Statutory corporations are bodies created under specific laws of parliament or state legislatures. These corporations contribute significantly to economic growth and facilitate the smooth functioning of diverse sectors of the country.
In this article, we examine the statutory corporation’s meaning and features and what makes it an essential pillar of economic and industrial development.
What is a Statutory Corporation?
A statutory corporation is an autonomous body created under a special parliament or state legislatures act. The government fully finances these corporations, and their functions, duties, and powers are predefined in the acts under which they are created.
They enjoy financial autonomy, similar to standard corporations, as they have a Board of Directors and must submit annual financial reports. However, they differ because they have only two shareholders: an appointed minister and a treasurer.
Most statutory bodies, or those set under government acts, are primarily concerned with public service. In contrast, statutory corporations have public welfare and commercial benefits as their primary objectives.
Some of the standard statutory corporations in India include the SBI or State Bank of India, the FCI or Food Corporation of India, and the Oil and Natural Gas Commission (ONGC).
What are the Features of a Statutory Corporation?
Some of the key statutory corporation’s features include:
1. Separate legal entity
The statutory laws under which these bodies are created give them the status of an artificial person and a legitimate entity. They are managed by a Board of Directors who are selected by the government. As a fully corporate body, these corporations have the right to enter any commercial contract or conduct businesses under their own name.
2. State ownership
The government wholly owns the statutory corporations. This gives them the advantage of solid financial backing from the government, be it state or central.
3. Accountable to legislatures
Statutory corporations are answerable to the Parliament or state legislature, whichever body creates it. However, Parliament cannot interfere with the functioning of these statutory corporations. It can only conduct discussions on policy matters and the overall performance of the corporations in the houses.
4. Financially independent
These corporations enjoy significant financial autonomy and stability. They are not subject to any accounting, audit, or budget in the parliamentary sessions. They can, however, rent money from the government in times of need.
5. Own staff
The employees working in the corporations are not considered government subordinates. Their recruitment, salaries, and allowances are based on the laws that create these corporations.
What are Some Merits of Statutory Corporations?
State corporations have several benefits, which are as follows:
1. Administrative autonomy
State corporations are solely governed by the laws through which they are created. This ensures there is minimal interference by the government, leading to more flexibility and autonomy.
2. Quick decision-making
There is less paperwork and fewer formalities associated with bureaucratic processes. This allows swift decision-making owing to faster approvals and smoother operations.
3. Public welfare
Contrary to private corporations, statutory corporations prioritise public welfare. This is further ensured by political leaders in the parliament and state legislatures discussing their policies and activities.
4. Ease of capital
Since the government owns these corporations, they can quickly raise the required capital by issuing bonds at lower interest rates. These bonds guarantee stability and safety, which leads to greater public participation.
5. Professional management
The government nominates the board members of statutory corporations. These members include industry experts, business representatives, and people with high-quality experience, ensuring professionalism throughout the corporation’s functioning.
6. Staff efficiency
Statutory corporations are free to set their own rules regarding employment, wages, and working conditions. This ensures better facilities, fair wages and proper working conditions, developmental programmes, and attractive terms of service that encourage employees to work efficiently.
What are the Demerits of a Statutory Corporation?
Although statutory corporations have several advantages, they do have their own fair share of demerits. These include:
-Superficial autonomy
Their administrative autonomy appears to exist in theory only or is often nominal. Their workings are sometimes interrupted by ministers, government officials, and political parties.
-Lack of initiative
Statutory corporations are not motivated by profit, which can lead to staff disinterest in increasing profit. Furthermore, the government compensates for any losses caused by corporations.
-Rigid laws
Rigid laws make even the necessary changes a very time-consuming endeavour. Any amendments made to the laws are to be presented and passed in the Parliament.
– Conflict of interest
Clashes of opinion among board members from different backgrounds can affect the normal functioning and management of corporations.
Wrapping Up
Statutory corporations are efficient bodies that play a massive part in driving the country forward. However, certain limitations bar them from performing at their full potential. This can be achieved by better planning and enhanced transparency, accountability, and integrity.
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FAQs
Some common examples of statutory companies are the Life Insurance Corporation (LIC), the Reserve Bank of India (RBI), SBI, FCI, ONGC, and the Central Warehousing Corporation (CWC).
Three statutory corporation features include financial independence, corporate nature, and accountability to the laws under which they are created.
A corporation can be broadly divided into upper management, middle management, and lower management. Upper management is associated with CEO-level employees, department heads in middle management, and team leaders and supervisors in lower management.
18 March 2025
5 mins read
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