PSUs have been largely responsible for canvassing India's growth story and economic cornerstones. In times of economic downturn, they have been a contractor's best bet, being cash-rich and less susceptible to vagaries. As PSUs show reluctance to invest, however, the government is now less willing to infuse liquidity. Pradeep Pandey assesses the developments and says PSUs have the distinct opportunity to invest more.
At a time when macro-economical parameters are not indicating a turnaround in near future, the policy makers and regulators are weighing various options to ensure liquidity flow in the system and boost investments. In that situation, the government finds Public Sector Units (PSUs) convenient, as most of them sitting on huge cashestimated around Rs 3 lakh crore.
PSUs in energy and related sectors hold more than two-thirds of the total estimated cash surplus. India's 17 major Central Public Sector Enterprises (CPSEs) had more than Rs 1.62 lakh crore in cash reserves during 2012-13. Among these CPSEs, Coal India Ltd (CIL) had the maximum cash and bank balance at Rs 43,776 core, followed by ONGC (Rs 22,450 crore), NMDC (Rs 17,230 crore) and NTPC (Rs 16,185 crore). Cash and bank balance of Oil India (OIL) was at Rs 11,770 crore, SAIL at Rs 13,207 crore and Indian Oil Corporation at Rs 1,290 crore. The CPSEs usually use their funds for commercial purposes including capital expenditure and expansion, payment of dividend and tax, discharge of liabilities and working capital.
With a view to boosting investment and promoting growth, the government is working out new norms for utilisation of PSUs' surplus funds. A committee has been formed by the Department of Public Enterprises (DPE), headed by Department of Economic Affairs Additional Secretary Shaktikanta Das, to review guidelines on investment of excess funds available with public enterprises. At present, there are a number of guidelines issued by the DPE in regard to investment by PSUs. The government is also considering for relaxation in investment norms for the state run companies. A senior official at PGCIL says, 'There is a need to come out with a precise set of comprehensive guidelines with some kind of flexibility to PSUs to invest their surplus money, which may also contribute to country's growth.'
Since last year, the central government has been making efforts to infuse investment flow in capital-intensive sectors such as power and infrastructure. The option to utilise surplus funds with public enterprises were considered to be most suitable while the private sector grappled with cash crunch. In May this year, the Prime Minister's Office (PMO) had directed central PSUs to invest their surplus funds, or pay higher dividend so that the funds could be deployed elsewhere to fuel growth and create jobs.
Cash-rich PSUs such as NTPC, PGCIL, Oil India, Indian Oil Corp and NPCIL hold a large chunk of surplus funds, and the government has been monitoring capital expenditure and investment plans of about 17 major PSUs since last fiscal. 'The autonomy given to PSUs can extract growth oriented results. Many of them have already doled out plans to boost investment. For example, NTPC have to invest about Rs 40,000 crore in next two-three years,' said A K Singhal, Director (Finance) at NTPC. The country's largest state-run power corporation plans to add generation capacity over 2,000 MW by the end of this fiscal. Its projects aggregating about 20,000 MW are at various stage of development.
However, despite several efforts by the government, PSUs are skeptical about opening their kitty. 'At the macro level, public enterprises have gained autonomy and government has indeed taken initiatives to remove bottlenecks. However, it has been observed that many of the PSUs are reluctant to make aggressive investments.'said Harish HV, Partner, India Leadership Team at Grant Thornton.
Analysts and sector specialists believe the recent scams and investigations have created a fear psychosis among the PSUs, even those that had earlier planned genuine investments. Now DPE has demanded that such issues be directed to a Group of Ministers (GoM) as the corruption charges are affecting the decision making process of public sector units. The department has also sought a review of its model conduct rules to impose punishment on erring employees of CPSEs even after retirement, to ring-fence honest employees and genuine projects.
Deal or no deal?
Despite DPE's continued efforts to ease the reluctance, public enterprises' investment-skepticism has also adversely affected joint venture (JV) deals. (A case in point is NTPC's recent decision to pull out from JVs with International Coal Venture Pvt Ltd and with Alstom.) The nodal department for PSUs also wanted the CPSEs to obtain advance in-principle clearance from their administrative ministry for entering into competitive negotiations with prospective partners, companies to be acquired and joint ventures. Currently, companies do this by calling an Expression of Interest (EoI) and inviting tenders for competitive bidding. DPE suggested that after taking clearance from the administrative ministry, possible partners be pre-identified.
According to the department, the committee empowered by the board of the PSU concerned could enter into negotiations with prospective partners with a set of parameters. The empowered committee will obtain formal approval of the board on its recommendations before finalising the deal. On matters beyond the delegated financial powers of the board, approval of the standing empowered committee constituted by the government should be obtained, the department has suggested. It also recommended the deal, approved under such conditions, should not be opened for investigations or review unless clear evidence of wrongdoing or corruption comes to light.
There are certain financial restrictions on the amount of investment even on Maharatna public sector enterprises for acquiring companies abroad. It can invest up to 15 per cent of their net worth in one project, limited to an absolute ceiling of Rs 5,000 crore. The overall ceiling on such equity investments, mergers and acquisitions in all projects put together will not exceed 30 per cent of the net worth of the CPSEs concerned. All the proposals involving investment over the delegated powers are to be sent for approval of the Cabinet Committee on Economic Affairs. According to a report by the Comptroller & Auditor General (CAG), 29 government companies and one statutory corporation had formed 296 joint ventures as on 31 March 2009. These comprised 129 incorporated joint ventures with investments of Rs 4,371 crore and 167 unincorporated joint ventures with investment of about Rs 8,960 crore.
Investments down, Dividends up
Following the government's repeated instructions, the state owned companies paid significantly higher dividends in fiscal year 2013. According to an analysis by leading financial daily Mint, the aggregate dividend payout of 47 public sector undertakings (PSUs), excluding banks, in the year ended March 2013 rose over 14 per cent to Rs 36,441 crore from the figure last year. The combined dividend paid by these companies to the shareholders stood at 36.93 per cent of their overall profit in FY2013, up from 32.50 per cent in FY2012 and 29.31 per cent in FY2011.
The government's demand came as it was struggling to raise financial resources through other mechanisms, including a disinvestment programme hit by choppy equity market conditions. For fiscal year 2013, the government set itself a disinvestment target of Rs 30,000 crore. However, It could only raise Rs 23,956 crore. Top dividend-paying companies such as Coal India Ltd, Oil and Natural Gas Corporation (ONGC) and NTPC have seen the dividend payout ratio increase by 3-15 percentage points in the last fiscal year compared with 2011-12.
Coal India Ltd (CIL), which has the largest kitty of surplus-funds and also paid the highest dividend, has a different situation as its need for capital investment was relatively lower, according to Chairman S Narsing Rao. CIL's capital investments were estimated at Rs 5,000 crore per year. Against this, the company was sitting on cash and cash equivalents of Rs 62,236 crore as on 31 March.
ôWe are a cash rich company because our capital expenditure is limited,ö Rao said. CIL has paid the highest dividend among PSUs for FY 13, this amounted to Rs 8842.91 crore, 40 per cent higher than in the previous year.
Weak growth remains the predominant policy concern. The government hopes to improve growth by end of the year, but so far, initiatives to revive growth have yielded little result. Apart from this, the challenges pertaining to the energy sector specially power sector, in which majority participation is by PSUs, are yet to be fully resolved. ' "The challenges pertaining to the energy sector specially power sector, in which majority participation is by PSUs, are yet to be fully resolved. If issues like fuel supply and pricing, mandatory clearances (land, mining, environment etc) by the authorities and fast track SEB reforms are not resolved soon, it may hamper the growth of the companies,'said HDFC Securities research head Deepak Jasani. Although the government has stepped up clearances and has pushed for more investment spending, and despite the RBI easing interest rates, actual investment on the ground remains stalled, reflecting weak business sentiment. Moreover, political parties are gearing up for elections. Hence, economic decisions could take a back seat in the coming months. Thus, GDP growth estimates for the second half of FY 13-14 may depend largely on resumption in government spending ahead of elections rather than a meaningful turnaround in the underlying economy.
The Road Ahead
As discussed above, there is no denying the fact that PSUs have taken the Indian economy to new heights and have demonstrated global competitiveness and market leadership. They are considered as being responsible for canvassing India's growth story and are veritably economic cornerstones. As highlighted earlier, the empowerment of these enterprises by the government has been a key enabler which has helped them in overcoming some of the operational constraints, critical for successful functioning of these organizations. PSUs have always played prominent role in Indian economy whenever there is economic crisis.
DPE SEEKS MORE LEGROOM
POWER PSUs SCORE ON CSR
I wish to start pvc / pp electric wire unit in Delhi. What kind of information I can get if I subscribe for your magazine
Pls invite me all auction in gujarat
we are doing business developing for solar power ,thermal power , customer supporting and we have 45 mw splar power on hand needs investors.....
pls call +910842559230