the board of the company comprises mainly of politicians and civil servants, who have more emphasis and interest in pleasing their political party co-workers or owners and less concentrated on growth and development of the company.

Suitability of a Government Company

• Where in some situations the private sector companies are needed along with public sector companies for generating strategic growth for the society. The suitability of Government Company becomes more required in giving all powers which a private sector company is deprived of.
• Whenever the private sector companies lack the financial arrangement and the objectives are not fulfilled. In this case, the private sector joins hands with Government Companies to create synergic effects for growth and expansion.

Role and Importance

The importance and role of public sector companies have changed with time. Let us see the role of these companies in nation’s growth.

1. Economies of Scale

The sectors where a large amount of capital is required, which in general terms private sector companies don’t accommodate are dealt in by the public sector companies. Industries like, electric power plants, natural gas, petroleum etc are under the control of public sector companies.

2. Regional Balance

For the overall development of the nation, various areas which economically backwards be never touched by companies. Mainly the development was done near port areas and interior parts of the country were never accessed. To have a balanced growth of the whole nation, public sector companies take the charge and do the development in underprivileged areas.

3. Development of the Infrastructure

All the heavy industries were very less in number and low capacity at the time of independence. These industries were like, engineering, iron, and steel, oil and gas refineries, heavy goods machinery, etc.

Private Sector was never willing to participate in the development of heavy industries because the gestation period was too long in these industries and the amount of capital to be invested is huge in number. So the government had to rely on public sector companies to develop these sectors which were an integral part of the development of the nation.

4. Control on Monopoly and Restrictive Trade Practices

Public sector companies have a very important role to control the monopoly created by private sector companies. Public sector companies keep a check on guidelines of Monopolistic and Restrictive Trade Practices.

5. Import Substitution

Public enterprises are also engaged in manufacturing and production of capital equipment which was earlier imported from other countries. Companies like MMTC have played a very crucial and vital role in expanding Indian markets for exports and other trades.

Solved Questions for You

Q: Government Company refers to the company in which _______ per cent or more of the paid-up capital is held by the government.

1. 100%
2. 50%
3. 51%
4. 66%

Ans: The correct answer is C. In a government company at least 51% of the company is owned by the government. It can be the Central, State or even the Local Government who owns this share, or any combination of the three.