Merits and Demerits of Government Company


Meaning of Government Company

Government Company is those companies where major shareholding is held by the government. In these companies, 51% or more of the share capital of the company is held by the government. The government can be central or state government or can be partly owned by both of them.

These companies are either under fully owned by the government or partly owned. If the government holds 100% share in these companies then they are totally under government control. In partly owned more than 51% of shares are held by the government & rest is owned by private individuals. Government companies are easy to be established.

These companies have a very effective role in the economy of the country. They are useful in managing the GDP & index of the country. Examples of these companies are State trading corporation of India, Steel Authority of India etc. 

Merits of Government Company

Easy to establish

Government companies are easy to be established. These companies are established under companies act like other private companies. As these companies are formed by the government, they don’t require any bill to be passed in the legislature. These companies can be just formed by the government’s executive decision.

Large capital base

This is one important advantage of government companies. Government companies have large amount of capital invested in their businesses. These companies have high credibility in the market due to government share. It becomes easy for them to raise funds from the market. It can easily raise funds through issue of share, bonds & debentures. Even financial institutions & banks also easily provide funds to these.

Greater flexibility

Government companies enjoy greater flexibility in their operations. There is greater autonomy with these companies. Any decision can be taken easily & promptly. It can easily manage its internal matters. There is no instance of bureaucracy or red-tapism in these companies. Employees working here are not civil servants.

Professional management

The management of government companies is so efficient. Professional managers are hired by the government to manage their companies. These companies do not have any financial issue for hiring top-rated managers. This professional management increases the overall efficiency of the company. This increased efficiency helps in raising profit.

Facilitates private participation

The private individual can easily participate in government companies to share capital. Government companies are free to raise funds from the private individual through the issue of shares. The proportion of amount to be issued to the public is decided by the government. However, all hold & control of the company is kept by the government.

Better Continuity

Government companies enjoy a long life span. These companies have the backing of government & are not affected by any political instability. Government companies rarely face any financial problem. They have good credibility in the market & can easily raise funds from the market. They are least affected by adverse conditions in the economy.

Demerits of government companies:

Lack of autonomy & flexibility

The flexibility & autonomy of government company is illusionary. These companies have freedom in name only & are not independent in decision making. The functioning of government companies is intervened by ministers, politicians & various government officials. These people interfere in day to day functioning of these companies.

Lack of motivation

The employees & other high officials working in government companies lack motivation. These people get fix salaries & wages irrespective of their performance. They all are least interested in the activities & operations of a business. They do not have any responsibility for company losses. This way efficiency of government companies is affected.

Lower employee’s efficiency.

The performance of the people working in government companies is not efficient. These employees lack professionalism in their roles & duties. Inefficient performance of employees affects the growth & operations of companies. It also leads to wastage of resources of the company.  This all is a result of improper training, faulty selection, transfer & promotion.

Delay in decision

Government companies are fully under the control of the government. Directors of these companies’ works as per the instructions of the government. The government may not timely take actions or decide as per company requirements. This sometimes leads to delay in taking actions. 

Poor management labour relation.

There is a lack of cooperation between employees & managers in government companies. Work culture in these companies is not good. There is a lack of proper communication between management & employees. Many times workers go on strike & labour unions work with selfish. This all affects the working environment & leads to distrust among employees.

Public criticism.

Government companies are required to prepare annual reports of their performance. These reports are presented before parliament & state legislature. The whole performance is presented to the public through the press. Sometimes it had to face criticism of public regarding its performance. This criticism demoralize the managers & they always have a fear of exposure.