India plans new play for stronger, healthier state run firms
- The govt is working on a new playbook to make state run firms more professional, efficient and profitable in the long term rather than going for immediate disinvestment, leading to higher value creation for shareholders including the government in the backdrop of India’s economic growth trajectory.
The Centre plans to make public sector units (PSUs) more efficient, professional and profitable in the long term rather than sell them early, creating greater value for shareholders, including the government.
According to two people aware of the matter, the current thinking in the government is to strengthen the PSUs, collect healthy dividends and publicly list them over the long term, which would fetch good returns while allowing the Centre to retain their ownership.
“The focus is on getting them more professionally run, so that their decisions be more board-driven, across sectors, irrespective of whether it is in the strategic or the non-strategic,” one of the two people said on the condition of anonymity.
In 2022, the Union cabinet had approved empowering PSU boards to recommend and undertake full or partial stake sales, or close any subsidiaries or units, or sell stake in joint ventures.
“It’s also a question of how they’re utilizing the financial resources they have available to them,” he added. The official said that while some PSUs may be cash-constrained, there were others who have resources but often err in deciding how or where to channel them.
Queries emailed to the ministry of finance remained unanswered.
In some instances, government may also decide to invest in the companies, the people said. Some of the entities may already be faring better than others, but in some cases, some kind of financial assistance may be provided.
For instance, the Rashtriya Ispat Nigam Ltd, which owns the 7.5 million ton capacity Visakhapatnam Steel Plant in Andhra Pradesh, is expected to get a revival package bundled with a restructuring plan to make the loss-making steel maker more efficient and self-sustaining. The government had approved strategic disinvestment of the government’s stake in RINL in January 2021, but it has not made much headway.
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In the case of public sector telco Mahanagar Telephone Nigam Ltd (MTNL), discussions are under way on its outstanding debt of about ₹8,000 crore, even as its sovereign-backed bonds will be honoured by the government whenever they fall due.
‘Long tail’ of healthy CPSEs can give better dividends
The second official said the push towards more efficient PSEs was a step in the direction of creating more value for shareholders, including the government. A "long tail" of healthy CPSEs can give better dividends, and some could be taken to markets over the long term, the official said.
The government earned ₹59,533 crore from PSU dividends in FY23, which rose to ₹63,749 crore in FY24, exceeding Revised Estimates (RE) of ₹50,000 crore. As of October end, dividend receipts for FY25 stood at ₹28,357.46 crore, more than half of ₹56,260 crore as estimated in the Union Budget 2024.
“This is the ideal way to go, and is progressive. Most big PSEs are profitable and are adding value and contributing to government revenue with dividend. To go to the next level, this idea of board-driven professionalism makes sense. This will also appeal to the market for sure,” said Bank of Baroda chief economist Madan Sabnavis.
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Meanwhile, disinvestment receipts remain weak, with stake sales of minority shares via follow-on public offers. As of Monday, total divestment receipts for FY25 stood at ₹5,175 crore. Tuhin Kanta Pandey, secretary of the department of investment and public asset management (DIPAM) had told Mint after the Union budget presentation that privatization plans were ongoing, but would not be a priority under the government's calibrated approach to disinvestment, and that focus will be on 'value creation' from disinvestment, dividends and returns for shareholders.
The Union budget continued the interim budget's strategy of not keeping targets for disinvestment. Mint earlier reported that the government was likely to keep away from the practice of setting revenue targets for disinvestment, or stake sales in central public sector enterprises that the government would either partially or fully exit.
According to data from the department of public enterprises, successful CPSEs have improved their operations and financials and in turn have increased their market capitalization. Since FY15, 18 CPSEs, including Life Insurance Corp. of India, have been listed, yielding ₹51,244.10 crore. During this period, 7.59 million retail investors invested ₹16,564.36 crore in IPOs of CPSEs, the data revealed.
An additional market capitalization of ₹7.47 trillion was achieved through new listings. As on May, 2024, 62 CPSEs were listed, excluding public sector banks and insurance companies, with a total market cap of ₹40.82 trillion. The total market cap of 16 public sector banks and insurance companies was ₹25.40 trillion, data from DPE’s annual report from FY24 noted.
The improved performance of PSEs have also pushed them up rankings of Navratnas, which grants them greater autonomy, allowing them to invest up to 30% of their net worth in a year, with a cap of ₹1,000 crore, and assign investments of up to ₹1,000 crore to projects without needing government approvals.
In August this year, Railtel Corp. of India, Satluj Jal Vidyut Nigam, National Hydroelectric Power Corp., and Solar Energy Corp. of India Ltd were upgraded to Navratna status, taking the total to 25 such entities. The government recently awarded the Navratna status to Indian Renewable Energy Development Agency Ltd, which was listed on the Indian stock exchanges in November 2023.
To be sure, government’s asset monetization plans are unlikely to change track, with the PSEs undertaking segregation and sale of their land and real estate assets to create value for the entity.
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Business NewsNewsIndia plans new play for stronger, healthier state run firms
First Published:29 Oct 2024, 05:45 AM IST
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