The union cabinet, in its meeting chaired by prime minister Narendra Modi on Wednesday, approved the proposal to allow public sector enterprises to take a call on disinvestment or closure of their subsidiaries.
“The Union Cabinet... has approved the proposal for empowering the board of directors of the holding / parent public sector enterprises (PSEs) to recommend and undertake the process for disinvestment (both strategic disinvestment and minority stake sale) or closure of any of their subsidiaries/units/stake in joint ventures (JVs),” reads a government note.
The cabinet also empowered alternative mechanism to accord ‘in principle’ approval for disinvestment — including both strategic disinvestment and minority stake sale — or closure of subsidiaries or units, or sale of stakes in joint ventures of holding or parent PSEs, which was delegated to them and review the process of disinvestment or closure by holding or parent PSEs. This does not include disinvestment (minority stake sale) of Maharatna PSEs.
Presently, the board of directors of holding or parent PSEs have been delegated certain powers under the Maharatna, Navratna and Miniratna categories to make equity investment to establish financial JVs and wholly-owned subsidiaries, and undertake mergers and acquisitions, subject to certain ceilings of net-worth.
However, the boards do not have powers to divest or close their subsidiaries, units or stake in JVs, except some limited powers given to Maharatna PSEs for minority stake disinvestment of shareholding in their subsidiaries. Therefore, approval of the Cabinet or Cabinet Committee of Economic Affairs (CCEA) was required for this purpose, irrespective of the size of operations, or capital deployed of such subsidiaries, etc.
In line with the spirit of the new PSE policy, 2021, to minimise presence of government PSEs and for functional requirement, further delegation in this matter have been provided through this decision, notes the Cabinet.
“The process for undertaking the strategic disinvestment transactions/closures to be followed by the PSEs should be open, based on the principles of competitive bidding and consistent with the guiding principles to be laid down. For strategic disinvestment, such guiding principles will be laid down by DIPAM. For closure, DPE shall issue guiding principle,” says the government.
The Cabinet says 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 exit from their investment in subsidiaries, units or JVs.
This will enable them to monetise their investment at an opportune time or close their loss-making and inefficient subsidiary, unit or JV at the right time.
“This will result in expeditious decision making and saving of wasteful operational/financial expenditure by the PSEs,” the government statement further reads.