Cabinet Empowers PSUs’ Board Of Directors To Take Decisions On Disinvestment, Closure Of Subsidiaries

Cabinet Empowers PSUs Board Of Directors To Take Decisions On Disinvestment, Closure Of Subsidiaries
Representational image source: Talent KAS

The Union Cabinet chaired by Prime Minister Narendra Modi, on May 18, has approved a proposal that will enable and empower the board of directors of public sector undertakings (PSUs) to recommend strategic divestment, and minority stake sale or closure of their subsidiaries and joint ventures (JVs). The move will give PSUs more power and autonomy to decide on disinvestments of their own units, in line with the new Public Sector Enterprises (PSE) policy of 2021, and in turn, save time and resources for the government. Currently, PSU boards have the authority to make equity investments, and undertake mergers and acquisitions subject to a certain amount of net worth. However, powers for disinvestment and closure of their subsidiaries are not available to PSUs, except for suggesting minority stake sales for some.

“The proposal intends to reform the functioning of PSEs, by allowing greater autonomy to the Board of Directors of the holding PSEs for taking decisions and recommend for timely existing from their investment in subsidiaries/units or joint ventures (JVs), which will enable them to monetize their investment in such subsidiaries/units/JVs at an opportune time or close their loss-making and inefficient subsidiary/unit/JV at right time,” the Union Cabinet said in a statement, on May 18.

“This will result in expeditious decision making and saving of wasteful operational/financial expenditure by the PSEs,” the statement added.

The guidelines for the process for strategic disinvestment would be laid down by the Department of Investment and Public Asset Management (DIPAM). The process will also be open and based on the principles of competitive bidding. For the closure of PSUs, guidelines would be issued by the Department of Public Enterprises (DPE). The Cabinet also delegated additional powers to the alternative mechanism that consists of Finance Minister Nirmala Sitharaman, Minister of Roads, Transport and Highways, Nitin Gadkari, and the Administrative Ministry. The alternative mechanism will have the ability to accord, ‘in principle’, approval for strategic disinvestment and minority stake sale or closure of subsidiaries, and sale of stakes in JVs of holding or parent of Maharatna PSEs, a public sector listed entity having an average annual turnover of more than Rs 25,000 crores during the last three years.

 

Read more: Markets Wary Of Recession Despite World Stocks Rising

 

In 2018, the Committee on Public Undertakings released a report, which stated that PSU boards must be sufficiently empowered to take nearly all strategic decisions such as formation or dissolution of partnerships, JVs, mergers/ acquisitions, the appointment of CEO, creation of below-board level positions, and so on. The report suggested that the board must be given a fixed term to improve accountability in case of any lapses, and that the administrative department is taking over the responsibility.

The Centre’s Public Sector Enterprises (PSE) policy aims to minimise the presence of government in both strategic and non-strategic sectors. The powers provided to PSUs’ boards would also help them in monetising their investments, or shut down loss-making units, expedite decision making, and cut operational and financial expenditure.

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