This is the oldest and most common form of organization. These are established as departments of the ministry and are financed, managed and controlled by either central govt, or state govt.. They are managed by government employees and work under the control of a minister. 

Eg. Railways, Post & Telegraph, All India Radio, Doordarshan, Defense undertakings etc.

Features: 

1.  The enterprise is financed by annual appropriation from the budget of the Government and all revenue is paid to the treasury. 

2.  The enterprise is subject to accounting and audit control. 

3.  It is subject to the direct control of the ministry. 

4.  Its employees are govt, employees and are recruited and appointed as per govt, rules. 

5.  They are accountable to the concerned ministry.

Merits: 

1. These undertakings facilitate the Parliament to exercise effective control over their operations. 

2.  These ensure a high degree of public accountability. 

3.  The revenue earned by the enterprise goes directly to the treasury and hence is a source of income for the Government.

4.  Where national security is concerned, this form is most suitable since it is under the direct control and supervision of the concerned Ministry.

Limitations: 

1.  Departmental undertakings lack flexibility because its policies cannot be changed instantly. 

2.  The employees are not allowed to take independent decisions, without the approval of the ministry concerned. This leads to delay in decision making. 

3.  These enterprises are unable to take advantage of business opportunities. 

4.  There is red tapism in day-to-day operations. 

5.  There is a lot of political interference through the ministry.

6.  These organisations are usually insensitive to consumer needs and do not provide adequate services to them.