Fresh curbs by DIPAM on CPSE arms and JVs

By: and |
New Delhi | Published: January 12, 2019 5:20:28 AM

The DIPAM’s contention is that investments in CPSE subsidiaries are often not giving any/enough returns to the government as the promoter.

The diktat issued earlier this month, with the approval of finance minister Arun Jaitley, could delay investment decisions and might curb freedom enjoyed by the better performing CPSEs.

One arm of the government takes away what the other has given. In what could be seen as partial roll-back of the powers to take financial decisions delegated by the department of public enterprises to top central public sector undertakings in 2015, the department of investment and public asset management has sent a missive to them, mandating its prior nod for the setting up of any subsidiary or joint venture.

The DIPAM’s contention is that investments in CPSE subsidiaries are often not giving any/enough returns to the government as the promoter.

The diktat issued earlier this month, with the approval of finance minister Arun Jaitley, could delay investment decisions and might curb freedom enjoyed by the better performing CPSEs, a CPSE official told FE on the condition of anonymity.

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In 2005, the DPE had delegated certain powers to ‘financially sound’ firms, doing away with the need for Cabinet approvals for their investment decisions of up to certain (high) defined limits. Accordingly, Maharatnas, among CPSEs, have had the freedom to establish financial joint ventures and wholly-owned subsidiaries in India or abroad subject to equity investment limit of Rs 5,000 crore in any one project. Similarly, Navaratna firms can invest up to Rs 1,000 crore sans cabinet approval, while Miniratnas can spend Rs 500 crore on a single project. Such investment in any one project is, of course, capped at 15% of the net worth of the firm concerned; the upper limit is 30% of the net worth of a CPSE in all its joint ventures/subsidiaries put together.

In August 2016, the DPE itself revised its guidelines to mandate that administrative department will have to seek concurrence of NITI Aayog on creation of such new units by CPSEs to check their proliferation without adequate economic returns/rationale.

The latest directive by DIPAM follows some investment decisions by CPSEs without its nod or knowledge. In the new order, DIPAM has made it clear that before making a subsidiary/JV/change in equity structure, the CPSEs should first take approval from it.

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The DIPAM has drawn the power for such a move from the 2016-17 Budget that adopted a comprehensive approach for efficient management of government investment in CPSEs. It re-named the then department of disinvestment as the DIPAM and tasked it with management of all government investments in a holistic manner.

As on March 31, 2018, as many as 82 subsidiaries are being formed by CPSEs. Some are ‘under-construction’ for decades: SJVN Thermal since 1988 and Punjab Ashok Hotel since 1998, for instance. Rites and Sail have formed a JV to manufacture railway wagons which is also not profitable.

“Though in a way it is good that an outside body will examine the proposals, the problem is the potential delays that could hit investments in the economy,” another CPSE official said.

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The aggregate financial investments in all CPSEs, including under construction CPSEs (comprising paid-up share capital, share application money pending allotment, money received against share warrants and long term loans) grew from Rs 29 crore in 5 enterprises in 1951 to Rs 13,73,412 crore in 339 enterprises as on March 31, 2018. The CPSEs are in the process of investing about Rs 20,000 crore in about 80 under-construction subsidiaries as on March 31, 2018.

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