Efficient treasury management and investing liquid funds suitably to maximise returns are key to the success of an enterprise whether in the public or private sector domain. Keeping liquid funds idle is an unacceptably poor choice as a business decision unless they are set aside for a specific purpose. These objectives were possibly what led prime minister Narendra Modi and his team to consider floating a dedicated non-banking finance company (NBFC) to manage the huge cash surpluses of state-run companies. If Rs 8,00,000 crore reserves and surplus cash balances lying with state-run companies are the funds in question then few faults can be found with the Modi government’s idea of the NBFC.
The idea needs to be pursued seriously by the government to recalibrate cash management within the government and public sector enterprises. Investing PSU surpluses will result in finance ministers resisting the temptation of banking on these monies to present a rosier balance sheet before the nation. Finance minister Arun Jaitley had overhauled the liquid cash and expenses management of the government based on recommendations of the Bimal Jalan committee that was set up to usher in expenditure reforms.
While the government has minimised holding idle cash accrued to it through taxes and dividends, rollover of these funds have provided decent returns as well. During the last three years, cash management in government treasury has largely been revamped. If the government can do it, why not the public sector companies that often stumble on capital investment plans owing to an array of factors? Instead of parking liquid funds in low-yielding bank deposits that do not cover inflationary costs, professional deployment of funds must be considered.
Secondly, limiting cash investment in government paper or bonds may not be the right option always for state-run companies. Hence, the proposed NBFC taking wing to deploy these resources into mutual funds, government and private stocks is not a bad idea.
For instance, why should Coal India be sitting on a cash pile of over Rs 31,000 crore? At one point of time, this coal behemoth had reserves worth over Rs 65,000 crore awaiting clearance of projects by state and central agencies. The company should go ahead and invest in capital assets like open or underground mines. Alternatively, the huge funds could be gainfully invested in market-linked instruments like stocks, mutual funds, options and futures, investment linked insurance policies or pension funds.
State-run companies are restricted from investing in market-related instruments to 10 per cent of their surpluses. If the government is serious about PSU cash management, then these norms will have to be relaxed in a phased manner. But, state-run companies will have to take adequate care so that cash invested in the market does not hamper their core capital investment plans for expansion and brown field projects. They cannot use the excuse of having their cash invested in the market for not completing their projects on time.
Taking a lesson or two in treasury management techniques adopted by the finance ministry to manage liquid funds should be the starting point for moving into actively managing cash. Even joint operations by the proposed NBFC and the finance ministry should not be a bad idea. Given that India does not have a sovereign wealth fund, the proposed NBFC could even tango with the government promoted National Investment and Infrastructure Fund to leverage public resources optimally.