Economic Survey Proposes Major Shift in PSU Ownership Structure
The government is considering a significant reduction in its mandatory stakeholding in public sector undertakings (PSUs), according to the latest Economic Survey. The document suggests that the current requirement of maintaining a 51% stake could potentially be lowered to 26%, while still allowing the government to retain effective control over company management.
Legal Framework and Strategic Implications
This proposed change would require an amendment to the Companies Act, which currently defines a 'government company' as one where the government holds at least 51% of the share capital. The survey argues that with a 26% stake, the government could maintain its special resolution rights while simultaneously monetizing a larger portion of its holdings.
The suggestion emerges against the backdrop of slowing disinvestment activity in recent years, presenting a potential solution to revitalize the process. Industry experts have welcomed this proposal as a structurally transformative idea for India's capital markets.
Two-Pronged Approach to Disinvestment
The survey outlines two distinct pathways for government disinvestment strategy:
- Retained Control Model: The government could maintain a 26% stake while exercising control through veto rights and influence over special resolutions, allowing for substantial monetization without surrendering strategic oversight.
- Privatization Pathway: Alternatively, if the ultimate objective is complete privatization, the government could continue with phased offer for sale (OFS) below the 51% threshold, eventually moving toward full exit without altering the legal definition of 'government company'.
This approach would enable PSUs to function as professionally managed entities post-disinvestment, characterized by dispersed ownership, clear governance standards, and transparent succession frameworks.
Industry Perspective and Market Impact
Mahavir Lunawat, founder of Pantomath Group, emphasized the modern understanding of corporate control: "Control in modern corporate governance is not merely about majority ownership but about veto rights and influence over special resolutions, which a 26% stake effectively provides."
Lunawat added, "If implemented, this can unlock a significant PSU monetization opportunity without compromising strategic control. It expands government's ability to raise long-term capital from equity markets, while maintaining policy oversight."
For investors, this proposal signals a more pragmatic and market-aligned approach to divestment. The potential benefits include:
- Improved float and liquidity across PSU stocks
- Better valuation discovery mechanisms
- Creation of a deeper, broader, and more efficient PSU equity market
Strategic Allocation of Disinvestment Receipts
The survey further recommends that disinvestment receipts could be earmarked for strategic investments in emerging technology and innovation-driven companies. This approach would ensure a steady stream of disinvestment receipts into the future while directing resources toward sectors with high growth potential.
This proposed shift represents a significant evolution in India's approach to public sector management, balancing the need for government oversight with the benefits of market participation and professional management.
