Govt's move to bring DPE under FinMin to aid privatisation process

The changes are being done as govt looks to maintain "bare minimum" presence in PSUs in strategic sectors and privatise, merge, or close the remaining state-owned entities

The Narendra Modi government has brought the Department of Public Enterprises (DPE) under the Ministry of Finance, a move that is expected to improve the control over public sector undertakings (PSU), and help in quicker implementation of privatisation proposals.

Before the induction of new members in the Council of Ministers, the Cabinet Secretariat notified changes in the Government of India (Allocation of Business) Rules, 1961 effectively bringing DPE under the finance ministry from the Ministry of Heavy Industries and Public Enterprises.

The DPE monitors and evaluates performance of PSUs including the Memorandum of Understanding mechanism that sets targets for dividend payment, capex performance, pay packages of the staff, among others. The department is also tasked to come up with measures to improve performance of PSUs, and capacity building initiatives.

In March 2021, Business Standard had reported that the Department of Economic Affairs (DEA) had written to the Department of Investment and Public Asset Management (DIPAM) to explore the option of bringing DPE under the Ministry of Finance, pointing to the overlap of some functions between DPE and DIPAM.

The changes are being done as the government looks to maintain a “bare minimum” presence in PSUs in strategic sectors and privatise, merge, or close the remaining state-owned entities.

The move will accelerate the pending divestment process, and improve decision making in the implementation of the new privatisation policy, said N.R. Bhanumurthy, vice chancellor at Bengaluru Dr B.R. Ambedkar School of Economics (BASE) University. This would lead to better coordination between DIPAM and DPE for better implementation of privatisation policy.

“This would also be in sync with the government’s motto of minimum government and maximum governance,” he added.

As the government is looking to privatise PSUs, the role of DPE would have eventually become redundant as an independent department, said Ankur Wahal, senior vice president at BOB Capital Markets. “Bringing DPE under the finance ministry will help in better managing of post retirement benefits given to employees of PSUs, and putatively bringing up attractive Voluntary Retirement Scheme ahead of privatisation,” he said.

Effecting the change, the Ministry of Heavy Industries and Public Enterprises will be rejigged as the Ministry of Heavy Industries, and about 36 PSUs and their subsidiaries would remain under the ministry. These 36 companies include Heavy Engineering Corporation Ltd, Mining and Allied Machinery Corporation Ltd, Engineering Projects (India) Ltd, Bharat Heavy Electricals Ltd, HMT Bearing Ltd, Scooters India Ltd, Andrew Yule and Company Ltd, and Bharat Opthalmic Glass Ltd, among others.

The government’s revenue mop up cannot be just through tax collection, and now the focus should be on monetising and realising the value created by PSUs, said Nirmal Gangwal, managing partner at Brescon & Allied Partners LLP.

PSUs have played an important role in the development of the economy, and the move will put more responsibility on the finance ministry to realise maximum value out of the privatisation exercise, he said.