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PSUs May be Allowed to Retain Tag Even if Government Holding Falls

PSUs May be Allowed to Retain Tag Even if Government Holding Falls

Sentinel Digital DeskBy : Sentinel Digital Desk

  |  8 July 2019 10:21 AM GMT

New Delhi: The Centre plans a major overhaul of the definition of state-run companies where an entity will continue to qualify as a public sector undertaking (PSu) even if the government in it holding falls below 51 per cent.

In an interview, Finance Secretary Subhash Chandra Garg indicated that the government may consider amending laws that will allow an entity to retain the PSE tag even in case the government holding below 51 per cent.

“As per definition of a PSU company, the central government and the state government together have to have 51 per cent stake. If that comes down, it changes the character of the government company. The law says that today. Logically we can change that” Garg said.

Though, the Finance Ministry is still to take a view on the issue, sources have indicated that the PSU definition could be maintained with government holding of say 40 per cent, or 26 per cent in case of certain non-strategic entities. This will not only give flexibility to boards of PSUs in decision-making but also allow more room for the Centre to raise additional revenue from disinvestment.

Moreover, the finance ministry may also convert a few PSUs into board-driven widely held private entities such as L&T. Garg has indicated that this route may also be followed on a case-to-case basis. “When this decision is taken (to lower government holding), the government will also consciously decide whether that particular company needs to bear the tag of a government company or not.” Garg said.

Under present definition, central public sector enterprises (CPSEs) are companies in which the direct holding of the Central government or other CPSEs is 51 per cent or more. Even with lower shareholding of say 40 per cent, the Centre will be the largest shareholder especially in companies such NTPC, Powergrid, BHEL, where public shareholding is already very high. The changes will also facilitate consolidation among the PSUs.

“Now, the government is saying two things. One, on a case-to-case basis, the Centre can decide to lower its stake more than 51 per cent. If government decides to keep 51 per cent stake, it will take into account the combined holding of the government and government-controlled institutions. This will allow more space to the Centre to the extent of the shares that are held by other institutions,” Garg said. “The second is initiating public-private partnership projects (PPP) as has been proposed in the Budget for the railways. We will have to get private investment in several areas,” he added.

If the PSU definition is changed, it would be easier for the government to mobilise funds even if markets are choppy as PSUs could be asked to buy back government shares. If markets are good, a higher number of government shares in PSUs can be offered at a premium. (IANS)

Also Read: Infra PSUs can hope for reintroduction of tax-free bonds to raise capital

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