The Union Cabinet on Wednesday empowered the boards of central public sector enterprises (CPSEs) to privatize, invest or close their subsidiaries and sell stakes in joint ventures. The move would accelerate the government’s efforts to unlock capital, which is either stuck or sub-optimally allocated to state resources and will be put to more productive use.
Many large for-profit CPSEs like Coal India, ONGC and NTPC have valuable subsidiaries or JV partnerships (see chart). The decision of the Cabinet will enable them to monetize some of these assets without the approval of the Cabinet or to go through the process involving the Administrative Ministry and / or the Department of Investment and Public Asset Management (DIPAM).
The move is also expected to ease the burden on Dipam, which may now focus on privatizing the holding company or the original CPSE.
India’s investment agenda has become more ambitious in recent years, but other factors, such as market conditions and policy constraints – for example the lack of real value independence for oil marketing companies – are hampering privatization progress.
Currently, there are about 380 PSEs (including subsidiaries), of which 20-30% may close due to illness or disability. The government has made it clear that for the sake of minimal presence in the four strategic sectors, other companies in the strategic sector and all companies in the non-strategic sector will be privatized or closed down.
Currently, CPSE boards do not have the power to invest / close their subsidiaries or units or have a stake in JV, except for some limited powers given to Maharatna PSEs to invest a minority shareholding in their subsidiaries.
Therefore, in order to invest (both strategic investment and sale of minority shares) and close their downstream companies or sell their stake in JVs, approval of Cabinet / CCEA is required irrespective of the size of the operation / deployment of capital. Such subsidiaries, etc.
The government said in a statement that the new PSE policy, in line with the spirit of the new PSE 2021, would reduce the presence of government PSEs and make them more representative in this regard.
The cabinet approved an alternative arrangement (a group of ministers) to give additional powers to “downstream” companies to invest or close down downstream companies while holding PSEs.
“The proposal seeks to reform the effectiveness of PSEs … and this will result in faster decision-making and waste management / financial costs by PSEs,” the government said.
The strategic investment transaction / closing process followed by PSE should be open, based on competitive bidding policy and consistent with the guidelines.
For strategic disinvestment, such guiding principles will be determined by Deepam. For closure, DPE will issue guideline policy.
Currently, the Board of Directors of Holding / Guardian PSE is vested with some powers under the Maharatna, Navaratna and Miniratna divisions to invest equity in establishing financial joint ventures and wholly owned subsidiaries and to consolidate / acquire subject to fixed net ceiling. -Price
The FY22 budget unveiled strategic sector policy that has a minimal government presence in four broad sectors where the remainder can be privatized or consolidated or closed. These sectors are nuclear power, space and defense; Transport and telecommunications; Energy, petroleum, coal and other minerals; Banking, insurance and financial services. In the non-strategic sector, if privatization is not possible, all CPSEs will be privatized or closed.