PSU Companies Can Now Decide On Disinvestment Of Subsidiaries

The government has empowered the boards of public sector enterprises to decide on the closure and divestment of subsidiaries.

The cabinet, at its meeting on Wednesday, approved a proposal for the board of directors of the holding/parent public sector enterprises to recommend and undertake the process for disinvestment, according to a PIB statement. This includes the strategic disinvestment and minority stake sale or closure of any of their subsidiaries/units/stake in joint ventures, which required approval from the Cabinet Committee on Economic Affairs.

Also, the alternate mechanism—comprising the Union finance minister, minister for road transport and highways and the minister representing respective administrative department—will grant “in principle” approval for such disinvestment decisions.

The Department of Investment and Public Asset Management will now offer guiding principles for strategic disinvestment, and the Department of Public Enterprises shall issue guiding principles for closure.

Currently, the board of directors of holding/parent PSEs has fewer powers under the Maharatna, Navratna and Miniratna categories. They accordingly make equity investments to establish joint ventures and wholly-owned subsidiaries and undertake mergers/acquisitions subject to certain ceilings of net worth.

Only Maharatna PSEs had limited powers for minority stake divestment in their subsidiaries. But the boards didn’t have powers for disinvestment and needed approval of the cabinet or CCEA irrespective of the size of operations, capital deployed of such subsidiaries.

The latest decision is in line with the new PSE policy 2021 to expedite decision-making and limit wasteful operational/financial expenditure by the PSEs.

(Corrects an earlier version that misstated in the headline that PSU boards can decide on their own divestment)