Forget the political refrain about a policy shift away from state-owned companies, the number of such firms has only risen in recent years, especially during the Modi 2.0 government.
As many as 402 Central Public Sector Enterprises (CPSEs) were in existence in 2022-23, sharply up from 348 in 2018-19, according to official data. The surge was mainly because stronger CPSEs, especially those in sectors like petroleum, power and defence, floated new subsidiaries.
These companies incorporated new firms as they forayed into areas prioritised by the government like renewable energy, indigenous manufacturing of defence gear, electricity transmission etc. The lower corporate tax rate for “new manufacturing units” also led to setting up of new CPSE arms.
Of course, the process of consolidation of CPSEs is also going on simultaneously, and has gathered pace of late. The number of operating CPSEs only saw a marginal increase to 254 in FY23 compared with 249 in FY19 as many of the operating (and unprofitable) CPSEs were pushed for closure or liquidation or just became non-operational as their business became unviable. Such companies were just 13 in FY19, but their number rose to 64 in FY23.
However, the number of CPSEs directly owned by the Centre has declined to 142 from 146 during the period as the Centre privatised Air India and some CPSEs including Hospital Services Consultancy Corporation were acquired by other CPSEs. These reflected the new public sector enterprises (PSE) policy unveiled by the Centre to reduce the government presence in non-strategic areas.
In 2021, the Centre unveiled the PSE policy which entailed that the government has a minimum presence in the four broad sectors while the remaining ones can be privatised, merged or closed. These sectors are atomic energy, space and defence; transport and telecommunications; power, petroleum, coal and other minerals; banking, insurance and financial services. In the non-strategic sector, all CPSEs will be privatised or closed in case privatisation is impossible.
Later, the government empowered the boards of the CPSEs to privatise, disinvest or close their subsidiaries and sell stakes in joint ventures without Cabinet approval by just intimating to a ministerial panel their decision. The move was aimed at giving power to their boards to right-size the CPSEs and undertake these transactions on their own, leaving the Department of Investment and Public Asset Management to focus on strategic sales of CPSEs.
Depending on the status of the CPSEs, the government has given investment autonomy to them to create subsidiaries and joint ventures with such investment capped at Rs 5,000 crore to Maharatna CPSEs. The subsidiaries of state-run firms where any CPSE has more than 50% equity are also categorised as CPSEs.
With the government thrust on net zero, most of the energy/power sector CPSEs have floated renewable energy subsidiaries and joint ventures in the last two years to take advantage of the lower corporate tax regime of 15% for new manufacturing firms, which was available till March 2024.
Besides taking advantage of the lower tax regime, another trigger to set up joint ventures was that since green projects are a new line of business, JV partners wanted equity in these particular businesses/subsidiaries instead of taking stakes in the parent companies.
Some of the major green subsidiaries floated by CPSEs in the last couple of years include NTPC Green Energy, SJVN Green Energy, NHPC Renewable Energy, NLC India Green Energy, CIL Navikarniya Urja and ONGC Green. These ventures would be growth drivers for their parent companies in the future.
The CPSEs posted a 15% decline in aggregate net profit at Rs 2.12 trillion in FY23, mostly due to a massive dip in profit by oil marketing and steel firms due to volatility in commodity prices after the Ukraine-Russia war. CPSEs had reported a whopping 51% annual growth in aggregate net profit at Rs 2.49 trillion in FY22. The overall net profit of operating CPSEs in FY19 stood at Rs 1.43 trillion.