10-March-2025-Editorial

CONCERNS OVER CPSES’ CAPITAL EXPENDITURE STRATEGY

Central Public Sector Enterprises (CPSEs) are crucial to India’s economy, contributing to infrastructure, employment, and industrial development. However, a recent trend of increased reliance on budgetary support rather than self-financing or private investment has raised concerns about their financial sustainability and autonomy.

Concerns Regarding CPSEs

1. Overdependence on Budgetary Support

• CPSEs are increasingly relying on government funding instead of their own Internal and Extra Budgetary Resources (IEBR).
• Budgetary support has surged by over 150% in five years, from Rs 2.1 lakh crore in FY20 to Rs 5.48 lakh crore in FY25.
• Meanwhile, IEBR has significantly declined from Rs 6.42 lakh crore in FY20 to Rs 3.63 lakh crore in FY23, restricting CPSEs’ financial flexibility.

2. Reduced Private Sector Participation

• CPSEs’ increased dependence on government funding has discouraged private investment.
• The National Highways Authority of India (NHAI) was expected to raise 38% of its funds from private investors, but due to rising debt (Rs 3.48 lakh crore in 2022) and policy instability, its IEBR fell to zero in FY23-FY24.
• High debt burdens limit CPSEs’ ability to attract private capital and affect their financial health.

3. Policy Concerns

• The Standing Committee on Transport (FY22) emphasized that government support alone is inadequate to meet CPSEs’ investment requirements.
• Excessive reliance on budgetary funds could strain government resources, reducing allocations for social and developmental programs.

4. High Dividend Payments

• The government often directs CPSEs to prioritize high dividend payouts instead of reinvesting in business expansion.
• This practice restricts their ability to modernize, innovate, and pursue long-term growth.

5. Limited Financial Autonomy

• Unlike private companies, CPSEs lack operational flexibility, leading to delayed decision-making.
• Past mergers and acquisitions, such as ONGC’s acquisition of Hindustan Petroleum Corporation Limited (HPCL), depleted cash reserves, further limiting their capital expenditure.

Key Facts About CPSEs

• CPSEs are companies where the Central Government or other CPSEs hold at least a 51% stake.
• The Department of Public Enterprises (DPE) oversees CPSEs’ policies and performance.
• After independence, CPSEs were established in core sectors such as steel, energy, banking, and telecommunications. Post-1991 reforms shifted their focus towards efficiency and competition.

2. Significance

• CPSEs drive economic growth, infrastructure development, employment generation, and industrialization.
• They are classified into Miniratna, Navratna, and Maharatna categories based on financial and operational criteria.
• As of February 2025, IRCTC and IRFC became the 25th and 26th Navratna companies in India.

3. Current Status and Financial Performance

• As per the Public Enterprises Survey 2023-24, India has 448 CPSEs, but only 272 were operational in FY24.
• The gross revenue of operating CPSEs declined by 4.7% to Rs 36.08 lakh crore in FY24.
• CPSEs contributed Rs 4.85 lakh crore to the central exchequer in FY24, a 5.96% increase from FY23.
• CPSEs earned Rs 1.43 lakh crore in foreign exchange in FY24, supporting India’s trade balance.

4. Other Public Enterprises

• Public Sector Banks (PSBs) are banks where the government or PSBs hold at least a 51% stake.
• State-Level Public Enterprises (SLPEs) are controlled by state governments with at least a 51% shareholding.

Measures to Address CPSEs’ Concerns

1. Disinvestment and Privatization

• Under the New Public Sector Enterprise Policy, 2021, non-strategic CPSEs should be privatized to reduce fiscal pressure and attract private investment.
• Regulatory bottlenecks should be removed to encourage private sector participation.

2. Independent Capital Raising

• CPSEs should revive IEBR financing through bonds, external commercial borrowings (ECBs), and partnerships with private entities.
• Reducing reliance on government funding will improve financial independence.

3. Digital Transformation

• CPSEs lag behind private firms in adopting digital technologies, which affects efficiency.
• Investing in automation and advanced digital infrastructure in key sectors can optimize operations and reduce costs.

4. Balanced Dividend Policy

• The 15th Finance Commission recommended balancing dividend payouts with reinvestment in growth and modernization.
• CPSEs should retain more earnings to fund expansion and infrastructure development.

5. Performance Reviews

• The 2005 Sengupta Committee suggested limiting CPSE performance reviews to twice a year to enhance efficiency.
• Streamlining review processes can improve operational decision-making and performance monitoring.

Conclusion

The growing dependence of CPSEs on government funding raises concerns about their long-term financial health and autonomy. A balanced approach involving disinvestment, increased private participation, independent capital generation, and digital transformation is essential. Strengthening CPSEs’ financial self-reliance will reduce fiscal pressure on the government while ensuring sustainable economic growth.