Budgetary Dependence of CPSEs

Budgetary Dependence of CPSEs

Why in News?

Concerns have emerged as Central Public Sector Enterprises (CPSEs) are shifting their capital expenditure (capex) strategies, increasingly relying on budgetary support rather than self-financing or private investment. This shift raises questions about the long-term financial sustainability and autonomy of CPSEs.

Concerns Regarding CPSEs

• Overreliance on Budgetary Support: CPSEs are increasingly depending on budgetary allocations (equity and loans from the government) instead of utilizing their Internal and Extra Budgetary Resources (IEBR).

  • Budgetary support for CPSEs has risen by over 150% in the last five years, from Rs 2.1 lakh crore in FY20 to Rs 5.48 lakh crore in FY25 (Revised Estimate).
  • Meanwhile, IEBR, which CPSEs use for financing their capex, has decreased significantly from Rs 6.42 lakh crore in FY20 to Rs 3.63 lakh crore in FY23, with a forecast of Rs 3.82 lakh crore in FY25.
  • The decline in IEBR limits CPSEs' financial flexibility and increases their dependence on government funding.

• Reduced Private Sector Participation: The shift toward budgetary support has deterred private investment.

  • For example, the National Highways Authority of India (NHAI), which was expected to raise 38% of its funding from private capital, saw its IEBR fall to zero in FY23-FY24 due to rising debt (Rs 3.48 lakh crore in 2022) and policy instability, discouraging private investors.
  • High debt limits the ability of CPSEs to raise capital independently, weakening their financial stability.

• Policy Concerns: The Standing Committee on Transport (FY22) noted that relying solely on high budgetary support may not meet the investment needs of CPSEs. This could strain fiscal resources and reduce funds available for social and developmental programs.

• Pressure to Pay Dividends: The government's insistence on CPSEs prioritizing dividend payments over reinvestment restricts their ability to expand, modernize, and make independent long-term growth decisions.

• Limited Financial Autonomy: Unlike private enterprises, CPSEs lack the flexibility to respond to market changes, leading to slower decision-making.

  • Past mergers, such as the acquisition of Hindustan Petroleum Corporation Limited (HPCL) by Oil and Natural Gas Corporation (ONGC), reduced CPSE cash reserves, further restricting capex capacity.

Key Facts About CPSEs

• About: CPSEs are companies in which the Central Government or other CPSEs hold at least a 51% stake.

  • The Department of Public Enterprises (DPE) oversees CPSEs' performance, finance, and policies under various ministries.
  • Post-independence, CPSEs were established in sectors like heavy industries, banking, oil & gas, steel, and power. The 1991 economic reforms led to corporatization, increased competition, and a focus on profitability and efficiency.

• Significance: CPSEs are crucial to India's economic development, infrastructure creation, employment generation, and industrial growth.

  • CPSEs are classified into Miniratna, Navratna, and Maharatna based on size, financial performance, and strategic importance.
  • In February 2025, Indian Railway Catering and Tourism Corporation (IRCTC) and Indian Railway Finance Corporation (IRFC) became India's 25th and 26th Navratna companies.

• Current Status: As of March 2024, India has 448 CPSEs, of which 272 are operational in FY24.

  • The gross revenue of operating CPSEs declined by 4.7%, totaling Rs 36.08 lakh crore in FY24.
  • CPSEs contributed Rs 4.85 lakh crore to the Central Exchequer in FY 2023-24 through taxes, duties, and dividends, marking a 5.96% increase from the previous year.
  • CPSEs also earned Rs 1.43 lakh crore in foreign exchange reserves in FY 2023-24, contributing to India's trade balance and global business.

Measures to Address CPSEs’ Concerns

• Disinvestment: Non-strategic CPSEs can be prioritized for privatization under the Department of Investment and Public Asset Management (DIPAM) and the New Public Sector Enterprise Policy, 2021, to reduce the fiscal burden and attract private investment.

  • Strategic CPSEs should be retained, with policy reforms to reduce regulatory barriers and financial risks for private investors.

• Independent Capital Raising: CPSEs should be encouraged to revive IEBR financing through bonds, external commercial borrowings (ECBs), and partnerships with private players, reducing reliance on government support.

• Digital Transformation: CPSEs should focus on integrating advanced digital infrastructure and automation in sectors like railways, power, and telecom to improve operational efficiency and reduce costs.

• Balanced Dividend Payments: As recommended by the 15th Finance Commission (2020-21), CPSEs should strike a balance between dividend payments and reinvestment in infrastructure expansion.

• CPSE Performance Reviews: The 2005 Sengupta Committee recommended limiting CPSE performance reviews to twice a year to improve efficiency.

Drishti Mains Question:
Critically evaluate the financial health of CPSEs with a focus on their rising debt burden. What steps should be taken to ensure fiscal sustainability?

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