Cii Seeks 49% Cap On Foreign Holding In Divested Psus
Even before the controversy over the L M Thapar report on restricting foreign equity in Indian companies fully settled down, the Confederation of Indian Industry (CII) has decided to demand a 49 per cent cap on foreign holding in public sector undertakings (PSU) following the offloading of government stake under phase II of PSU disinvestment.
A set of proposals prepared by a CII task force headed by Escorts chairman Rajan Nanda will be submitted to disinvestment commission chairman G V Ramakrishna on March 4 in Delhi. The apex chamber will also propose a two-tier management structure for PSUs, partly in line with the recommendations of the Cadbury Committee.
CII feels the limitation of foreign ownership may be considered in certain sensitive sectors like power, petroleum products, oil exploration, and their total holding restricted to up to 49 per cent.
Last month, Associated Chambers of Commerce (Assocham) released a report prepared by a committee chaired by Lalit Mohan Thapar which has suggested restricting foreign holding in companies operating out of India to a maximum of 40 per cent. Under fire from its multinational members, Assocham since then has made a volte face and has said that the report is not sacrosanct.
CIIs approach on limiting foreign holding in PSUs is contradictory in itself as in its pre-budget memorandum, the apex chamber had stressed on a congenial atmosphere for foreign investment. The government should strive towards increasing FDI inflows, CII president Shekhar Datta had told Business Standard earlier this week.
CII will also propose a two-tier management structure, one with a supervisory board consisting of part-time directors and a chairman for policy issues, and a management committee with full-time directors headed by a chief executive officer (CEO) for operational roles.
PSU boards should be empowered to clear investment proposals like hiving off and sale of assets, forming joint ventures and accessing funds through capital market after assessment of proposals made by merchant bankers. The government should also distance themselves from running of PSUs, the task force feels.
This is significant as former Tisco chairman Russi Mody who was in charge of both Air India and Indian Airlines had cited excessive ministerial interference as a reason for his stepping down from the post.
Major expansion plans and capital expenditure programmes of PSUs not only require approval of the ministry they are under, but also that of the finance ministry and cabinet committee of economic affairs (CCEA). This almost always result in unnecessary delays and cost overruns which adversely affect their profitability.
The CII task force feels that 155 out of 241 PSUs in the non-core, non-strategic sectors with substantial competitive private sector presence should be referred to the disinvestment commission for restructuring and privatisation in a planned manner.
In non-competitive sectors like telecom, petroleum and power, the government should introduce competition and divest more than 51 per cent of its equity along with setting up of appropriate regulatory authority. However, PSUs in the strategic sector may be retained.