Navratna Status, IRCTC, IRFC, and Related Concepts
Introduction
The Central Government recently approved the upgradation of Indian Railway Catering and Tourism Corporation (IRCTC) and Indian Railway Finance Corporation (IRFC) to Navratna status. This move makes them the 25th and 26th Navratna companies in India. With this, all seven Central Public Sector Enterprises (CPSEs) of Indian Railways now hold Navratna status. The decision enhances their financial autonomy, making it easier for them to expand and compete in the international market.
Why in News?
- The Ministry of Finance has granted Navratna status to IRCTC and IRFC, increasing their decision-making powers.
- This move is significant as all seven CPSEs under the Indian Railways now hold Navratna status.
- The decision is expected to boost financial autonomy, allow global expansion, and enhance strategic investments for both companies.
- The market capitalization of IRCTC and IRFC has been steadily rising, further justifying their upgrade.
Key Criteria for Navratna Status
The Department of Public Enterprises (DPE) under the Ministry of Finance selects CPSEs for Navratna status based on six financial and operational performance indicators:
- Net Profit to Net Worth Ratio – Assesses profitability against total assets.
- Manpower Cost to Total Cost Ratio – Evaluates efficiency in managing workforce expenses.
- Ratio of Profit Before Depreciation, Interest, and Tax (PBDIT) to Capital Employed – Measures return on capital investment.
- Ratio of Profit Before Interest and Taxes (PBIT) to Turnover – Indicates operational profitability.
- Earnings Per Share (EPS) – A crucial metric for shareholders.
- Inter-Sectoral Performance – Compares performance with other similar industries.
To qualify for Navratna status, a company must achieve a minimum 60 out of 100 in these parameters and maintain a ‘Very Good’ or ‘Excellent’ rating for the last three years.
Financial Status of IRCTC and IRFC
- IRCTC Financials (FY 2023-24):
- Turnover: Rs 4,270 crore
- Profit after tax (PAT): Rs 1,111 crore
- Net worth: Rs 3,230 crore
- Market Capitalization: Rs 74,376 crore (as of March 2024)
- IRFC Financials (FY 2023-24):
- Turnover: Rs 26,644 crore
- Profit after tax (PAT): Rs 6,412 crore
- Net worth: Rs 49,178 crore
- Market Capitalization: Rs 1,86,030 crore (as of March 2024)
How Navratna Status Benefits IRCTC and IRFC
- Greater Financial Autonomy: These companies can now invest up to Rs 1,000 crore (or 15% of net worth) without government approval.
- Increased Competitiveness: Enables them to compete globally by forming joint ventures and acquiring international subsidiaries.
- Investment Decisions: Improved decision-making power allows independent business and investment strategies.
- Access to Global Markets: They can expand operations beyond India without excessive bureaucratic delays.
- Better Strategic Partnerships: Ability to enter into alliances with global firms for improved infrastructure.
- Shareholder Benefits: Higher autonomy and financial stability attract better returns for shareholders.
IRCTC and IRFC: Their Functions and Roles
- IRCTC (Indian Railway Catering and Tourism Corporation):
- A subsidiary of Indian Railways responsible for online ticket booking, catering services, and tourism operations.
- The only entity legally authorized to sell e-tickets for Indian Railways.
- Majority stake (62.40%) held by the Ministry of Railways.
- IRFC (Indian Railway Finance Corporation):
- A key financial institution that raises funds for Indian Railways’ extra-budgetary resource (EBR) requirements.
- Funds railway expansion projects at competitive interest rates.
- Holds an 86.36% stake under the Ministry of Railways.
Understanding Key Terms
- Navratna Status: A designation granted to high-performing CPSEs that meet strict financial and operational criteria, giving them more autonomy in decision-making.
- Central Public Sector Enterprises (CPSEs): Companies owned by the Indian government that operate in strategic industries.
- Market Capitalization: The total market value of a company’s outstanding shares, representing investor confidence.
- Earnings Per Share (EPS): A measure of a company’s profitability, important for investors.
- Extra-Budgetary Resources (EBR): Funds raised outside the government budget, crucial for large-scale infrastructure projects.
- Public Sector Undertakings (PSUs): Government-owned companies engaged in commercial activities.
Conclusion
The Navratna status of IRCTC and IRFC marks a significant milestone for Indian Railways’ financial and operational autonomy. By granting greater independence to these entities, the government aims to boost efficiency, expand global presence, and enhance investment opportunities.
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