Presidential directives of the kind sent to Coal India, asking it to sign fuel supply agreements even if they severely dent its bottom line, may soon be a thing of the past, if the parliamentary standing committee on finance has its way. Ditto for directions to public sector units to buy back their shares, or to invest in other PSU shares. The financial impact of any government diktat will have to be stated upfront to the company’s board, the Yashwant Sinha-headed parliamentary committee that vetted the Companies Bill, 2011, has said.
The Bill will replace the Companies Act, 1956, once it is cleared by Parliament. The committee’s report has been submitted to the Lok Sabha Speaker. The government is expected to table the Bill in the monsoon session itself. If this section is in the final Bill, it represents a big step towards PSU autonomy.
This suggestion was first made by the Comptroller and Auditor General of India —the CAG wanted this to be inserted under Clause 134, which states that a report by the board of directors containing details on the matters specified including directors' responsibility statement shall be attached to every financial statement laid before company.
“The committee is of the view that the suggestion of the CAG is worth considering in the interest of functional autonomy and operational efficiency of PSUs. It will also help minimise government interference in the management of PSUs,” Sinha said in the report.
However, both the corporate affairs ministry and the department of public enterprises has opposed the move stating "a large number of disclosures have already been provided for inclusion in the board's report and adding further requirements for a particular class of companies does not appear to be justified".
While the threat from The Children's Investment Fund of the UK to sue the government on the way it directed CIL to sell coal at low prices underscored how serious the problem had become, this is by no means the only such instance. In recent months, cash-rich PSUs were asked to remain on notice for a possible buyback of their shares, or possibly those of other PSUs – the proposal was put in abeyance after stiff resistance from PSUs and parent ministries.
In the oil sector, the government doesn't allow price increases of diesel, cooking gas and kerosene, and this cost oil PSUs over Rs 1,38,000 crore in FY12; even prices of decontrolled petrol were not raised sufficiently for over a year due to unofficial government guidance. In the steel sector, similarly, the government is known to arm-twist PSUs such as SAIL and NMDC to give special favours to states that are important vote banks, and there are directions that steel prices should be lower than market rates for small and medium enterprises segment.
If the recommendation finds its way into the Companies Bill, such measures and their financial impact will have to be submitted to the PSUs board. Were this to be done, as in the case of CIL, the chances of getting this passed may not be easy – in CIL's case, the independent directors refused to pass the proposal.
The Bill will replace the Companies Act, 1956, once it is cleared by Parliament. The committee’s report has been submitted to the Lok Sabha Speaker. The government is expected to table the Bill in the monsoon session itself. If this section is in the final Bill, it represents a big step towards PSU autonomy.
This suggestion was first made by the Comptroller and Auditor General of India —the CAG wanted this to be inserted under Clause 134, which states that a report by the board of directors containing details on the matters specified including directors' responsibility statement shall be attached to every financial statement laid before company.
“The committee is of the view that the suggestion of the CAG is worth considering in the interest of functional autonomy and operational efficiency of PSUs. It will also help minimise government interference in the management of PSUs,” Sinha said in the report.
However, both the corporate affairs ministry and the department of public enterprises has opposed the move stating "a large number of disclosures have already been provided for inclusion in the board's report and adding further requirements for a particular class of companies does not appear to be justified".
While the threat from The Children's Investment Fund of the UK to sue the government on the way it directed CIL to sell coal at low prices underscored how serious the problem had become, this is by no means the only such instance. In recent months, cash-rich PSUs were asked to remain on notice for a possible buyback of their shares, or possibly those of other PSUs – the proposal was put in abeyance after stiff resistance from PSUs and parent ministries.
In the oil sector, the government doesn't allow price increases of diesel, cooking gas and kerosene, and this cost oil PSUs over Rs 1,38,000 crore in FY12; even prices of decontrolled petrol were not raised sufficiently for over a year due to unofficial government guidance. In the steel sector, similarly, the government is known to arm-twist PSUs such as SAIL and NMDC to give special favours to states that are important vote banks, and there are directions that steel prices should be lower than market rates for small and medium enterprises segment.
If the recommendation finds its way into the Companies Bill, such measures and their financial impact will have to be submitted to the PSUs board. Were this to be done, as in the case of CIL, the chances of getting this passed may not be easy – in CIL's case, the independent directors refused to pass the proposal.
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