PSUs, cooperative societies disallowed from bidding for state-run entities

The Centre has broadened its privatisation policy to disallow public sector undertakings (PSUs) and cooperative societies from participating in the bidding for other state-owned firms.

The Department of Investment and Public Asset Management (DIPAM) has also asked all government departments to inform PSUs and cooperative societies under their administrative control that they will not be permitted to participate in the privatisation process unless otherwise specified.

In line with the government’s new Public Sector Enterprises (PSE) policy that seeks to minimise government’s presence through PSUs across all sectors of economy, the Finance Ministry has said the PSEs, where 51 per cent ownership is with the Centre, state governments or jointly held by both, are not permitted to participate in the privatisation of other PSUs as bidders unless otherwise specifically approved by the Centre in public interest, an office memorandum said.

The decision has been taken considering the intent of the new PSE policy and the definition of ‘government company’ as per Companies Act, 2013. According to the Companies Act, a government company means any company in which at least 51 per cent of the paid-up share capital is held by the Centre or by any state government or partly by both, including a subsidiary company of such government-owned company.

Even as the Centre has been inserting a clause in every preliminary information memorandum (PIM) for companies selected for privatisation mentioning the ineligibility of PSUs to bid, the current guidelines would become part of the overall privatisation policy. The move is seen as showcasing the Centre’s willingness to exit sectors that are not categorised as strategic.

The transfer of management control from the government to any other government organisation or state may continue the inherent inefficiencies of the PSUs, and this will defeat the purpose of the new privatisation policy, the memorandum said. The new PSE policy intends to minimise the presence of government in PSUs across all sectors of the economy and to make available newer investment opportunities for the private sector, so as to allow infusion of private capital, technology, innovation and best management practices, it said. This would ensure post-privatisation growth of PSUs will generate higher economic activities, resulting in new job opportunities and growth of the ancillary industries.

The policy, announced in the Union Budget, specified four strategic sectors based on the criteria of national security, energy security, critical infrastructure, provision of financial services and availability of important minerals. In strategic sectors, bare minimum presence of the existing public sector enterprises at holding company level will be retained, and remaining companies will be considered for privatisation; merger; subsidiarisation with another PSU or for closure.

PSUs in non-strategic sectors would be privatised if feasible or considered for closure.