CHAPTER - III Public Enterprise System in India

Transcription

1 CHAPTER - III Public Enterprise System in India Introduction: The Public Sector is an engine of growth and has merged over a period of time as an important source of achieving economic development and industrial growth thereby creating potential employment generation in the country. The creation of infrastructure for commercial activity and support for research and development are given utmost thrust so that the private and unorganized sectors also can take the lead to take part in Nation building. The revitalization of the public sector is an integral part of the strategy of promoting inclusive growth. The Government has taken National Common Minimum Programme (NCPM) to remove all irritants coming in the way of the healthy functioning of Public Enterprises. Manmohan Singh (2007) stated that public enterprises should also evolve their own code of corporate ethics and conduct and ensure adherence to such codes. Government is working towards limiting the role of Administrative ministries in the dayto-day management of public enterprises, so that they develop inherent strengths to become global leaders. According to Section 617 of the Companies Act, 1956, central public sector enterprises (CPSEs) comprise those government companies wherein more than fifty percent of equity is held by the central government. The subsidiaries of these companies are also categorized as CPSEs. An overview of Central Public Sector Enterprises (CPSEs) in India : CPSEs and other State owned enterprises have long played an important role in the Indian economy. CPSEs are technologically complex organizations spread all over the country, operating in diverse sectors and employing a large workforce for fulfilling major economic objectives of the nation. Post-independence, they were created as vehicles for industrial and regional development, creation of basic infrastructure networks, and employment generation. A large number of CPSEs were initially set up as green field projects. Others, mainly sick companies, were taken over from the private sector. CPSEs Reforms: Government owns or controls large interests in key sectors with significant economic impact through CPSEs. Reforms have been a critical component of 82

2 India s broader economic policy for more than five decades. As early as 1956, the Industrial Policy Resolution called for CPSEs to be given greater autonomy and be organized along business lines. In 1965, the Bureau of Public Enterprises, which was later rechristened as the Department of Public Enterprises (DPE), was established to report on performance of CPSEs. In the mid 1980s the Memorandum of Understanding (MOU) system was introduced to increase enterprise accountability. Reforms during the 1990s focused on liberalization and deregulation of most sectors, disinvestment of government shares, greater autonomy through delegation of decision-making powers to leading companies, and the development of a performance monitoring system to ensure accountability. The 1991 new industrial policy cemented and expanded the reforms of the previous decades. It envisioned a greater role for the private sector, opened up sectors to competition, and highlighted the need for CPSEs to innovate and lead in areas of strategic importance. To raise resources and encourage public participation, the policy also called for the partial sale of shares of CPSEs and other state-owned enterprises to financial institutions and the public through the disinvestment program. Boards were to become more professional, and emphasis was placed on the MOU system to give managers greater autonomy while holding them accountable. Measures were initiated for restructuring of poorly performing or sick enterprises while developing social security mechanisms to protect affected workers. These CPSEs continued to hold control across several industries, despite the opening up to the private investment. The market capitalization of listed CPSEs became more than doubled between 2006 and 2009, signifying the success of the first wave of CPSE disinvestment. CPSEs possess complete monopoly over nuclear power generation. Other leading areas of dominance were coal (over 80 per cent), crude oil (over 70 per cent), refineries (over 55 per cent), and wired lines (over 80 per cent). CPSEs in India have grown from only five enterprises in 1951 to 248 in As on March 31, 2012, there were 225 operating CPSEs in India. These included 16 Navratna and 62 Miniratna companies. They contributed to maintenance of low prices in the domestic economy, acted as model employers and grew without much financial support from the State. Indian 83

3 CPSEs are widely recognized as having a unique place amongst State owned enterprises in the world. Most CPSEs are not companies, but corporate bodies which have been created under different Acts of Parliament. Under the National Common Minimum Program (NCMP), the Government delegated enhanced powers to Navratna, Miniratna and other profit-making CPSEs operating in a competitive environment in August, 2005, in order to devolve full managerial and commercial autonomy. This resulted in greater public accountability of these enterprises. Steps to strengthen CPSE Boards and enhance transparency resulted in a more comprehensive governance approach. A Maharatna CPSE has freedom to invest up to Rs. 5,000 crores in a single project without seeking the Government s approval. Navaratna and Miniratna CPSEs had the flexibility of clearing investments in a single project up to Rs crore and 500 crore respectively, (Singh & Narayan, 2011). In spite of marked improvement in the performance of CPSEs, they continued to operate under multiple constraints. These include the nature of the relationship with the controlling ministry, vigilance mechanism, the composition, power and size of the Boards, the process and time taken for appointments of Chairman Managing Directors and Directors, human resource practices, lack of greater autonomy for entering into joint ventures as well as research & development. CPSEs Contribution to the Economy: CPSEs remain as important contributors to the economy and account for around six per cent of the total employment in the organized sector in India. According to public enterprises survey report, (2012), the share of gross value addition of CPSEs in GDP at market prices was 6 per cent in The share of CPSEs in the manufacturing sector in terms of gross block was the highest at 27.8 per cent, followed by electricity at 25.2 per cent, services at 23.2 per cent and mining at 23 per cent. According to the said report the profitability of CPSEs increased substantially between and Dividend payout ratio also significantly increased during the period. However, compared to , net profit to turnover ratio, net profit to net worth and net profit to capital employed, showed a decline in The decline in profit to capital employed was mainly due a change in formulae for calculating capital employed in accordance with per revised schedule VI under Companies Act (1956). As a result, capital 84

4 employed was redefined as shareholders funds plus long-term borrowings (instead of the earlier net fixed assets plus working capital). This resulted in an increase in quantum of capital employed in & as compared to previous years. Performance of CPSEs in India: Table 3.1 presents key parameters of CPSEs over a ten year period relating to all the operating CPSEs in each year. The number varied from 226 in to 225 in In two CPSEs did not furnish details to the DPE. Similarly, in , one CPSE did not furnish the details. In and , two CPSEs did not make either a profit or a loss. Similarly, in , , and , one CPSE did not make either a profit or a loss. Retained profits of profit-making CPSEs rose by 2.81 times in the ten year period, while net worth trebled. Table 3.1 Performance of CPSEs in India Particulars No. of Operating CPSEs Capital Employed* Turnover * Total Income* Net Worth* Number of Profit Making CPSEs Profit of Profit Making CPSEs. Number of Loss incurring CPSEs Loss of Loss incurring CPSEs Dividend Dividend tax Retained profit * ( Rs. in Crore) (Source: PE survey Report 2012) 85

5 Table 3.2 and figure 3.2 indicate that all financial performance parameters showed an increasing trend from upto Thereafter, they fluctuated. The net profit to net worth ratio fluctuated throughout the 10 year period and declined in as compared to Though sales to capital employed increased two-fold between and , there was a marked increase between and The data reported in the Economic Survey , showed that there was a dip in turnover of both central and state owned enterprises between and Table 3.2 Financial Ratios of Operating CPSEs Particulars Sales to Capital Employed PBDITEP to CE PBET to Net worth PBDIEET to Turnover PBIEET to CE PBEET to Turnover PBEET to Turnover Net Profit to Turnover Net Profit to CE Net Profit to Net worth Dividend Payout (Source: PE Survey Report 2012) 86

6 Figure 3.2 Financial Ratios of Operating CPSEs: (Source: DPE Survey Report 2012) The DPE report (2012) showed that there was a general improvement in profit-related ratios of Oil & Natural Gas Commission (ONGC), Indian Oil Corporation (IOC), National Thermal Power Corporation (NTPC) and Steel Authority of India Limited (SAIL). They received the coveted tag of Maharatna. The government proposed for a periodic review of CPSE performance, and if a CPSE falls below the defined benchmarks, it could be stripped of its Maharatna status. This is being actively considered to ensure stricter overview of CPSEs that enjoy freedom to take financial and managerial decisions without government s permission (Singh and Narayan, 2011). The Bench marks were average turnover (Rs. 25,000 crores), net worth (Rs.15,000 crores), and net profits (Rs.5,000 crores). A similar mechanism has been proposed to be put in place for Navartna and Miniratna CPSEs. Bharat Heavy Electricals Limited (BHEL) may lose their coveted Maharatna status due to the under-performance, once the government establishes a system of regular and more intensive review of operations of Maharatna companies. Corporate Governance Regulatory Framework for CPSEs: CPSEs are governed by the Companies Act (1956) and regulations of Stock Exchange Board of India (SEBI), DPE, Comptroller & Auditor General of India (CAG), Central Vigilance 87

7 Commission (CVC), Administrative Ministries, and other nodal agencies. The Right to Information Act (2005) is applicable to all CPSEs. CPSEs fall under the definition of State as provided in Article 12 of Indian Constitution. Corporate governance regulations applicable to CPSEs are: (i) Detailed mandatory guidelines from Dept of Public Enterprises, Ministry of Heavy Industry, Government of India, applicable both to listed and unlisted CPSEs. (ii) Provisions of Clause 49 of Listing Agreement as per SEBI, to listed CPSEs alone. (iii) Provisions of Companies Act (2013) and the erstwhile Companies Act (1956). iv) Voluntary Guidelines on corporate governance issued by Ministry of Corporate Affairs, Government of India Corporate Governance in CPSEs: Corporate governance is one of the important parameters which is included in the Memorandum of Understanding (MoU) signed by the CPSEs each year. Corporate governance is a part of non-financial parameters with a weightage of 5 marks in the MoU that is signed between a CPSE and its administrative ministry. Listed and unlisted CPSEs were required to conform to DPE guidelines on corporate governance and the provisions of the Companies Act (1956), (2013). In addition, listed CPSEs also had to conform to SEBI s corporate governance norms as per clause 49 of the listing agreement. However, 25 CPSEs, including blue chip companies such as ONGC, Mahanagar Telephone Nigam Limited (MTNL), National Aluminium Company Limited (NALCO) and Coal India Limited, did not have the requisite number of independent directors as per SEBI requirements ( Narayanaswamy, 2008). Bandhopadhyaya (2011) stated, "higher standards of corporate governance are an inherent objective of disinvestment and lower standards of corporate governance may impact valuation of a company and its ability to raise resources from the market" The DPE requires CPSEs to submit a quarterly corporate governance compliance report. Corporate governance activities of CPSE's are evaluated on a scale of 1 to 100, based on submission of quarterly self-evaluation reports to DPE. The higher the score, the better is 88

8 the corporate governance. If self-evaluation report (SER) of a CPSE was not received by the cutoff date, the concerned CPSE was graded as 'Poor' in terms of its compliance with the guidelines. CPSEs which did not submit the compliance report were subjected to negative marking from onwards. Out of the total of 248, SERs in respect of 81 CPSEs for were not received by DPE and consequently graded as Poor. According to the Organization of Economic Co-operation and Development (OECD), Government, as the promoter of CPSEs, needs to develop and issue an ownership policy that defines the overall objective of State ownership, the role in corporate governance and how the policy is likely to be implemented. Recent CAG reports listed several deficiencies relating to accounting, audit, and compliance matters in CPSEs. The CAG Report (2009) identified deficiencies in financial reporting, including audit reports and disclosures. According to DPE voluntary corporate governance guidelines (2007), CPSEs should consider adopting a risk-based approach to internal audits and supplementing in-house internal audit functions with external service providers in areas requiring specialist skills. OECD also recommended that CPSEs with a wider stakeholder / minority shareholders perspective, should independently and intensively consult specialist / expert Board committees without replacing the management core responsibilities. Further, it was suggested that the committee should deliberate on these issues sufficiently in advance rather than immediately prior to the Board meeting to avoid being hustled through. The recommendations of Board Committees should then be used by independent directors and the Board to make more informed and transparent decisions on relevant and related issues in the Board meetings. The quality of corporate governance primarily depends on factors that affect corporate performance. They are integrity of management, size of Board (the larger the Board, the better it is), ability of Board, qualifications/expertise and commitment of Board members, frequency of Board meetings, insider trading norms, existence of a whistle blower policy, quality of corporate reporting, stakeholder participation in management, number of independent directors, Board committees (audit, remuneration, nomination, investor 89

9 grievance redressal and risk management committees), class action suits as well as role and rotation of auditors. The importance of audit committees in CPSEs cannot be over emphasized. Listed companies with active and well-informed audit committees tend to be more transparent and demonstrate enhanced minority investor confidence. Appointment of statutory auditors should be the responsibility of CPSE audit committee, while the CAG s role should be to recommend firms that would fit the bill, based on robust criteria. As required by clause 49 of the listing agreement, the audit committee should be involved in all aspects of external and internal audit processes, appointment of auditors, approval of audit plans, audit fees and performance reviews. The audit committee should also engage in extensive private sessions with auditors at regular and periodical intervals. It should have explicit powers to monitor audit quality and ensure that audit fees are commensurate with the level of audit risk and effort levels involved in undertaking CPSE audits. A search committee comprising of Chairman of the Public Enterprises Selection Board (PESB), Secretary, DPE, two non-official directors, who are domain experts, and the secretary concerned from the administrative ministry, scrutinizes the recommendations. The committee may even invite applications for the vacancies, if it cannot select someone from the list submitted. The administrative ministry sends the name of the selected person to the Appointments Committee of Cabinet (ACC) for approval. Inspite of reforms, much needs to be done to improve governance climate in CPSEs. There were 300 posts of independent directors lying vacant in State-run companies in 2012 (Chatterjee, 2012). Under the current rules, the Administrative Ministry suggests appointment of independent directors on the Board of State-run companies under their oversight and report to DPE on a quarterly basis. However, DPE has appropriated powers to act unilaterally to appoint independent directors to the Boards in the event of administrative ministries not taking timely action (Tiwari, 2011). There is a big gap between the Governance standards prevalent in the larger and more profitable disinvested CPSEs as compared to the smaller and not so profitable ones. Functional directors on the larger, profitable and better performing PSEs, were expected to 90

10 assume non-executive director roles in the smaller and not so profitable companies, to promote better sharing of good practices. This is essential to reduce the gap between prevailing standards in different CPSEs. Department of Defence Production (DDP): This department was set up by Govt. of India under the Ministry of Defence, in It was later split into two, namely, Department of Defence Production and Department of Defence Supplies. The objective of these departments was to develop a comprehensive production infrastructure and smooth flow of supplies, to cater to the needs of the country s defence forces and those of other strategic sectors. The Department of Defence Production (DDP) has established a wide range of production facilities including arms and ammunition, tanks, armored vehicles, heavy vehicles, fighter aircraft, warships, submarines, missiles, electronic equipment, earth moving equipment, special alloys and special purpose steels. Defence Public Sector Enterprises : There are nine enterprises under the administrative control of department of defence production of which eight enterprises are considered for the purpose of study. All the above units are hereinafter referred to as Defence Public Sector Enterprises (DPSEs). One enterprise was under Board for Reconstruction of Public Sector Enterprises (BRPSE). Out of which two are listed enterprises and six are unlisted enterprises. The details are given below: The listed enterprises were as follows: Bharat Electronics Limited (BEL) and Bharat Earth Movers Limited, (BEML) The unlisted enterprises were as follows: Bharat Dynamics Limited (BDL) Garden Reach Shipbuilders & Engineers Limited (GRSE) Goa Shipyard Limited (GSL) Hindustan Aeronautics Limited (HAL) Mazagon Dock Limited (MDL) and Mishra Dhatu Nigam Limited (Midhani). 91

11 Hindustan Shipyards Limited (HSL), which functioned earlier under the Department of Shipping (DoS), Ministry of Shipping, Road Transport & High ways (SRTH) was referred to the Board for Reconstruction of Public Sector Enterprises (BRPSE). After the process was completed, the unit was transferred to the Ministry of Defence, only in the year Hence, HSL was not considered as DPSE for the purpose of the present study. With the objective of achieving self-reliance, defence production units are being modernized and upgraded. Over a period of time, they have absorbed technical know-how which was initially acquired from overseas sources and are indigenizing several products, systems, equipments, alloys and facilities, through research and development. The study examined the corporate governance practices in the eight DPSEs listed above. Profile of Defence Public Sector Enterprises : The profile of each defence public sector enterprise is furnished below: Bharat Electronics Limited (BEL) : BEL was established by the Ministry of Defence, Government of India, in the year 1954 at Bengaluru. It ranks 69 th in the terms of revenue among the top 100 companies world-wide in the Defence sector. Navaratna status was conferred on the Company, in June BEL has nine units spread all over the country. It is engaged in the design, development and manufacture of sophisticated state-of-the-art electronic equipments and components for use of the defence services, para-military forces and other government agencies (All India Radio, Doordarshan, Department of Telecommunications, Police Wireless Departments, Meteorological Department). BEL is a modern and professional electronics company. Their core competence lies in computer aided design, manufacture and testing of state-of-the-art electronic equipment. Other areas of specialisation include : on-line computerization for materials management, facilities for carrying out advanced testing for environment and reliability, electro-magnetic interference / compatibility, antennae, back-up support from standardization technical information and documentation are other. 92

12 BEL has a vision to be a world-class enterprise in professional electronics and its mission is to be a customer-focused, globally competitive company in defence electronics and in other chosen areas of professional electronics, through quality, technology, and innovation. Bharat Earth Movers Limited (BEML) : Established in May, 1964, BEL commenced operations in January, It manufactures transmission gear and axles; hydraulic control valves, cylinders and pumps; diesel engines, railway coaches, rail buses, railway wagons, alternating current electrical multiple units; heavy duty all terrain multi axle trucks and earth moving machinery. Military vehicles produced by BEL include : armoured recovery vehicles, self-propelled guns, battle tanks as well as tracked heavy vehicles, bridge-laying tanks, truck-based mobile bridge systems, mounted gun systems on truck chassis and rocket launcher system. BEML also manufactures and supplies defence ground support equipment such as Tatra-based high mobility trucks, recovery vehicles, bridge systems, vehicles for missile projects, tank transportation trailers, milrail wagons, mine ploughs, crash fire tenders, snow cutters, aircraft towing tractors, aircraft weapon loading trolley. The company also plans to take up overhaul and up-gradation of battle tanks with a view to assemble and roll out advanced products. As a Miniratna (Category-1) company, BEML plays a pivotal role and serves India s core sectors such as Defence, Rail, Power, Mining and Infrastructure. The Company started operations with a modest turnover of Rs. 5 crores in 1965 and rose to Rs crores in , thanks to its diverse business portfolio. BEML has a vision to become a market leader, as a diversified company, supplying products and services for mining & construction, railway & metro and defence services and emerge as an international player. Its mission is to improve its competitiveness through organizational transformation and collaboration / strategic alliances / joint ventures in technology; grow profitably by aggressively pursuing opportunities in national and international markets, attract and build people in a rewarding and inspiring environment by fostering creativity and innovation. 93

13 BEML has three major business verticals - mining and construction; defence; rail and metro -which are serviced by its nine manufacturing units located at Bengaluru, Kolar Gold Fields, Mysore, Palakkad and its subsidiary unit, Vignyan Industries Ltd located at Bengaluru. Each business vertical is headed by a director level executive who acts as its chief executive officer and reports to the Chairman & Managing Director (CMD) of the company. In addition, BEML has two Strategic Business Units (SBUs) - Trading Division for dealing in non-company products and an International Business Division dealing with export activities. BEML s products are sold and serviced through its large marketing network spread all over the country. It exports to more than 56 countries. As part of the company s globalization strategy, it expanded its global reach by establishing a local company each in Indonesia, Brazil, Malaysia and China. The mining and construction business vertical manufactures and supplies mining and construction equipment. This includes bulldozers, excavators, dumpers, shovels, loaders and motor graders to various user segments. The rail and metro business vertical manufactures and supplies rail coaches, metro cars, AC EMUs, OHE cars, steel and aluminum wagons to the rail sector. The company has infrastructure facilities to meet the technological demands of its customers through in-house R&D and strategic technical tie-ups with global players. It has a nationwide network of sales offices that gives buyers ready access to its wide range of products. Full-fledged service centers and parts depots offer total equipment care, maintenance contracts and rehabilitation services. Bharat Dynamics Limited (BDL): Established in 1970, BDL has emerged as a enviable manufacturing base for guided weapon systems. It s coming into being reflects the vision, to achieve self-reliance in a high-tech domain. Nurtured by a pool of talented engineers drawn from Defence Research & Development Organisation (DRDO) and aerospace industries, BDL began its journey by producing a first generation anti tank guided missile - the French SS11B1. This product was a culmination of a license agreement the Government of India entered into with Aerospatiale, France. BDL has three manufacturing 94

14 units, located in Andhra Pradesh at Hyderabad, Bhanur and Visakhapatnam. Two new units are being set up at Ibrahimpatnam, Ranga Reddy district, Andhra Pradesh and Amravathi, in Maharashtra. BDL is a Miniratna (Category-I) company. Its vision is to be a world-class enterprise producing international standard quality products for the defence industry. Its mission is to establish itself as a leading manufacturer in the aerospace and underwater weapons systems and emerge as a world class sophisticated, state-of-the-art, global enterprise, providing solutions to the defence needs of the country. BDL has taken up production of second generation ATGMs the French Milan-2 and Russian Konkurs, with technical collaboration from France and Russia, to meet the requirements of Indian Army s infantry and mechanized forces. In this process, BDL also interacted with numerous Indian industrial partners to develop and nurture them as reliable supply chain elements. The decision to develop indigenous sophisticated and contemporary missiles through the Integrated Guided Missile Development Programme (IGMDP) gave BDL an opportunity, to be closely involved with the programme wherein it was identified as the prime production agency. This opened up a plethora of opportunities to assimilate advanced manufacturing and programme management technologies and skills. Responding to the concurrent engineering approaches adopted by DRDO in IGMDP, BDL is seen as a reliable and trustworthy ally. This resulted in the supply of India s first state-of-the-art surface-to-surface missile Prithvi to the three services as per their requirements. In its quest to fulfill the defence needs of the Indian armed forces, BDL has forayed into the field of underwater weapon systems and air-to-air missiles and associated equipment with technology support from DRDO and other global leaders in the domain. While fulfilling its role as a manufacturing agency, the domain knowledge gained has been fully exploited by the BDL s design and engineering division to develop value-added items for its customers. These include Fagot Launcher Adapted for Milan Equipment (FLAME) - 95

15 an indigenous launcher for Milan ATGM, test equipment for Konkurs missile, test equipment for Konkurs launcher and counter-measure dispensing system. The manufacturing and testing facilities established at BDL are modern and tuned to cater to the stringent qualitative requirements of guided weapon systems. Special processing facilities such as Flow Forming, Electron Beam Welding etc. have been set up and ensure reliable inputs. Environmental test facilities as Motion Simulators, Walk-in Test Chambers etc., are utilized to test the products, simulating the rigorous environmental conditions as encountered by the weapon system in operational conditions. Keeping pace with the modernization of the Indian armed forces, BDL is poised to enter new avenues of manufacturing, covering a wide range of weapon systems such as : Surface to Air Missiles, Air Defence Systems, Heavy Weight Torpedoes, Air to Air Missiles etc., making it a world-class defence equipment manufacturer. BDL has also entered into the new area of refurbishment of vintage missiles, which is one more feather in its cap. In recognition of its outstanding work and quality products, the company and its members have been consistently winning National awards in a wide variety of areas. Garden Reach Shipbuilders & Engineers Limited (GRSE) : A Mini-ratna (Category- I) company now, GRSE began its journey as early as 1884, with a small factory located on the eastern bank of river Hooghly. It was named as Garden Reach Workshop (GRW) in It was incorporated as a joint stock company in 1934, and named as Garden Reach Workshop Limited (GRW). Later on, during 1960, it was taken over by the Government of India. With diversification in engineering products, the name was changed to Garden Reach Shipbuilders & Engineers Ltd (GRSE) in Since then, it has grown and diversified its activities and is now a multi-unit shipyard with a Shipbuilding Division and an Engineering and Engine Division. The company builds and repairs warships and auxiliary vessels for the Navy and the Coast Guard. It has emerged as a leading shipyard of India, building a wide array of vessels, from world-class Frigates to Fast Interceptor Boats. Its vision is to become a global leader in warship building. Its mission is to be self-reliant in design capability and deploy state- 96

16 of-the-art manufacturing processes, to build quality warships at competitive prices, exceeding customer's expectation in terms of delivery time and product support, to achieve sustained growth through customer satisfaction, product innovation, capturing export potential and employee satisfaction. Its product range includes frigates, carriers, oil tankers, patrol vessels, attack craft, high technology ship borne equipment, portable bailey type steel bridges, turbine pumps for the agricultural sector, marine sewage treatment plants and diesel engines. Since its inception, GRSE has delivered more than 600 vessels and embarked upon modernization of its infrastructural facilities. It had won several prestigious excellence awards. Goa Shipyard Limited (GSL): It was established in 1957 on the west coast of India and is a leading ISO certified shipyard, functioning under the administrative control of Ministry of Defence, Government of India. It is strategically located on the banks of the river Zuari in Goa, a major international tourist destination, well connected with international airport and major ports, en-route all important shipping lines. Beginning as a small barge-building yard, GSL has garnered a reputation as one of the most sophisticated ship builders in the country. It has designed, built and commissioned a wide range of sophisticated vessels for varied applications in the defence and commercial sectors with special expertise in building modern patrol vessels of steel and aluminum hull structure. Its main objectives are to design and build sophisticated ships for the Navy and the Coast Guard as a part of import substitution. The company has the capability of building commercial vessels, offshore supply vessels, oceanographic / coastal research vessels, fishing vessels, dredgers, and tugs. GSL also has advanced facilities for carrying out ship repairs. Its vision is to be a global leader in building and repairing ships and GRP vessels in the medium sized sector. Its mission is to be a global shipbuilder and ship repair organization in the high technology sector and to diversify into other related products. The inherent strengths of GSL are that it is an ISO 9001 certified company with worldclass CAD/CAM facility for basic design, simulation and advanced outfitting. It has state- 97

17 of-art manufacturing facilities which include four slipways with a maximum weight of 3000 tones and 180m long Outfitting Jetty. It has the unique distinction of implementing ERP in all functions. It has a steel preparation shop for priming and cutting of steel, aluminum, and non ferrous plates. It employs over 1600 skilled personnel, over 200 qualified engineers and naval architects. It offers a wide spectrum of services to its customers including designing and building of a variety of vessels, repair and modernization of vessels and technology transfer. Its social objectives include contribution to building a strong industrial base through development of ancillaries, ensuring ecological balance through pollution control and reinforcing Government s efforts in promoting social justice by formulating corporate policies on employment, welfare, workers participation. It also contributes to export promotion and earns foreign exchange through shipbuilding and ship repair. It also makes sustained efforts for self-reliance through continuous R&D efforts. Hindustan Aeronautics Limited (HAL): The Company came into existence on 1st October 1964 through the merger of Hindustan Aircraft Limited with Aeronautics India Limited and Aircraft Manufacturing Depot, Kanpur. The Company traces its roots to the pioneering efforts of an industrialist with extraordinary vision, the late Seth Walchand Hirachand, who set up the Hindustan Aircraft Limited in Bangalore in association with the erstwhile princely State of Mysore in December The Government of India became a shareholder in March 1941 and took over the management in HAL, a Navaratna company, has nineteen production units and ten R&D centers in eight locations in India. The Company has an impressive product track record - fifteen types of aircraft / helicopters are manufactured with in-house R&D and fourteen types are produced under license. HAL has manufactured over 3658 aircraft / helicopters and 4178 aero-engines. It has upgraded 272 aircraft and overhauled over 9643 aircraft and aero-engines. HAL s vision is to become a significant global player in the aerospace industry. Its mission is to achieve self-reliance in design, development and manufacture; upgradation and maintenance of aerospace equipment; diversification into related areas and managing the 98

18 business in a climate of growing professional competence to achieve world-class performance standards for global competitiveness as well as growth in exports. HAL has successfully developed numerous R&D programs for both defence and civil aviation sectors. It has played a significant role in India's space programs by participating in the manufacture of satellites IRS (Indian Remote Satellite) and INSAT (Indian National Satellite) as well as structures for satellite launch vehicles such as PSLV (Polar Satellite Launch Vehicle), GSLV (Geo-synchronous Satellite Launch Vehicle). Its major diversification projects on hand include the manufacture and overhaul of industrial marine gas turbine and manufacture of composites. HAL has entered into several joint ventures. They are BAeHAL Software Limited, Indo- Russian Aviation Limited (IRAL), Snecma-HAL Aerospace Pvt Ltd., SAMTEL-HAL Display System Limited, HALBIT Avionics Pvt Ltd., HAL-Edgewood Technologies Pvt. Ltd, Infotech-HAL Ltd, Tata-HAL Technologies Ltd, HATSOFF Helicopter Training (P) Ltd, International Aerospace Manufacturing Pvt. Ltd. and Multi Role Transport Aircraft Ltd. In addition, several co-production and joint ventures with international participation are under consideration. HAL's supplies / services are mainly to Indian defence services, coast guard and border security force. Transport aircraft and helicopters have also been supplied to airlines as well as State Governments of India. The company exports to more than 30 countries, having demonstrated its quality and price competitiveness. HAL has won several international / national awards for achievements in R&D, technology, managerial performance, exports, energy conservation, quality and fulfillment of social responsibilities. Mazagon Dock Limited (MDL): It is an ISO 9001 : 2008, Miniratna (Category-I) company located in Mumbai and incorporated as a public limited company in It is one of the leading shipbuilding and offshore fabrication yards in India. The yard was established in the 18th century, and over the 200-odd eventful years, has earned a reputation for quality work and established a tradition of skilled and resourceful service to the shipping world in general and the Indian Navy, Coast Guard & ONGC in particular. In its varied history, MDL passed through various ownerships like the P&O lines and the 99

19 British India Steam Navigation Company. After its takeover by the Government in 1960, MDL grew rapidly to become the premier war-shipbuilding yard in India, producing sophisticated warships for the navy and offshore structures for the ONGC. It has grown from a single unit, small ship repair company, into a multi-unit and multi-product company, with significant rise in production, use of modern technology and sophistication of products. The company s current portfolio of designs spans a wide range of products for both domestic and overseas clients. MDL has facilities at Mumbai and Nhava. It has the capability to build warships, submarines, merchant ships up to 30,000 DWT, fabrication of well-head platforms, process and production platforms and jack up rigs. For outfitting work, the company has a large number of workshops with sophisticated equipment and machines specific to hull fabrication and ship construction work. The company has implemented CAD/CAM/CIM. It provides up to date design and production support. The workforce is well trained in various disciplines. Mishra Dhatu Nigam Limited (MIDHANI): It was established in 1973 as a CPSE under the administrative control of the then Department of Defence Production & Supplies, Ministry of Defence. Its objective was to achieve self reliance in the manufacture and supply of a wide range of sophisticated superalloys, titanium alloys and special purpose steels for the strategic sectors including defence, space and atomic energy. Initially set up on the strength of indigenous R&D at Defence Metallurgical Research Laboratory (DMRL) and production-scale technologies acquired from French and German sources, Midhani has gone far beyond the scope of the original product-mix to develop and manufacture several technology-intensive products. Over the years it has developed, manufactured and supplied more than 105 grades of high-performance alloys in different shapes, sizes, forms towards programmes of national importance in the defence, space and atomic energy sectors. Midhani is a Miniratna (Category-I) company with a mission to achieve self-reliance in the research, development, manufacture and supply of critical alloys and products of strategic nature for programmes of national importance. It has undertaken a modernization 100

20 and up-gradation program which is reaching the final stages of completion. This promises a major boost to its operations and plans to increase the turnover of Rs. 509 crores in the financial year (the highest ever) to a level of Rs.1000 crores by Midhani envisages sustaining its leadership position as a "National Center for Excellence" in advance metals. It supplies critical alloys to various strategic sectors of the country which were earlier denied to India by the advanced western world. Almost all the products of Midhani are import substitutes. It continues its R&D activity to indigenize its production technologies. The detailed study of corporate governance compliance and disclosures from the year to are given as a part of the case study in chapter VI of the thesis. Pattern of Shareholding : The pattern of shareholding and the investment details for eight DPSEs was furnished in the table 3.3 given below : Table 3.3 Pattern of share holding of DPSEs Sl. No Company Government of India (Percent) Shareholding Pattern Banks & Insurance Corporation (Percent) Others (Percent) Total (Percent) 1 BEL BEML BDL GSL * HAL GRSE MDL Midhani * Held by Mazagon Dock Ltd (a Government Company) Source: Annual Reports of DPSEs for the year

21 Key performance indicators : The key performance indicators for the years and such as equity investment, profit after tax, return on equity (RoE), profit after tax as a percentage of sales, were given in table 3.4 and value of production (VoP) and sales were given in table 3.5. Table 3.4 DPSEs - Key performance indicators and Name of Rs. crores Rs. crores Defence PSE Equity Profit after tax Return on equity percent PAT as a percent of sales Equity Profit after tax Return on equity percent PAT as a percent of sales HAL BEL BEML MDL GRSE GSL BDL MDNL Total Govern - ment Loan Source

22 Table 3.5 DPSEs - Key performance indicators Value of Production and Value of Sales and Name of the DPSE ( In crores) ( In crores) Value of Value of Value of Value of Production sales Production Sales HAL BEL BEML MDL GRSE GSL BDL MIDHANI TOTAL Source- As DPSEs cater to the needs of various strategic sectors of our economy, their overall success and adherence to corporate governance practices / norms such as transparency, compliance and disclosures are not only of interest to their stakeholders but also to the general public. Corporate Governance in Defence Public Sector Enterprises (DPSEs) of India: Listed DPSEs started implementing corporate governance provisions contained in clause 49 of the listing agreement, since DPE issued voluntary guidelines on corporate governance in June, They were applicable for all Central Public Sector Enterprises (CPSEs). The DPSEs too implemented the guidelines during The guidelines were made mandatory in 2010; in of view the necessity to adhere to good corporate governance practices. These guidelines were revised in June, 2010 and Adherence to the guidelines steadily improved. All the DPSEs in India currently follow 103

23 DPEs corporate governance guidelines. The inputs for the purpose of the study were taken from the published Annual Reports of these DPSEs, for Compliances and disclosures in Annual Reports of DPSEs: In the course of the study, it was found that all the DPSEs have implemented the practices, norms and guidelines issued by DPE, provisions of listing agreement (wherever applicable), and the provisions relating to Corporate Governance under the Companies Act in force. Some of the steps worth mentioning are: 1) Publication of Directors Responsibility Statement in Annual Reports as required under Section 217 (2AA) of the Companies (Amendment) Act, ) Compliance and disclosures relating to philosophy of Corporate Governance, their vision, mission, corporate objectives and its structure to achieve the same along with the business practices adopted by it. 3) Composition of Board of directors, their remuneration, attendance to the meetings of Board and its committees. 4) Disclosure relates to directorships held in other companies, shareholdings of directors, adhering to the age criteria for appointment and cessation of their term. 5) Disclosure relating to related party transactions, dealings in the company s securities, their involvement in transactions coming under the purview of Sections 297 & 299 of the erstwhile Companies Act, ) Adherence to the provisions of clause 49 of listing agreement where applicable, 7) Publication of bio-data of directors newly appointed on the Board along with brief particulars of appointment, their terms, and conditions. 8) Constitution of committees such as audit committee, remuneration committee, shareholders grievance committee, corporate social responsibility committee, sustainable development committee, procurement committee, human resources development committee, appointments committee and their composition. Related corporate governance measures include publication of the attendance of directors in such meetings along with details of absence there from and whether a leave of absence was recorded or not. 104

24 9) Efforts made for sustainable development of the company. 10) Details of training imparted to the new Board members and putting in place a structured training policy for Board members. 11) Steps to ensure effective implementation of whistle blower and risk management policies. 12) Code of conduct for Board members and senior management. 13) Declaration from the chief executive on implementation of corporate governance and certification of the same by an independent professional - inclusion of the same in the annual report. 14) Providing information to members of the company and the general public as to the means of communication adopted by the company. 15) Publication of SWOT analysis as well as future outlook relating to the company 16) Declaration about adherence to the vigilance guidelines & practices followed to ensure transparency in official dealings 17) Reporting about implementation of the Right to Information Act with the mechanism adopted for implementing the provisions of the Act in the annual report. Board s Committees functioning in Defence Public Sectors Enterprises : Several committees were also functioning in DPSEs, to carry forward the spirit of corporate governance and for operational efficiency. The details of committees functioning in DPSEs are given in table

25 Table 3.6 Board Committees in DPSEs as on PSE Committees Total Midhani Audit Committee, Procurement Committee, remuneration 8 Committee, Human Resources Committee, Technical Committee, Corporate Social Responsibility Committee, Sustainable development Committee and Corporate Management Committee HAL Audit Committee Remuneration Committee. Human Resources 7 Committee, Technology Development, Management Committee, Design Policy Committee, Procurement Committee. BEL Audit committee, Shareholders / Investors grievance committee, R & D Committee, Investment Committee, Appointments Committee, Remuneration Committee. 6 MDL Audit Committee, Remuneration Committee, Budget 5 Committee, Joint venture committee and Investment Committee, BEML Audit Committee, remuneration Committee, Share transfer 4 committee and Investors Grievance Committee BDL Audit Committee, Procurement Committee, remuneration Committee, Human Resources Committee, Committee on Sustainable development and committee for monitoring CSR plan of the company. 6 GSL Audit Committee, Remuneration and Human Resources 5 Committee, Procurement Committee, Committee on Sustainable development, and Investment committee GRSE Audit Committee, Procurement Committee, HR & 4 Remuneration Committee, Business strategy and Capacity Augmentation committee, Source: DPSEs Annual Reports of