GOVERNMENT OWNED, BUT COMPETITIVE

After announcing ambitious plans to divest government stakes in public sector undertakings (PSUs), the government has taken another step to accord more freedom to PSUs. The creation of a new category of high-performing PSUs—Maharatnas—that will be allowed more freedom to operate without obtaining permission from the government is a good move. In particular, PSUs in the Maharatna category will have more freedom to expand overseas, through investments, mergers & acquisitions and joint ventures. Foreign investments up to Rs 5,000 crore will not require prior clearance from the government. For the moment, 18 Navratna PSUs are allowed to invest only up to Rs 1,000 crore overseas without prior approval from the Cabinet. The criteria laid down to qualify as a Maharatna is fairly stringent—an average annual turnover of Rs 25,000 crore, net profit after tax of Rs 5,000 crore and net worth of Rs 15,000 crore over the last three years. This ends up allowing only three PSUs to make the grade—ONGC, NTPC and SAIL. Still, one can immediately see how even just these three firms can benefit from the government's move. SAIL chairman SK Roongta told FE that this will help his firm acquire sources of raw material abroad. ONGC has been one of the few PSUs that have been looking abroad for a while now.

 

There are, of course, two major problems of government control over PSUs—one is, of course, the milking of PSUs as sources of patronage. The second is the complicated and time-consuming process of obtaining permission. In a globalised economy, firms, whether government-owned or not, need to make quick decisions if they are to be competitive. So, while disinvestment will proceed slowly—it will take a while before government reduced its stakes well below the 50% mark—PSUs need to be given more management freedom in the interim. Seen in that context, granting some additional freedom to three PSUs isn't a landmark achievement. More firms need similar freedoms. It's possible that setting a high bar to obtain Maharatna status will drive other PSUs to reach the qualification mark—it could act as an incentive for at least the Navratnas. But will parent ministries give enough space and freedom for the Navratnas to scale up to Maharatnas and for non-Navratnas to scale up to Navratnas? We certainly hope so. At least the UPA, in its second avatar, has signalled clear intent to change the way PSUs function.