Cabinet empowers PSU boards to recommend stake sale, close subsidiaries

The Union Cabinet has approved a proposal to empower the board of public sector undertakings (PSUs) to recommend strategic divestment, minority stake sale or closure of their subsidiaries and joint ventures.

At present, PSU boards have the authority to make equity investments, undertake mergers and acquisitions subject to certain ceilings of net-worth. However, powers for disinvestment and closure of their subsidiaries is not available to PSUs, except for suggesting minority stake sales for some PSUs.

The process for strategic disinvestment would be open and based on the principles of competitive bidding. The guidelines for the same would be laid down by the Department of Investment and Public Asset Management (DIPAM). For closure of PSUs, guidelines would be issued by the Department of Public Enterprises (DPE).

The Cabinet has also empowered alternative mechanism that comprises of Finance Minister Nirmala Sitharaman, Minister of Roads, Transport and Highways Nitin Gadkari and minister of administrative ministry to grant ‘in principle’ approval for strategic disinvestment, minority stake sale, closure of subsidiaries, and sale of stake in JVs of parent PSUs.

The move is in line with the centre’s Public Sector Enterprises (PSE) policy, 2021, that seeks to minimise the presence of government in both strategic and non-strategic sectors. The powers provided to PSUs’ boards would grant them greater autonomy to take decisions and recommend for timely exit from their investment in subsidiaries or joint ventures. This would also help them in monetising their investments or shut loss-making units, expedite decision making and cut operational and financial expenditure, the centre said in a statement.

In 2018, the Committee on Public Undertakings in its report had stated PSUs’ board must be sufficiently empowered to take nearly all strategic decisions such as formation or dissolution of partnerships, JVs, mergers/ acquisitions, appointment of CEO, creation of below-board level positions, among others. It had also said the board should be given a fixed term to make them more accountable in the event of any lapses, and its accountability must be fixed by the administrative department.