Boosting CPSEs in Key Industries for Investment Flexibility 2023
Central Public Sector Enterprises (CPSEs) play a pivotal role in the Indian economy, contributing significantly to GDP growth, employment generation, and infrastructure development. CPSEs operating in strategic sectors such as energy, defense, and telecommunications have a profound impact on national security and economic stability.
However, to unlock their full potential and ensure their competitiveness in a globalized market, it is essential to grant these CPSEs greater investment autonomy.
The government is thinking about allowing central public sector enterprises (CPSEs) to invest up to 60% or more of their net worth in projects, downstream businesses, or joint ventures (JVs) without seeking Cabinet approval. This would be in line with the policy of giving CPSEs more operational freedom.
However, it’s likely that the modifications will apply to CPSEs in important industries like electricity, oil, coal, and other minerals. With the CPSEs in these sectors likely to be encouraged to buy assets abroad, the action may enhance the nation’s security with regard to its essential minerals and energy.
The “Maharatna” CPSEs, which have the most authority devolved to them, are now permitted to invest up to Rs 5,000 crore (15 percent of net worth, or NW), or 30% of NW, across all of their projects. They are permitted to invest up to Rs 5,000 crore (or 25% of NW) in one project and a maximum of 40% of NW across all projects in the acquisition of foreign raw material assets through M&A, JV investments, or subsidiary investments.
These autonomy levels, albeit respectable for domestic investments, fall short when it comes to global energy and mineral assets, sources said. As a result, China and other nations have an edge owing to their quicker decision-making processes. After proper engagement with the parties involved, the procedure to get Cabinet approval on such investment proposals may take months.
Strategic sector CPSEs including Oil and Natural Gas Corporation (ONGC), NTPC, Coal India, Indian Oil, and Bharat Petroleum Corporation (BPCL) might have an advantage to protect India’s interests in vital minerals throughout the world if the government decides to provide more investment autonomy.
The strategic sector strategy, which stipulates that the government maintains a minimal presence in the four major sectors while the others can be privatised, merged, or closed, was presented in the Budget for FY22. These industries include banking, insurance, and financial services, as well as atomic energy, space and defence, transportation and telecommunications, electricity, petroleum, coal, and other minerals. All CPSEs in the non-strategic sector will be privatised, or if that is not possible, closed.
Last year, the government gave the boards of CPSEs the authority to make these decisions without seeking Cabinet permission. They just had to inform a ministerial panel of their intention. Giving their boards the authority to downsize CPSEs and carry out these deals on their own would allow the Department of Investment and Public Asset Management to concentrate on selling CPSEs strategically.
As of my knowledge cutoff in September 2021, CPSEs are subject to stringent government regulations, oversight, and control when it comes to decision-making and investments.
While this level of government involvement aims to safeguard national interests, it can hinder the flexibility and efficiency that CPSEs need to compete effectively in today’s dynamic business environment.
Granting CPSEs in strategic sectors more investment autonomy can significantly enhance their operational efficiency. These enterprises can make quicker investment decisions, respond to market dynamics more effectively, and implement innovative strategies without the bureaucratic red tape that often accompanies government control.
Global competition in strategic sectors is fierce. By allowing CPSEs greater autonomy, they can adopt cutting-edge technologies, form strategic partnerships, and access capital markets more easily. This can help them stay competitive both domestically and internationally.
The best talents in the industry are often attracted to organizations that offer a dynamic and innovative work environment. Investment autonomy can make CPSEs more appealing to top-notch professionals who seek opportunities to work in an environment that encourages innovation and rapid decision-making.
Increased investment autonomy can help CPSEs make sound financial decisions that lead to fiscal sustainability. They can diversify their revenue streams, optimize resource allocation, and minimize financial risks more effectively.
CPSEs will be able to make investment decisions swiftly, capitalizing on market opportunities and responding to threats in a timely manner.
Greater autonomy will allow CPSEs to explore and forge strategic partnerships with private sector companies, research institutions, and foreign entities. This can lead to the development of cutting-edge technologies and products.
With more investment autonomy, CPSEs can allocate resources to research and development initiatives, fostering a culture of innovation and technological advancement.CPSEs can allocate resources more efficiently, ensuring that capital is invested where it is needed most to drive growth and profitability.
The ability to respond quickly to changing market conditions and adopt the latest technologies can make CPSEs more competitive, both nationally and internationally.
As CPSEs become more competitive and profitable, they can expand their operations, leading to increased job opportunities for the workforce.Increased investment autonomy can lead to higher returns for government shareholders, as CPSEs are better equipped to generate profits and dividends.
Empowering CPSEs operating in strategic sectors with greater investment autonomy is a step in the right direction. It can enhance their efficiency, competitiveness, and fiscal sustainability, ultimately benefiting the Indian economy and national security.
However, it is essential to strike a balance between autonomy and accountability to ensure that CPSEs continue to serve the best interests of the nation while thriving in a dynamic global environment.
The government must carefully design policies and frameworks that enable this transition towards greater investment autonomy for strategic-sector CPSEs while maintaining transparency and accountability.
