India is planning a new approach for stronger, healthier state-owned enterprises

The Center plans to make public sector units (PSUs) more efficient, professional and profitable in the long run instead of selling them prematurely, thereby creating more value for shareholders, including the government.

According to two people aware of the matter, the current thinking in the government is to strengthen the PSUs, collect healthy dividends and publicly list them for the long term, which would give good returns while the Center could retain ownership.

“The emphasis is on making these organizations more professionally managed, so that their decisions are more board-driven, across all sectors, regardless of whether they are strategic or non-strategic issues,” one of the two people said on condition of anonymity . .

In 2022, the Union Cabinet had approved empowering PSU boards to recommend and undertake full or partial sale of shares, or to close down subsidiaries or units, or to sell shares in joint ventures.

Also read: Oil & Gas, Power and PSU Banks are among the top five underperforming indices during the first half of FY25

“It is also a matter of how they use the financial resources at their disposal,” he added. The official said while some PSUs may be strapped for cash, there are others that have resources but often go wrong in deciding how and where to channel them.

Questions sent by email to the Ministry of Finance remained unanswered.

In some cases, the government may also decide to invest in the companies, the people said. Some entities may already be doing better than others, but in some cases some form of financial support may be available.

For example, Rashtriya Ispat Nigam Ltd, which owns the 7.5 million tonne capacity Visakhapatnam Steel Plant in Andhra Pradesh, is expected to get a revival package bundled with a restructuring plan to make the loss-making steelmaker more efficient and self-reliant . The government had approved strategic disinvestment of government stake in RINL in January 2021, but has not made much progress.

In the case of public telco Mahanagar Telephone Nigam Ltd (MTNL), discussions are underway over its outstanding debt of approximately ₹8,000 crore, even though the government-backed bonds will be honored by the government when they mature.

A ‘long tail’ of healthy CPSEs can deliver better dividends

The second official said the push for more efficient PSEs was a step towards creating more value for shareholders, including the government. A ‘long tail’ of healthy CPSEs can deliver better dividends, and some can be floated to the markets in the long term, the official said.

The government has earned ₹59,533 crore from PSU dividends in FY23, which increased to ₹63,749 crore in FY24, higher than revised estimates (RE) of ₹50,000 crore. At the end of October, dividend receipts amounted to FY25 ₹28,357.46 crore, more than half of ₹56,260 crore as estimated in the Union Budget 2024.

“This is the ideal path and is progressive. Most major PSEs are profitable, add value and contribute to government revenues through dividends. To move to the next level, this idea of ​​board-driven professionalism makes sense. This will definitely appeal to the market as well,” said Madan Sabnavis, chief economist, Bank of Baroda.

Meanwhile, proceeds from divestments remain weak, with minority stake sales through follow-on bids. As of Monday, total disinvestment receipts were for FY25 ₹5.175 million. Tuhin Kanta Pandey, secretary of the Ministry of Investment and Public Asset Management (DIPAM), had said this Mint after the presentation of the Union Budget that privatization plans were underway but would not be a priority under the government’s calibrated approach to disinvestment, and that the focus will be on ‘value creation’ from disinvestments, dividends and returns for shareholders.

The Union Budget continued the interim budget’s strategy of not sticking to disinvestment targets. Mint previously reported that the government was likely to refrain from the practice of setting revenue targets for disinvestments, or from making sales in central public sector companies that the government would partially or fully exit.

According to data from the Ministry of Public Enterprises, successful CPSEs have improved their operations and finances and in turn increased their market capitalization. Since FY15, 18 CPSEs, including Life Insurance Corp. of India, listed, which generated returns ₹51,244.10 crore. During this period, 7.59 million private investors invested ₹16,564.36 crore in IPOs of CPSEs, the data shows.

An additional market capitalization of ₹7.47 trillion was reached through new listings. As of May 2024, there were 62 CPSEs listed, excluding public sector banks and insurance companies, with a total market capitalization of ₹40.82 trillion. The total market capitalization of 16 public sector banks and insurance companies was ₹25.40 trillion, data from DPE’s FY24 annual report shows.

The improved performance of PSEs has also moved them up the Navratnas rankings, giving them greater autonomy, allowing them to invest up to 30% of their net worth in a year, subject to a maximum of ₹1,000 crore, and allocate investments up to ₹1,000 crore in projects without needing government approval.

In August this year, Railtel Corp. of India, Satluj Jal Vidyut Nigam, National Hydroelectric Power Corp. and Solar Energy Corp. of India Ltd upgraded to Navratna status, bringing the total to 25 such entities. The government recently granted Navratna status to Indian Renewable Energy Development Agency Ltd, which was listed on Indian stock exchanges in November 2023.

To be fair, the government’s asset monetization plans are unlikely to change course as the PSEs undertake segregation and sale of their land and real estate assets to create value for the entity.