Loss-making PSEs may be merged with profitable peers for investment funds

The government will look to get weak state-run enterprises absorbed by profitable ones to leverage assets and generate resources for fresh investments.

The move comes after the NITI Aayog submitted a report on loss-making central public sector enterprises ( CPSEs), suggesting consolidation in some cases.

A road map for the financial restructuring of CPSEs through various mechanisms, including mergers, will be drawn up soon, said a government official aware of the deliberations.

“Eventually this ( merger) will not be restricted to only loss-making entities as the aim is to improve both functional and financial efficiency of CPSEs,” he said, adding that financially weak firms, unless serving a strategic purpose, will be merged or folded up.
In its recommendations, the Aayog had observed that there was a case for consolidation of some loss-making firms.

“It is also suggested in some cases that revival of a sick public sector undertaking should not be on a standalone basis,” said another government official.

According to the latest government data, there are about 80 entities that made a combined loss of Rs 27,300 crore at end of FY15. The cabinet last week approved the takeover of Hindustan Steel Works Construction Ltd (HSCL) by National Buildings Construction Corp. (NBCC).

“This is the first takeover by a CPSE of another company, which is not functioning under the same administrative ministry.

Going forward, similar options can be explored,” said an official with the department of public enterprises (DPE), adding that it will be up to the administrative ministries to take such initiatives.

In his February Budget speech, finance minister Arun Jaitley had noted that the government will encourage CPSEs to sell assets such as land and manufacturing units, to unlock value and make investments in new projects.

"NITI Aayog will identify the CPSEs for strategic sale," he had said.

Under the new disinvestment strategy, strategic sales involve a three-tier structure. This includes an evaluation committee headed by the administrative ministry, a core group of secretaries and an inter-ministerial group.

The disinvestment department, which has been rechristened the department of investment and public asset management (DIPAM), will also engage independent experts to monitor such strategic sales.

The government has targeted to raise Rs 56,500 crore from asset sales this year.