Maharatna status for select public sector firms

Maharatna status for select public sector firms

New Delhi: The government on Thursday said it would give a few large public sector companies greater operating freedom to help them emerge as global giants.

The boards of the select companies can take key decisions on investments, acquisitions, joint ventures and hiring without prior government approval after they meet a set of stiff and well-defined criteria.

These state companies have been called Maharatnas, and have been selected from among a list of 18 Navratnas— or nine jewels, a term that was originally used to describe the first nine companies to be given greater operating autonomy in 1997 in a bid to free managers from a surfeit of bureaucratic oversight.

The government did not provide a list of state-run firms to be accorded the Maharatna status, but a senior government official who did not want to be identified said Oil India Ltd, NTPC Ltd, Oil and Natural Gas Corp. Ltd and Steel Authority of India Ltd may be awarded the status soon.

This policy change comes at a time when several large public sector units are spreading their wings globally, both to grow their business and to secure key energy supplies for India’s fast-growing economy.

The Maharatnas will be able to make purchases in India or overseas of as much as Rs5,000 crore, the government said in a statement. Listed state-run companies with average annual sales exceeding Rs25,000 crore in the last three years will become eligible, according to a decision taken at a Thursday cabinet meeting.

The select companies will not spend more than 30% of their net worth on investments in joint ventures and on acquisitions put together, the government said. Navratnas are allowed to make acquisitions of up to Rs1,000 crore without seeking government approval.

A Navratna qualifies to be bumped up to Maharatna status if its average annual turnover is at least Rs25,000 crore, its average annual net worth exceeds Rs15,000 crore and its average annual net profit is more than Rs5,000 crore over the last three years, and it is listed on a stock exchange.

“The way we look at it, it is not going to change much for a large-size public sector unit. In the case of overseas investments, getting a Maharatna tag may enhance the investment limit," said a senior NTPC executive who did not want to be identified.

Jai Mavani, executive director and head of infrastructure and government, KPMG, in India, said the Maharatna concept is a good one and will empower companies getting the status to be more nimble-footed and respond early to market signals in terms of business opportunities. “Some of them (Navratnas) also have good management and good business models, and empowering their boards will make a lot of difference," said Mavani.

Subramaniam Sharma of Bloomberg contributed to this story.