New Delhi: Finance Minister Nirmala Sitharaman last week approved the elevation of two public sector oil companies — Oil India and ONGC Videsh — to the status of Maharatna and Navratna company, respectively. ThePrint looks into what this means for the two companies, and why these statuses are important for the growth of India’s public sector.
“Hon’ble Finance Minister approved upgradation of Oil India Ltd (OIL) to Maharatna CPSE (Central Public Sector Undertaking),” the Department of Heavy Enterprises under the Ministry of Finance posted on X, formerly Twitter, last week. “OIL will be the 13th Maharatna amongst the CPSEs.”
That same day, the department also posted about the “upgradation of ONGC Videsh Ltd (OVL) to Navratna CPSE”, which would make it the 14th Navratna company in India.
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Genesis of this classification
The Navratna scheme was introduced in 1997, as part of the Common Minimum Programme of the United Front government at the time.
“The Common Minimum Programme of the Government states, inter-alia, that the government will identify public sector companies that have comparative advantages and support them in their drive to become global giants,” the Department of Public Enterprises (DPE) said in an office memorandum issued in July 1997.
At the time, the office memorandum didn’t specify how the government would identify which companies would qualify as Navratnas, but over the years, it has finalised a formula where a company would be eligible for Navratna status if it scored 60 or above across six criteria that measured their current, past, and potential profitability and net worth.
The upshot of the scheme was to delegate several powers to the boards of these Navratna public sector companies to grant them greater independence and freedom to grow and expand their market presence.
These delegated powers included the authority to make decisions relating to capital expenditure without any monetary ceiling, to enter into technology joint ventures or strategic alliances, to purchase technology and know-how, and to implement organisational restructuring as they saw fit — including the creation or winding up of posts — among other facets of company-level decision-making.
This freedom came with several conditions aimed at improving corporate governance in these companies, including providing adequate time to the board of directors to consider a decision, mandating the presence of the board members when decisions are taken, and also suggesting that all decisions be taken by consensus as far as possible.
“With the grant of autonomy and the measures taken for restructuring of the PSE (public sector enterprise) boards, it is necessary that monitoring of the performance of these PSEs is done with utmost seriousness,” the DPE said in a separate memorandum.
“In this regard, the government feels that the monitoring of the performance of the enterprises should be done primarily by their own boards,” the memorandum added, saying that the ministry in charge of each PSE should also continue to monitor its performance.
At the time, the government designated nine PSEs as Navratnas: Bharat Heavy Electricals, Bharat Petroleum Corporation, Hindustan Petroleum Corporation, Indian Oil Corporation, Indian Petrochemicals Corporation, National Thermal Power Corporation, Oil and Natural Gas Corporation, Steel Authority of India and Videsh Sanchar Nigam. Since then, this list has changed considerably, with several companies being upgraded to Maharatna status, which was introduced later, and other companies being included in the Navratna list.
At present — including the latest addition of ONGC Videsh and Oil India’s upgrade to Maharatna status — there are 13 Navratna companies, the others including Bharat Electronics Limited, Container Corporation of India, Engineers India, Hindustan Aeronautics, Mahanagar Telephone Nigam, National Aluminium Company, National Buildings Construction Corporation, Neyveli Lignite Corporation, NMDC, Rail Vikas Nigam, Rashtriya Ispat Nigam, and Shipping Corporation of India.
What about smaller companies?
Later in 1997, the government also introduced the Miniratna scheme, aimed at two categories of public sector enterprises. The first category was for PSEs that had continuously made a profit in the preceding three years, and with a pre-tax profit of at least Rs 30 crore or more in at least one of the three years, with a positive net worth. The second category included those PSEs that had made a profit for the previous three years continuously and with a positive net worth. The difference lay in the stipulation of the pre-tax profit.
The difference between Navratnas and Miniratnas was that the latter, while given more freedom than most other PSEs, were more constrained than Navratnas. For example, on capital expenditure, Miniratnas could make independent decisions only up to a certain cap — Rs 300 crore for Category 1 and Rs 150 crore for Category II. Above this, they had to seek the government’s permission.
Similarly, there were limits imposed on their freedoms regarding joint ventures, overseas offices, and human resource management.
According to data with the Department of Public Enterprises, there are currently 73 companies with Miniratna status.
How did Maharatnas come about?
With the Indian economy growing strongly in the years following the creation of Navratnas, several public sector companies also saw significant growth in their size and presence. These companies, if they were to compete globally, needed even more freedom to make their own decisions.
The government obliged in 2010, with the Maharatna scheme.
“The objective of the Maharatna scheme is to delegate enhanced powers to the boards of identified large-sized Navratna CPSEs so as to facilitate expansion of their operations, both in domestic as well as global markets,” the DPE said in an office memorandum in February 2010.
Not just any Navratna could be upgraded to Maharatna status, however. They had to be listed on the stock exchanges in line with SEBI regulations, with an average annual turnover and net worth during the previous three years of more than Rs 25,000 crore and Rs 15,000 crore respectively.
Potential Maharatna companies also needed an average annual net profit after tax during the previous three years of more than Rs 5,000 crore, and “significant global presence or international operations”.
Not too many Navratnas make this cut. With the inclusion of Oil India, there are now 13 Maharatna companies. The others are: Bharat Heavy Electricals, Bharat Petroleum Corporation, Coal India, GAIL India, Hindustan Petroleum Corporation, Indian Oil Corporation, NTPC, Oil & Natural Gas Corporation, Power Finance Corporation, Power Grid Corporation of India, Rural Electrification Corporation, and Steel Authority of India.
What additional freedoms do Maharatnas get?
The bar set for becoming a Maharatna company was so high that the eligible companies were almost automatically global-level competitors, and so their corporate freedoms had to be enhanced accordingly in order for them to effectively compete internationally.
They start off with all the relaxations provided to Navratna companies, but can also raise debt domestically and internationally (up to a limit) without seeking government permission, can make equity investments, and decide on mergers and acquisitions, among other corporate governance freedoms.
However, with these freedoms came even greater scrutiny.
“The performance of Maharatna CPSEs would be reviewed annually by the Inter-Ministerial Committee, and thereafter by the Apex Committee headed by the cabinet secretary which will recommend continuation/divestment of Maharatna status,” the office memorandum said.
(Edited by Smriti Sinha)
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