A first-of-its-kind government proposal could see blue-chip public sector enterprises stripped of some of the powers they enjoy. Oil & Natural Gas Corporation, Indian Oil Corporation, NTPC Ltd and Steel Authority of India may lose their coveted maharatna status if they underperform after the government establishes a system of regular review of their operations. This is being considered to keep a strict vigil on central public sector companies that enjoy freedom to take financial and managerial decisions without government permission.
Currently, a maharatna central public sector enterprise (CPSE) has the freedom to invest up to Rs 5,000 crore in a single project without seeking the government?s approval. In contrast, the board of a navratna CPSE can clear investment proposal of a maximum of Rs 1,000 crore in a project, while a miniratna enjoys the flexibility for investment up to Rs 500 crore.
?The maharatna scheme was notified only a year back and we are still in the process of conferring maharatna status to CPSEs. Once the scheme settles down, we will prepare a mechanism for regular review of these companies,? department of public enterprises secretary Bhaskar Chatterjee told FE. As of now, only ONGC, IOC, NTPC and SAIL have received the coveted tag of maharatna. Blue-chips like Bharat Heavy Electricals are also seeking the benefits attached to the status.
Chatterjee said the performance of maharatna firms would be reviewed every three years. ?If there is a drop in their financial or administrative performance, the status should be revoked,? he said.
This would mean that companies will need to continuously improve their performance or get stripped of the maharatna tag. It would also prevent the companies from taking the new status for granted and misuse the autonomy.
?It (the proposed review system) would ensure proper functioning of CPSEs, and we would prefer having a strict government monitoring of performance as that would safeguard returns to the shareholders,? said Standing Conference of Public Enterprises director general UD Choubey.
Official sources in the department of public enterprises, part of the ministry of heavy industry and public enterprises, said that once the system of regular review is proven effective for maharatna companies, a similar mechanism may be put in place for navratna and miniratna companies. According to official data, there are 16 navratna companies and 62 miniratna companies in the country.
According to the guidelines, a maharatna company should have an average turnover of more than Rs 20,000 crore in the previous three years, while annual average net worth should be higher than Rs 10,000 crore during the period. Average yearly net profit should also be in excess of Rs 2,500 crore.
These norms are actually a diluted version, relaxed last month after pressure from some companies that were unable to meet the criteria. When the scheme was originally notified in February 2010, the benchmarks for average turnover, net worth and net profit were Rs 25,000 crore, Rs 15,000 crore Rs 5,000 crore, respectively.
At present, the government has left it to market regulator Securities and Exchange Board of India (Sebi) to monitor navratna companies’ operations regularly in respect of listing norms. But Sebi has proved to be ineffective in delisting those CPSEs that are not meeting its listing norms, including having a defined number of independent directors. Industry estimates show there are more than 300 vacancies for independent directors on CBSE boards. The government by itself does not carry out any frequent supervision on whether the companies satisfy the norms under navratna or miniratna schemes.