C.R.L. Narasimhan

From Navratnas to Maharatnas

The objective is to give more autonomy to the chosen companies so that they can take on global competition

At the end of last year, the government announced a new policy under which select top performing central public sector units would be delegated substantially more financial and managerial powers than what they already have. The policy approved by the Cabinet seeks to provide further incentives to public sector enterprises that are in the category of Navratnas and already enjoy a substantial measure of operational freedom.

From these Navratnas those that fulfil certain well defined criteria will be elevated to the Maharatna status. The government, which will continue to be the majority shareholder in these companies, will give the Maharatnas greater leeway in operational matters than they now enjoy as Navratnas.

Greater freedom

Essentially, the government policy ought to be viewed as a further relaxation of the hold of the ministries concerned over the PSEs. It is in continuation of a process that began in 1997 when nine Navratnas (nine gems) were created.

The objective then, as now, was to give more autonomy to the chosen companies. Top PSE managers would be equipped to take on global competition. Over time nine more were added to the original list.

Of the 18 existing Navratnas six are likely to be elevated to the Maharatna status. These are the three integrated petroleum companies — Indian Oil, Hindusthan Petroleum and Bharat Petroleum — NTPC, Oil and Natural Gas Corporation and Steel Authority of India.

Norms for elevation

What are the norms for elevation as Maharatnas? The six point eligibility criteria are: (a) an existing Navratna status; (b) listing on the stock exchanges with minimum public shareholding as prescribed by the SEBI; (c) annual turnover of more than Rs.25,000 crore for the last three years; (d) average annual net worth of at least Rs.15,000 crore; (e) average annual net profit of more than Rs.5,000 crore for the last three years. (f)) a significant global presence. The boards of the Maharatnas will have powers for equity investment to establish joint ventures and wholly owned subsidiaries in India and abroad .They can undertake mergers and acquisitions in India or abroad.

However, each company will have a ceiling of 15 per cent of its net worth for investment in a project. There will also be an absolute ceiling of Rs.5,000 crore for each project. It is evident that the government is keen on increased levels of delegated power for the Maharatnas. These PSEs can also fill up most managerial positions without government clearance.

Enhanced expectations

Will the new policy incentivise top rung PSEs further? A key expectation is that those PSEs which do not make the Maharatna grade now will endeavour to reach it.

On the other hand, the Maharatnas, with fewer controls, are expected to grow into global behemoths and take on competition. What is left unsaid but obvious is that these PSEs will reward their shareholders through superior market valuation.

Needless to add, the majority shareholder will be the government.

Public character to stay

More than 12 years after the Navratnas came into being, the domestic as well as the global environment in which the Indian public sector operates has changed vastly. The success of the new policy will depend on how well fresh incentives enhance their strengths while minimising their shortcomings.

Compared to the late 1990s the government and the PSEs face less uncertainty in one critical area: their ownership structure is unlikely to change in the foreseeable future. Back in 1997, disinvestment, including outright privatisation, was very much on the cards. Today, among all political parties, there is very little support for any move that would bring down government ownership in PSEs to below 51 per cent.

More relevantly, after the global crisis, the superiority claimed for the private sector model has been proved to be a myth even in capitalist countries. However, disinvestment is back in fashion as a tool of fiscal prudence although this time the government proposes to shed its equity holdings in a way that will not compromise the public character of the enterprises.

Shackles remain

If ownership debate is passé, the shortcomings of public ownership in India cannot be wished away, especially in enterprises whose commercial decision making will be scrutinised from a vigilance angle. Then there is parliamentary control and the accounts will have to be audited by the Comptroller and Auditor General.

Maharatnas, Navratnas or ordinary PSEs can never get a level playing field with the private sector — in the present case, likely to be well established multinationals — unless these shackles are removed.

Way back in July 1997, G.V. Ramakrishna, then heading the Disinvestment Commission, said the Navratna package was incomplete without accountability norms for chief executives as well as safeguards for their commercial decisions. More than 12 years on, the lacuna remains and is particularly glaring because of the fact that Maharatnas will have much greater powers delegated to them.

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Printable version | Nov 28, 2021 8:24:47 PM | https://www.thehindu.com/opinion/columns/C_R_L__Narasimhan/From-Navratnas-to-Maharatnas/article16836945.ece

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