Report on CPSE Autonomy Framework

 Report on CPSE Autonomy Framework

The Need for Structural Overhaul

The Government has recognized the need to move beyond incremental adjustments in managing Central Public Sector Enterprises (CPSEs). This report synthesizes a proposed roadmap for transforming CPSEs from state-managed entities into high-performing, commercially agile corporations aligned with global best practices. The proposals cover three core areas: Capital Optimization, Governance Professionalization, and Operational Autonomy. The goal is to maximize the Government’s equity value, accelerate project implementation, and enhance the strategic resilience of India's largest public assets.

Present Status

Classification of Central Public Sector Enterprises (CPSEs)

The main classification of profit-making CPSEs is under the 'Ratna' scheme, which is based on performance, financial turnover, net worth, and global presence.

Category	Eligibility Criteria (Key Highlights)	Current Numbers (Approximate)
Maharatna	Must be a Navratna, listed on the Indian stock exchange, and meet specific financial thresholds (e.g., average annual turnover over {₹}25,000 crore, average annual net profit after tax over {₹}5,000 crore for 3 years), and have a significant global presence.	14
Navratna	Must be a Miniratna Category-I, be a Schedule 'A' CPSE, and have an 'Excellent' or 'Very Good' Memorandum of Understanding (MoU) rating in 3 of the last 5 years, along with a composite score of 60 or above in six specified performance indicators.	16
Miniratna	Category-I: Made a profit continuously for the last three years, had a pre-tax profit of ₹}30 crore or more in at least one of the three years, and a positive net worth.	61
	Category-II: Made a profit continuously for the last three years and has a positive net worth.	11

CPSEs are also classified into Schedules (A, B, C, D) which primarily influence the size and pay scale of their Board-level posts.

 

Autonomy Framework and Delegated Powers

The 'Ratna' status defines the level of autonomy by granting the Boards of Directors enhanced operational and financial freedom in areas like capital expenditure, investments, and HR.

Autonomy Definition

Autonomy in this context is defined as the delegation of authority from the government (as the owner) to the CPSE's Board of Directors to make prompt decisions on investments, capital expenditure, and human resource management without prior government approval, subject to specified financial ceilings and guidelines.

CPSE Category	Financial/Operational Freedom (Delegated Powers)
Maharatna	Powers to incur capital expenditure on new projects/modernization up to ₹}5,000 crore without government approval. Can enter into joint ventures (JVs) and subsidiaries, and undertake mergers and acquisitions, subject to an overall ceiling of 15% of the CPSE's net worth in a single project, or 30% of the net worth for all projects in a year.
Navratna	Powers to incur capital expenditure up to {₹}1,000 crore or 15% of their net worth, whichever is lower, in a single project. The total amount in a year could not exceed 30% of the net worth. They can form JVs, subsidiaries, and effect strategic alliances.
Miniratna Category-I	Power to incur capital expenditure up to {₹}500 crore or an amount equal to their net worth, whichever is less. Can also establish JVs/subsidiaries.
Miniratna Category-II	Power to incur capital expenditure up to {₹}250 crore or an amount equal to 50% of their net worth, whichever is less.

In all cases, the CPSEs must have a minimum number of Independent Directors on their Board before exercising these enhanced powers.

Agreements between Central Government and PSUs

The primary formal mechanism for establishing the performance targets and accountability of CPSEs is the Memorandum of Understanding (MoU).

• Memorandum of Understanding (MoU): This is an annual agreement signed between the CPSE management and its administrative Ministry/Department. It outlines the targets the CPSE is expected to achieve for the year and the corresponding commitments from the government (e.g., non-interference).

It defines a performance contract and uses a system of weighted criteria (financial, operational, and other parameters) to evaluate the CPSE's performance, which directly impacts its eligibility for 'Ratna' status upgrades and executive performance-linked pay.

• Articles of Association/Statutes: As companies registered under the Companies Act or established by a special Act of Parliament, the fundamental relationship, powers of the Board, and government control are defined in these legal documents.

Advantages of the Autonomy Framework

The CPSE Autonomy Framework provides several advantages:

• Enhanced Competitiveness: Grants CPSEs the flexibility and speed to respond to market dynamics, compete with private and global players, and undertake commercial risks.
• Faster Decision-Making: Reduces the dependence on government for routine approvals, especially for capital expenditure and minor investments, leading to quicker project implementation.
• Professionalization of Boards: The requirement for independent directors and the delegation of powers elevates the role of the Board in strategic decision-making and governance.
• Incentive for Performance: The 'Ratna' status acts as a powerful incentive for profit-making CPSEs to improve their operational and financial performance to achieve a higher status and greater autonomy.
• Clarity on Accountability: The MoU system provides a clear, quantitative, and objective framework for measuring performance against agreed-upon targets, enhancing accountability.

Modifications to the Framework

Potential modifications could focus on further decentralizing power and making the system more objective and globally aligned:

1.      Objective Criteria Refinement: Introduce sector-specific criteria for 'Ratna' status, moving beyond generic financial indicators (turnover, net profit) to include factors like R&D intensity, market share in strategic sectors, and alignment with national goals (e.g., energy transition, deep-tech).

2.      True Board Empowerment: Further increase the financial delegated powers for Maharatna and Navratna CPSEs, ideally linking the capital expenditure limits to a percentage of their net worth without a fixed monetary cap, to keep pace with inflation and global peers.

3.      Governance Overhaul: Segregate the owner's role (Ministry of Finance/DPE) from the operational ministry's role (Administrative Ministry) to minimize administrative interference and political influence in commercial decisions and appointments.

 Objective Criteria for CPSE Categorisation

The proposed objective criteria offer a significant modernization of the CPSE classification system, moving beyond basic financial size to integrate strategic, innovative, and global performance indicators. The following elaboration details the implementation and impact of each criterion.

1. Develop Sectoral Performance Indices for CPSE Classification

Implementation Detail:

Instead of a single, uniform set of financial ratios, a tiered index system could be established:

• Manufacturing Index: Focuses on Capacity Utilization Rate, Inventory Turnover Ratio, Total Factor Productivity (TFP) Growth, and Time-to-Market for New Products.
• Services Index: Prioritizes Revenue per Employee, Customer Satisfaction Index (CSI), Digital Transformation Score (e.g., percentage of operations digitized), and Service Delivery Efficiency (e.g., project completion rate/time).
• Utilities (Power/Oil & Gas) Index: Measures System Average Interruption Duration Index (SAIDI)/System Average Interruption Frequency Index (SAIFI) for power, Exploration Success Ratio for E&P companies, and Operational Efficiency Metrics like Gross Refinery Margin (GRM) for refining.

Impact: This ensures that a CPSE in a low-margin, high-volume sector (like refining) is not unfairly compared to one in a high-margin, capital-intensive sector (like defence manufacturing). It creates a fair and context-aware performance benchmark, driving specialized sectoral excellence.

 

2. Strategic National Importance (SNI)

The Strategic National Importance weightage moves beyond commercial viability to evaluate a CPSE's critical role in national interest.

This criterion, which is often difficult to quantify, must be broken down into measurable indicators across three core areas, giving each area an equal weight within the overall Strategic National Importance score:

Metrics for Strategic National Importance (SNI)

 National Security and Strategic Self-Reliance Score (33.33%)

This score measures the CPSE's direct contribution to India's defence, security, and technological independence (Atmanirbhar Bharat).

Metric	Calculation / Target	Rationale for Weighting
A. Indigenous Content Value (ICV)	Percentage of total procurement/production value sourced from domestic vendors/MSMEs, particularly in defence, aerospace, or heavy machinery.	Rewards the reduction of foreign dependency and the strengthening of the domestic supply chain.
B. Critical Asset Resilience	Score on successful completion of internal stress tests (e.g., cyberattack, supply chain disruption, natural disaster) without service interruption to a minimum critical level.	Measures the robustness and operational continuity of essential services (e.g., power grid, oil pipelines, communication networks).
C. Strategic R&D Investment	Percentage of Net Profit (or Revenue) invested in indigenous R&D for future-critical technologies (e.g., green hydrogen, AI, next-gen defence).	Quantifies the CPSE's commitment to creating new, essential national capabilities.

 

Energy, Resource, and Infrastructure Security Score (33.33%)

This evaluates the CPSE's role in securing vital national resources and building core infrastructure that drives the economy.

Metric	Calculation / Target	Rationale for Weighting
A. Strategic Reserve Capacity	Volume of reserve/buffer stock (e.g., oil, gas, coal, rare earth elements) maintained above the operational minimum, benchmarked against a national security requirement (e.g., 90 days of consumption).	Directly quantifies the CPSE's function as a national security reserve manager.
B. Connectivity/Access Extension	Number of citizens/villages/regions brought into the national network (e.g., new railway lines, rural optical fibre connections, power access).	Measures the tangible impact on inclusive national development and closing infrastructure gaps.
C. Decarbonization/Energy Mix Shift	Annual reduction in the CPSE's carbon intensity or the percentage increase in renewable/clean energy in its total energy input/output mix.	Aligns the CPSE's operations with India's long-term environmental commitments and energy transition goals.

 

Vision 2047 & Inclusive Growth Alignment Score (33.33%)

This assesses the CPSE's contribution to the government's long-term social, economic, and technological vision.

Metric	Calculation / Target	Rationale for Weighting
A. Capital Expenditure (Capex) Commitment	Actual Capex utilisation as a percentage of the annual Memorandum of Understanding (MoU) target for infrastructure and project creation.	Ensures CPSEs invest aggressively in assets critical for future economic growth, avoiding idle cash reserves.
B. Skilling and Employment Impact	Number of apprentices, trainees, or employees newly certified under national skilling missions (e.g., ITIs, Skill India) by the CPSE.	Measures the impact on human capital development and addressing the national employment challenge.
C. Fund Utilisation for Social Projects	Efficiency in utilisation of funds earmarked for R&R (Resettlement and Rehabilitation) and Community Development projects in resource-extracting/infrastructure areas.	Assesses ethical and inclusive growth practices in areas directly impacted by CPSE operations.

This composite score ensures that a CPSE is rewarded not just for making money, but for its responsible and strategic management of national assets and its alignment with India's long-term developmental goals.

3. Mandate R&D and Innovation Score as a Core Criterion for Maharatna Status

Implementation Detail:

The current 'significant global presence' criterion for Maharatna must be augmented with an Innovation Score ({I}_{{Score}}) with a minimum threshold (e.g., 60 out of 100) for eligibility. The {I}_{{Score}} must include:

• R&D Intensity Ratio (40%): Average R&D Expenditure as a percentage of Turnover over 3 years.
• Intellectual Property (IP) Portfolio (30%): Number of patents filed and granted globally in the last 5 years, weighted by their commercialization success.
• Commercial Innovation Metric (30%): Percentage of revenue generated from products/services launched in the last 5 years.

Impact: This measure shifts the Maharatna category from being merely "big" to being "innovatively competitive." It incentivizes CPSEs to transition from technology receivers/adapters to technology developers and exporters, fostering true self-reliance (Aatmanirbhar Bharat) and future-proofing their business model.

 

4. Introduce a 'Global Footprint' Metric Beyond Mere International Revenue

Implementation Detail:

The Global Footprint ({GF}) metric must be a composite score (e.g., out of 100) covering:

• Foreign Subsidiary Performance (40%): A weighted average of the Return on Equity (RoE) and Net Profit of all major foreign subsidiaries/joint ventures. A simple negative performance would severely penalize the score.
• Geographical Diversification (30%): A score based on the number of continents/major economic blocs (G7, ASEAN, etc.) where the CPSE has active operational presence (not just sales offices).
• Global Benchmarking Score (30%): The CPSE’s ranking in a reputed international industry-specific benchmark (e.g., S&P Global Platts Top 250 Energy Company Rankings, global mining lists) or a score based on adherence to global governance standards (e.g., OECD Guidelines on Corporate Governance).

Impact: This forces CPSEs to pursue genuinely global, value-accretive growth, rather than simple export trade. It encourages the development of multinational expertise and strong corporate governance, a pre-requisite for sustained global competition.

 

5. Periodically Review and Adjust Financial Thresholds Every 3 Years

Implementation Detail:

The adjustment mechanism could be automatic, formula-driven, and non-discretionary, executed by an independent financial expert committee. The formula for the new threshold could incorporate both price and volume/growth factors:

{T}_{{new}} = {T}_{{old}} \times (1 + {CPI}_{{avg}} + {GNP}_{{avg}})

Where:

• {T}_{{old}} = Previous financial threshold (Turnover, Net Worth, Net Profit).
• {CPI}_{{avg}} = Average annual change in the Consumer Price Index (CPI) over the last 3 years (to account for inflation).
• {GNP}_{{avg}} = Average annual Nominal Gross National Product (GNP) growth rate over the last 3 years (to account for macro-economic expansion).

Impact: This systematic revision preserves the real value and prestige of the 'Ratna' statuses. It prevents threshold obsolescence, ensuring that future Maharatnas continue to represent the truly largest and most financially robust CPSEs in an expanding economy. It promotes transparency and reduces regulatory uncertainty.

Corporate Governance & Capital Structure Metrics

These metrics, heavily guided by DPE and SEBI (Securities and Exchange Board of India) guidelines, focus on board effectiveness, transparency, and shareholder value.

1. Corporate Governance Compliance (Quantified for Grading)

The compliance is often graded based on a scoring system for adherence to prescribed guidelines:

• Board Composition: Optimal combination of Functional Directors, Nominee Directors, and Independent Directors. For listed CPSEs, the number of Independent Directors must be at least one-third (or 50% if the Chairman is executive).
• Board Meetings: Adherence to a minimum frequency of meetings (e.g., at least once every three months).
• Audit Committee: Presence of a qualified and independent Audit Committee, typically with a majority of Independent Directors, and a member with financial/accounting expertise.
• Code of Conduct and Risk Management: Implementation of a Board-approved Code of Conduct and a formal risk management plan that is periodically reviewed.
• Succession Planning: Formal procedures for the selection and training of the top management cadre.

2. Dividend Policy and Capital Restructuring

DIPAM sets specific norms to ensure CPSEs manage their capital efficiently and consistently deliver returns to the government (the majority shareholder):

• Minimum Annual Dividend Payout: CPSEs must pay a minimum annual dividend which is the higher of (as per recent guidelines):
• 30% of Profit After Tax (PAT), OR
• 5% of the Net Worth (in some recent guidelines, this has been revised to 4% of Net Worth for non-financial CPSEs and other specific sectors).
• Capital Restructuring Actions: CPSEs are encouraged to consider:
• Share Buybacks if they have substantial cash/bank balances and their market price is below book value.
• Bonus Shares if their reserves and surplus are significantly higher than their paid-up equity capital.
• Share Splits to enhance liquidity, especially if the market price is disproportionately high compared to the face value.

The Department of Investment and Public Asset Management (DIPAM) issued Revised Guidelines on Capital Restructuring of Central Public Sector Enterprises (CPSEs), which supersede the earlier 2016 guidelines. These norms, effective from the financial year 2024-25, aim to enhance shareholder value, optimize capital utilization, and improve the performance and efficiency of CPSEs.

Key Revised Norms for CPSE Capital Restructuring

The new guidelines bring significant changes across Dividend Payment, Share Buybacks, Bonus Shares, and Share Splits.

1. Dividend Payment Mandate

• Minimum Annual Dividend: CPSEs are now required to pay a minimum annual dividend of 30% of Net Profit (PAT) or 4% of Net Worth, whichever is higher.
• Previous Norm (2016): 30% of PAT or 5% of Net Worth (a reduction in the net worth percentage threshold).
• Financial Sector CPSEs: Financial sector CPSEs (like NBFCs) must pay a minimum annual dividend of 30% of PAT, subject to any extant legal provisions.
• Note: Financial sector CPSEs were not separately mentioned in the previous guidelines.
• Interim Dividends:
• Listed CPSEs are mandated to pay at least 90% of the projected annual dividend in one or more installments as interim dividends.
• They are encouraged to consider paying an interim dividend every quarter after quarterly results or at least twice a year.

2. Share Buyback Criteria

CPSEs may consider the option to buy back their shares if they meet the following enhanced criteria (to utilize idle cash and improve shareholder value):

• Market Price: The market price of the share must have been less than the book value consistently for the last six months. (New Condition)
• Net Worth: At least {₹}3,000 crore.
• Previous Norm (2016): {₹}2,000 crore.
• Cash and Bank Balance: Over {₹}1,500 crore.
• Previous Norm (2016): {₹}1,000 crore.
• Alternative: If a buyback is not deemed desirable despite excess cash and no committed expenditure, the CPSE may consider paying a higher or special dividend.

3. Issue of Bonus Shares

• Eligibility Threshold: CPSEs are encouraged to issue bonus shares when their defined Reserves and Surplus are equal to or more than 20 times their paid-up equity share capital.
• Previous Norm (2016): Mandatory issuance when reserves were 10 times the paid-up capital, and consideration at 5 times. The new norm significantly raises this threshold, allowing CPSEs to retain resources longer for CAPEX and growth.

4. Splitting of Shares (Stock Split)

• Eligibility Criteria: Any listed CPSE may consider splitting its shares if the market price exceeds 150 times its face value consistently for the last six months.
• Previous Norm (Criteria Changed): The threshold was much lower (e.g., 50 times the face value).
• Cooling-off Period: A cooling-off period of at least three years is mandated between two successive share splits. (New Condition)

Objectives and Applicability

• Primary Objectives: To maximize returns for the government and other shareholders, enhance CPSE value, and improve performance and efficiency by providing greater operational and financial flexibility.
• Applicability: The guidelines apply to CPSEs and their subsidiaries where the parent CPSE holds more than 51% stake.
• Exclusions: Public Sector Banks, Public Sector Insurance Companies, and body corporates prohibited from distributing profits (like Section 8 companies) are exempt from these guidelines.
• Monitoring: All issues regarding capital management/restructuring are discussed in the inter-ministerial forum, the Committee for Monitoring of Capital Management and Dividend by CPSEs (CMCDC)

Guidelines on Capital Restructuring of Central Public Sector Enterprises (CPSEs), which supersede the earlier 2016 guidelines. These norms, effective from the financial year 2024-25, aim to enhance shareholder value, optimize capital utilization, and improve the performance and efficiency of CPSEs.

Enhanced Autonomy Levels for CPSEs

The proposals listed represent a movement towards greater Board-centric governance and financial flexibility for high-performing CPSEs. The core philosophy is to treat these corporations as commercial entities capable of making swift business decisions, reducing reliance on bureaucratic approval from the Department of Public Enterprises (DPE) or the Administrative Ministry.

1.  Elimination of Monetary Cap on Capital Expenditure for Maharatna CPSEs

Current Limitation (Context)	Proposed Change (Goal)	Detailed Rationale & Expected Impact
Monetary Cap: Maharatna CPSEs currently have a specific ceiling (e.g., {₹}5,000 crore to {₹}7,500 crore, depending on the number of projects) on capital expenditure that their Board can approve without going to the Government. This cap remains fixed regardless of the company's financial growth.	Eliminate the fixed monetary cap and define the limit purely as a percentage of Net Worth (e.g., 50% of Net Worth).	Rationale: The fixed cap becomes an impediment for massive, growing CPSEs like IOCL, NTPC, or ONGC. A Net Worth-based percentage cap is dynamic and scales with the financial strength of the company. A {₹}5,000 crore cap is restrictive for a CPSE with a {₹}2,00,000 crore Net Worth.
Expected Impact:	Faster Project Execution: CPSEs can make larger, more strategic capital commitments (e.g., building refineries, power plants, large-scale exploration) without long approval delays. This accelerates the implementation of national infrastructure projects and aligns the CPSEs' operational scale with their balance sheet capacity.

 

2.  Delegated Powers for Joint Ventures (JVs) and Foreign Subsidiaries

Current Limitation (Context)	Proposed Change (Goal)	Detailed Rationale & Expected Impact
Low Threshold/Centralized Approval: Approvals for forming JVs, particularly those abroad, or establishing foreign subsidiaries, are often subject to specific monetary limits (which can be low) and require inter-ministerial clearances, even for Navratnas/Maharatnas.	Delegate full powers to the Board for JVs and Foreign Subsidiaries up to a higher threshold (e.g., 25% of Net Worth).	Rationale: Global business requires agility. CPSEs often need to form quick partnerships to secure raw materials (e.g., coal, oil) or enter foreign markets. The previous low thresholds severely hampered their global competitiveness and ability to seize time-sensitive opportunities. The proposed change recognizes that the Board is best placed to assess commercial risk.
Expected Impact:	Global Footprint & Resource Security: Enables CPSEs to rapidly expand their international operations, secure critical mineral and energy supplies, and participate effectively in global tenders, thereby directly contributing to India's energy security and geopolitical goals.

 

3. HR Restructuring Autonomy for Navratnas

Current Limitation (Context)	Proposed Change (Goal)	Detailed Rationale & Expected Impact
DPE/Government Approval for HR: Navratnas, despite their high operational freedom, often require DPE's approval for critical HR restructuring decisions, such as finalizing Voluntary Retirement Schemes (VRS) or introducing new wage structures.	Grant Navratnas the autonomy to approve HR restructuring plans (e.g., VRS) without DPE approval.	Rationale: HR is an essential component of operational efficiency. Obsolete workforce structures or excess staff in non-core areas can be a major drain. The requirement for DPE approval slows down crucial organizational resizing efforts aimed at streamlining operations and increasing productivity. Granting autonomy empowers the Board to align the workforce with the strategic business plan.
Expected Impact:	Operational Efficiency: Leads to faster organizational right-sizing, reduced labour costs, and the ability to attract and retain specialized talent through flexible internal incentive schemes, ultimately making Navratnas more efficient and profitable.

 

4.  Sale/Disposal of Non-Core Assets

Current Limitation (Context)	Proposed Change (Goal)	Detailed Rationale & Expected Impact
Bureaucratic Process: The sale of non-core assets (e.g., excess land, non-essential housing, old machinery) often gets entangled in lengthy administrative procedures and requires multiple government approvals, even when the asset has no commercial use.	Allow Boards to decide on the sale/disposal of non-core assets up to a defined limit.	Rationale: The primary objective is Asset Monetization and unlocking trapped value. Unused or under-utilized non-core assets are a drag on the balance sheet. Delegating power to the Board facilitates the quick disposal of these assets, providing the CPSE with an immediate cash injection that can be used for core business operations or debt reduction. It also frees up government focus for larger strategic monetization efforts.
Expected Impact:	Value Realization & Focus: Enables CPSEs to generate non-operating revenue, improve their Return on Capital Employed (ROCE) by removing non-productive assets, and focus management attention entirely on their core business mandate.

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5. Status Upgrades Acceleration

Current Limitation (Context)	Proposed Change (Goal)	Detailed Rationale & Expected Impact
Process Delays: The process for upgrading a CPSE's status (e.g., from Miniratna-I to Navratna, or Navratna to Maharatna) can be protracted, sometimes taking months or even years despite the company meeting all quantitative eligibility criteria (Net Worth, PAT, etc.).	Accelerate the process for granting status upgrades to within 3 months of eligibility.	Rationale: Status upgrade is crucial because it immediately unlocks a significantly higher quantum of delegated financial powers. Delays in the upgrade mean the CPSE continues to be constrained by lower caps (e.g., a Miniratna-I is stuck with lower CAPEX approval limits). The proposed acceleration is to ensure that performance is immediately rewarded with autonomy.
Expected Impact:	Performance Incentive: Provides a strong incentive for Miniratnas to hit high performance metrics. More importantly, it ensures continuity of growth by granting the higher financial freedom needed to sustain the performance that earned the new status.

 

MoU Framework Reform: Shifting CPSE Governance to Performance and Autonomy

The MoU is an annual agreement between a CPSE and its Administrative Ministry/Department, defining targets and responsibilities. The proposed changes are designed to address the persistent issues of goal misalignment, bureaucratic interference, and short-termism that currently plague the framework.

1.  Shift from Input-Based to Outcome-Based KPIs

Shift the focus of the MoU from input-based targets (e.g., expenditure) to outcome-based Key Performance Indicators (KPIs) (e.g., EBITDA, customer satisfaction).

Current Limitation (Input Focus)	Proposed Change (Outcome Focus)	Rationale and Expected Impact
Input Metrics: Emphasis on expenditure targets (e.g., achieve 90% of CAPEX target), production volume, or compliance with specific policy directives. These measure effort, not results.	Outcome Metrics: Focus on profitability (EBITDA, Return on Capital Employed/ROCE), efficiency (Asset Turnover Ratio, Capacity Utilization), quality (Customer Satisfaction Index, Defect Rate), and strategic growth (Market Share).	Rationale: Input targets encourage unnecessary spending at the end of the year ("budget utilization") and may not correlate with value. Outcome-based KPIs force management to focus on profitability, market competitiveness, and efficient resource allocation.
Expected Impact:	Value Creation: This fosters a more commercial culture within the CPSE. Management is rewarded for smart spending that generates higher returns, rather than just meeting spending targets. It aligns the CPSE with private sector best practices and improves stock market valuation.

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2. Introduce Accountability for Administrative Ministry Non-Interference

 Introduce a penalty/reward mechanism for the Administrative Ministry based on its adherence to MoU commitments (non-interference).

Current Limitation (Unilateral Accountability)	Proposed Change (Mutual Accountability)	Rationale and Expected Impact
Interference: Administrative Ministries, despite signing the MoU, often issue informal directives or delay approvals (e.g., for Board appointments, large contracts) that violate the spirit of non-interference guaranteed in the MoU. Accountability currently rests only with the CPSE.	Mutual Commitment: The Ministry's performance would be assessed on metrics like timeliness of appointments, speed of approval for statutory/major non-discretionary decisions, and quantifiable instances of non-interference in commercial matters.	Rationale: True CPSE autonomy is impossible if the Ministry's commitment is not enforced. The mechanism makes non-interference a quantifiable and rewarded/penalized KPI for the Ministry itself (e.g., impacting internal ratings or allocation of resources).
Expected Impact:	Operational Autonomy: Reduces the high cost of bureaucratic friction and decision paralysis. It empowers CPSE Boards to act swiftly on commercial opportunities, confident that the Ministry will support their delegated authority rather than supersede it.

 

3. Implement a Rolling 3-Year Target System

Implement a rolling 3-year target system in the MoU for better long-term planning, rather than only annual targets.

Current Limitation (Short-Termism)	Proposed Change (Long-Term Vision)	Rationale and Expected Impact
Annual Focus: The current MoU system, being renewed yearly, promotes a short-term focus on easily achievable annual goals. This discourages investments with long gestation periods, such as major R&D, capacity expansion, or critical infrastructure projects.	Rolling Plan: The MoU would set out mandatory targets for the current year, indicative targets for the next year, and aspirational/strategic goals for the third year. Each year, the three-year window rolls forward.	Rationale: Capital-intensive industries (power, oil, steel) require planning cycles of 5-10 years. A rolling three-year cycle institutionalizes long-term strategic thinking and provides assurance to the CPSE Board that investment decisions initiated today will be supported by the Ministry in the coming years.
Expected Impact:	Strategic Investment: Encourages critical long-gestation investments in technology, diversification, and large CAPEX projects. It shifts the CEO's focus from mere survival to sustainable, market-driven growth over multiple financial cycles.

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4.  Standardize and Simplify the Evaluation Process

Standardize and simplify the MoU evaluation process to reduce subjective assessments.

Current Limitation (Subjectivity & Complexity)	Proposed Change (Transparency & Objectivity)	Rationale and Expected Impact
Subjective Grading: The current evaluation process can be complex, often involving discretionary weights and qualitative assessments that leave room for subjectivity or perceived bias. The lack of a simple, uniform methodology reduces the credibility of the final rating.	Standardization: Adopt a uniform methodology across all sectors, featuring clear weightages, pre-defined calculation formulae for all KPIs, and transparent criteria for classifying performance (e.g., Excellent, Very Good). Utilize benchmarking against industry peers.	Rationale: A standardized, simplified process enhances the credibility and objectivity of the final MoU score. A low score could clearly reflect poor performance on defined metrics, not the result of a convoluted evaluation that is difficult to replicate or challenge.
Expected Impact:	Fairness and Motivation: A fairer rating system acts as a better performance motivator for CPSE management. It ensures that the rewards and further autonomy granted (such as 'Ratna' status upgrades) are genuinely tied to demonstrated operational and financial excellence, reinforcing the link between performance and reward.

 

Corporate Governance Reforms

The proposed governance changes focus on removing conflicts of interest and enhancing the independence and professionalism of the Board.

Create a Dedicated Government Ownership Unit (Sovereign Wealth Fund Model)

Mechanism	Rationale for Separation	Expected Impact
Proposed Unit: Establish a central, dedicated entity, analogous to a Sovereign Wealth Fund (SWF) or a central holding company, to hold and manage the Government's equity in CPSEs. This unit would function purely as a professional shareholder.	Addressing Conflict of Interest: Currently, the Administrative Ministry holds a dual role: it is the Sector Regulator/Policy Maker and the Majority Shareholder. This creates a conflict where policy decisions can be influenced by shareholding interests, and governance decisions can be influenced by bureaucratic policy.	Enhanced Commercial Focus: This separation (Shareholder Role -Ownership Unit; Policy Role - Administrative Ministry) professionalizes the shareholder function. The Ownership Unit's sole mandate would be to maximize the long-term value and return of the Government's equity, ensuring that Board appointments and investment decisions are purely commercial.
Global Context: Countries like Singapore (Temasek) and Malaysia (Khazanah) use similar centralized models to manage State-Owned Enterprises (SOEs) with clear commercial objectives.	Reduction of Political Interference: Insulates CPSE management from day-to-day policy interference, fostering greater management autonomy and accountability for commercial performance.

 

Mandate a Minimum of 50% Independent Directors on Maharatna CPSE Boards

Current Scenario	Proposed Change	Rationale and Expected Impact
Composition: Current SEBI/Companies Act mandates a lower threshold (typically one-third or a specific minimum number). While Maharatnas have Independent Directors (IDs), they are often not a clear majority.	Mandate: Require at least 50% of the Board members to be Independent Directors (IDs) for all Maharatna CPSEs.	Rationale: The presence of a majority of IDs is the gold standard of corporate independence. It ensures that decisions are not swayed by the wishes of the majority shareholder (the Government) or the Executive Directors (management). IDs bring diverse expertise, objectivity, and protect the interests of minority shareholders.
Expected Impact:	Improved Decision Quality: Leads to more rigorous debate on strategic proposals (e.g., CAPEX, M&A) and enhanced financial oversight. This measure would significantly boost investor confidence and is crucial for improving the Enterprise Value (EV) of India's largest PSUs.

 

Implement Mandatory Board Self-Evaluation and Peer-Evaluation

Mechanism	Rationale for Evaluation	Expected Impact
Mandate: Require a structured, annual evaluation process where the entire Board self-evaluates its performance (as a collective unit) and Directors undergo a peer-evaluation (assessing fellow members, including government nominees and IDs).	Performance & Accountability: Currently, performance appraisal often focuses on the Executive Management. This proposal extends accountability to the Directors themselves. The process helps identify skill gaps, areas for improvement in Board dynamics, and the effectiveness of Board Committees.	Professionalization: Ensures that government nominees and Independent Directors treat their role as a professional fiduciary responsibility rather than a ceremonial post. Directors who consistently underperform or lack the necessary domain expertise can be identified and eventually replaced, driving up the quality of governance.

 

Risk Management Framework

The proposals on Risk Management acknowledge the increasing complexity and scale of CPSE operations, particularly in critical sectors like energy, defence, and infrastructure, requiring formalized risk mitigation strategies.

18. Mandate the Establishment of a Board-level Risk Management Committee (RMC)

Current Structure	Proposed Change	Rationale and Expected Impact
SEBI Requirement: SEBI mandates an RMC for the top 1000 listed companies, but the scope and mandate can vary. CPSEs often rely on audit committees for risk oversight.	Mandate: Make the Board-level Risk Management Committee (RMC) mandatory and robust for all 'Ratna' CPSEs (Miniratna-I, Navratna, Maharatna), regardless of their listing status or market capitalization.	Rationale: Dedicated Focus: Risk management requires specialized, continuous oversight distinct from financial auditing. The RMC ensures that enterprise-wide risks (operational, strategic, financial, reputational, and compliance) are systematically identified, quantified, and mitigated, preventing unexpected crises.
Expected Impact:	Proactive Resilience: Moves CPSEs from a reactive stance (dealing with crises after they happen) to a proactive, institutionalized risk management culture, which is vital for large entities handling national assets and critical infrastructure.

 

Require Formal Risk Management Policy Disclosure

Current Disclosure Practice	Proposed Change	Rationale and Expected Impact
Varying Disclosure: Current annual reports may contain generic statements on risk, but a detailed, formalized risk policy is often missing or insufficiently disclosed.	Mandate: Require CPSEs to disclose a Formal, Board-Approved Risk Management Policy in their Annual Reports. This policy must detail the framework, methodology, key risk identification process, risk appetite statement, and mitigation strategies.	Rationale: Transparency & Stakeholder Assurance: Disclosure makes the CPSE accountable for its risk strategy. It provides stakeholders (Government, investors, rating agencies) with a clear understanding of how the company manages uncertainty and safeguards value, thereby improving corporate trust and creditworthiness.
Expected Impact:	Investor Confidence: A well-articulated risk policy is a hallmark of good governance, improving the perception of CPSEs in the global investment community and potentially leading to better ESG (Environmental, Social, and Governance) scores.

 

Empower the Board to Approve Major Cyber-Security and Data Protection Investments

Current Limitation (Context)	Proposed Change (Goal)	Rationale and Expected Impact
Approval Delays: Major IT and cyber-security investments often exceed the lower delegated financial limits, requiring approval from the Administrative Ministry or even the Cabinet, leading to significant and dangerous delays.	Empowerment: Empower the Board to approve all major cyber-security and data protection investments (hardware, software, services) independently, potentially up to a large delegated limit (e.g., linked to Net Worth or annual IT budget).	Rationale: Timeliness is Critical: Cyber threats evolve daily. A delay of several months in procuring essential security systems or renewing licenses due to bureaucratic approval processes exposes national critical infrastructure (power grids, oil pipelines, defence systems) to catastrophic risk. The Board, informed by the RMC, must have immediate, independent financial power to secure its digital assets.
Expected Impact:	Cyber Resilience: Ensures CPSEs can implement state-of-the-art security measures rapidly. This is essential for companies designated as Critical Information Infrastructure (CII) under Indian law, protecting national assets and sensitive data.

 

Board Governance Reforms

These proposals target structural weaknesses in Board composition and director quality to ensure high-velocity, professional decision-making.

Expedite Appointment of CMDs/Functional Directors within 3 Months of Vacancy 💨

• Rationale: Leadership Vacuum is Costly. CPSE Boards frequently operate with critical positions (CMD or Functional Directors) vacant for prolonged periods (sometimes over a year) due to slow processing by the Public Enterprises Selection Board (PESB) and the Appointments Committee of the Cabinet (ACC). This causes strategic paralysis, as major policy decisions are postponed.
• Mechanism: Implement strict, time-bound Standard Operating Procedures (SOPs) for the selection, security clearance, and ACC approval process, ensuring a maximum turnaround time of 3 months.
• Expected Impact: Guarantees continuous, accountable leadership, preserving the continuity of strategic planning and preventing the accumulation of pending approvals.

Introduce Performance-Linked Incentives (PLI) for Independent Directors (IDs)

Rationale: IDs are essential for objectivity, but their compensation is often fixed, lacking a link to organizational success. PLI attracts and retains top-tier professionals (e.g., former CEOs, industry experts) and incentivizes their effective participation.

• Mechanism: Compensation (sitting fees, annual retainer) could include a PLI component linked to objective, Board-level performance metrics like the company's MoU score, Audit Committee effectiveness, timely CAPEX achievement, and overall shareholder returns (TSR). Crucially, the incentive must be calculated to prevent conflicts of interest.
• Expected Impact: Elevates Board Quality: Transforms the ID role from honorary to professionally accountable, driving higher-quality governance decisions and greater rigor in strategic oversight.

Cap Government Nominee Directors to Two on all 'Ratna' Boards

• Rationale: Excessive government nominee directors can lead to micromanagement and blur the line between policy oversight and commercial interference. This proposal is a structural reform to strengthen the commercial autonomy of the Board.
• Mechanism: Mandate that the number of Government Nominee Directors (usually from the Administrative Ministry and the Finance Ministry) shall not exceed two, regardless of the Board's total size, thus ensuring that Independent Directors and Executive Directors form the functional majority.
• Expected Impact: Minimizes Interference: Reinforces the Board's authority on commercial matters, ensuring that decisions are driven by business logic and fiduciary duty rather than short-term administrative requirements.

Provide Mandatory, Specialized Training for All New Directors

• Rationale: New Directors, including high-level IAS officers nominated by the Government, often lack immediate expertise in corporate finance, deep sector-specific operations, and the nuances of the CPSE autonomy framework.
• Mechanism: Require mandatory, structured induction and specialized training modules for all new Executive, Nominee, and Independent Directors on critical areas: Corporate Law, SEBI/Listing Regulations, Vigilance/Anti-Corruption Framework, Financial Modelling, and the specific mandates/limits of the CPSE Autonomy Framework (e.g., Miniratna/Navratna/Maharatna powers).
• Expected Impact: Reduces Learning Curve and Compliance Risk: Ensures all directors are proficient in their legal and financial duties from day one, leading to better-informed decisions and reducing the risk of procedural non-compliance.

Financial Freedom Reforms

These changes aim to unchain high-performing CPSEs from bureaucratic oversight on critical financial activities, recognizing their independent market standing.

25. Allow Maharatna CPSEs to Raise International Debt Without Government Guarantees

• Rationale: Maharatnas like ONGC or IOCL possess strong credit ratings (often sovereign-equivalent) and large balance sheets. Requiring a sovereign guarantee for international debt (e.g., Eurobonds) is unnecessary, adds administrative friction, and consumes valuable government guarantee capacity that could be used for riskier projects.
• Mechanism: Grant autonomous power to Maharatna Boards to raise debt from international markets solely based on their independent credit rating (e.g., BBB- or higher), provided the debt amount is within their delegated limits.
• Expected Impact: Lowers Cost of Capital: Enables CPSEs to tap into cheaper, deeper global debt markets and secure better financing terms, accelerating their CAPEX plans without burdening the national exchequer.

26. Delegate Board Power for All Technology Acquisition/Licensing Agreements

• Rationale: Technology is the differentiator in modern industry. Vetting technology acquisitions, licensing agreements, and service contracts (often involving intellectual property/IP) through multiple Ministry committees is slow and risks exposing sensitive commercial details.
• Mechanism: Delegate full power to the Board, advised by a technical committee, to approve all technology acquisition and licensing agreements, provided the financial value is within the existing delegated CAPEX limits.
• Expected Impact: Promotes Innovation: Facilitates the rapid adoption of cutting-edge technology (AI, automation, new energy solutions) required to maintain market competitiveness and operational excellence, directly linking CPSEs to global technological shifts.

Provide Flexibility in Dividend Policy to Retain Higher Earnings for Strategic CAPEX

• Rationale: While DIPAM sets minimum dividend thresholds, high-growth strategic sectors (e.g., renewable energy, strategic minerals) often require massive reinvestment. The current system can sometimes force a higher payout than desired for long-term growth.
• Mechanism: Allow the Boards of Maharatna/Navratna CPSEs operating in strategic/high-CAPEX sectors to formally request and approve a temporary deviation from the minimum dividend norms (e.g., paying 20% of PAT instead of 30%) with a Board resolution earmarking the retained earnings specifically for approved strategic CAPEX projects.
• Expected Impact: Fuels Strategic Growth: Enables the highest-rated CPSEs to finance large, multi-year strategic projects (e.g., large-scale hydrogen plants) through internal accruals rather than external debt, strengthening their balance sheet for future growth.

Operational Freedom Reforms

These proposals tackle day-to-day administrative and HR bottlenecks, freeing up management time for core business focus.

Delegate Full Authority for Below-Board Level Appointments and Compensation

• Rationale: CPSE management spends excessive time seeking approvals from Ministries/DPE for hiring senior personnel (below the Functional Director level), setting internal compensation, and sanctioning promotions. This is classic managerial interference.
• Mechanism: Grant full and final authority to the Board (or delegated to the CMD/HR Committee) for all appointments, promotions, and compensation decisions below the level of Functional Director, provided they comply with overarching DPE guidelines on reservation and pay scales.
• Expected Impact: Talent Management: Enables CPSEs to swiftly hire, promote, and competitively compensate specialized talent (engineers, data scientists) to meet urgent business needs, improving internal morale and reducing bureaucratic inertia.

Simplify the Approval Process for Foreign Travel of Functional Directors and Top Management

• Rationale: Approvals for business travel abroad often languish in Ministries, causing missed opportunities for tenders, joint ventures, and high-level negotiations, particularly in the energy and trade sectors where speed is crucial.
• Mechanism: Eliminate the need for prior Ministerial approval for business travel for Functional Directors/CMD. Instead, require Board notification for approval and a post-facto reporting mechanism. Travel could be deemed approved if not queried by the Board within a fixed short period.
• Expected Impact: Business Agility: Allows top management to respond immediately to global commercial opportunities, supporting the CPSEs' international footprint and operational efficiency.

Empower Boards to Fully Decide on Corporate Branding and Marketing Strategies

• Rationale: Marketing and branding are core commercial functions that must respond instantly to market dynamics and competition. Vetting creative and media spends through the Ministry leads to delays, missed campaigns, and sub-optimal brand positioning.
• Mechanism: Delegate full authority to the Board (or the delegated Marketing Committee) to approve all corporate branding, advertising, and marketing strategies, provided the budget remains within the Board-approved Annual Operating Plan.
• Expected Impact: Market Responsiveness: Ensures that CPSEs can compete effectively with private sector players in brand positioning and consumer outreach, enhancing their market presence and consumer connect.

Conclusion: A Blueprint for Competitive CPSEs

The implementation of these comprehensive reforms represents a watershed moment for India's public sector. By embracing professional governance, clear accountability, and dynamic capital management, CPSEs can transition from being budget contributors to global corporate powerhouses.

The Financial Freedom proposals, such as allowing Maharatna CPSEs to raise debt from international markets without prior government guarantees, recognize their strong creditworthiness and market standing. Furthermore, providing flexibility in the Dividend Policy for strategic-sector CPSEs allows them to retain higher earnings for essential, large-scale CAPEX, driving industrial growth and technological adoption. The Operational Freedom proposals, including full autonomy over below-Board HR decisions and corporate strategy, ensure that daily management is focused solely on commercial performance.

Successful execution requires strict adherence to the new norms, backed by the dedicated Government Ownership Unit to champion the commercial interest of the equity. Ultimately, these reforms will not only boost the stock market valuation of CPSEs but also ensure their efficiency and resilience as vital engines of India's economic growth. The shift from a culture of compliance to a culture of commercial excellence is the primary expected outcome.