The government is planning to set up a mechanism which would automatically increase the investment limits for blue chip companies at regular intervals. Under the norms prepared by Department of Public Enterprises (DPE), the maximum limit for investment by miniratna, navratna and maharatna ?tags given to companies of a significant size ? will be linked to inflation.
Inflation rate has been mostly rising in the last two years, making raw material and machinery expensive for the industry, hitting its growth and reducing the purchasing power of money. With these factors, companies are finding the current investment limits, imposed by the government rules, bit too low.
Under the current rules, a maharatna company is allowed to invest a maximum of R5,000 crore without taking prior government approval. The limits for navratna and miniratna PSUs are R1,000 crore and R500 crore, respectively. There are five maharatna, 16 navratna and 63 miniratna firms in the country.
The issue (for an a increase in the limits) came up for discussion at a meeting of PSUs with heavy industry and public enterprises minister Praful Patel last month. After the meeting, DPE prepared a paper proposing increasing the limits based on inflation movement. It has also suggested regular review of the limits to instill more enabling provisions to facilitate growth of the public sector. The department is currently discussing the proposal with finance ministry and the Planning Commission.
?There are two principles that we are trying to adopt. One is what is the headline inflation at the given time and second is how aggressive the companies need to be towards making new investments. As we know, inflation has been on a rise and the competition has made it imperative on the companies to be aggressive in acquiring assets. So we have to account for the change in investment strategy and the inflationary spiral together,? DPE secretary Bhaskar Chatterjee told FE. ?Even when we revise the limit, we want to establish a mechanism where we should review the limit every three years,? he added.
As reported by FE on April 12, DPE is also talking to finance ministry and planning commission on giving a higher leeway to maharatna companies exclusively to acquire assets of natural resources abroad. For this purpose, the department is looking to increase the investment limit to R25,000 crore for maharatna companies.
The government is working towards giving more financial autonomy to companies to enable them to effectively compete in the global market and constantly expand their base. Many of these companies are looking abroad for key energy and mineral assets and often face stiff competition in takeover or acquisition deals.