Extra powers for Navratnas have riders

The enhanced powers for mergers and acquisitions (M&A) being delegated to the central public sector enterprises will come with certain strings attached.

The Finance Ministry is of the opinion that the M&A decisions should not be interpreted as those within the ambit of "autonomy" given to the Navratnas and mini-ratnas.

The guidelines for enhancing the powers of Navratna and mini-ratna PSEs was discussed at the meeting of the Committee of Secretaries on November 5. The proposal will now have to be approved by the Union Cabinet. "The cash-rich PSEs will not be able to invest at will," said an official.

The government would ensure that no single PSU can perpetuate monopoly, he added. The government has laid down guidelines for investment of the surplus of the Navratnas and mini-ratnas. The finance ministry has, in the past, said that delegated powers would not include the power to decide about mergers and acquisitions.

According to the current dispensation, the central PSEs must take prior approval of the government with regard to mergers or acquisitions or any other major business initiative. This is applicable to all the PSEs irrespective of whether they are Navratnas or mini-ratnas.

To strengthen the PSUs, it was important they should be empowered to take decisions with respect to joint ventures, especially technological collaborations, said officials. The national common minimum programme had said the government would identify PSEs that had comparative advantage and support them to become global giants.

These PSEs would be eligible for the enhanced delegated powers, provided they had not defaulted in the repayment of loans due to the government.

The government has decided to delegate certain powers to the boards of the PSEs in areas such as forming technology joint ventures or strategic alliances, and to obtain by purchase or other arrangements, technology and know-how.

The Navratna PSEs can establish financial subsidiaries in India or abroad with the stipulation that the equity investment of the PSE should be limited to Rs 200 crore in any one project. There are other conditions too.

The net worth of the PSE in any one project should not exceed five per cent and the net worth of the PSE in all the joint ventures and subsidiaries put together should be restricted to 15 per cent.

Currently, those mini-ratna PSEs which have made profits in the last three years with a pre-tax profit of Rs 30 crore are classified as Category I PSEs. These companies are also required to have a positive net worth.

Category I PSEs are allowed to establish joint ventures and subsidiaries in India, with the stipulation that the equity investment of the PSEs should be limited to Rs 100 crore in any one project and must not exceed 5 per cent of the net worth of the PSE in any one project or 15 per cent of the net worth of the PSE in all the joint ventures put together. These decisions will have to be whetted by the administrative ministries.

Category II PSEs are those that have made profits for the last three years and have a positive net worth. The equity investment of these PSEs in the joint ventures and subsidiaries should be limited to Rs 50 crore, with other limitations like a maximum 15 per cent of the net worth of the PSE in all the joint ventures remaining constant.