In a major policy change, the government has decided to reduce stake in non-financial Public Sector Undertakings (PSUs) below 51 per cent without ceding management control over such entities. The government holding can even go to as low as 25-30 per cent, a move that will certainly help it to meet its disinvestment target, but unlikely to unchain its proverbial golden goose, according to experts.
Finance Minister Nirmala Sitharaman, in her maiden Budget speech on July 5, announced the government’s intention to cut its stake below 51 per cent in firms on a case-to-case basis and yet retain control. The government intends to encourage retail investor participation in Central Public Sector Enterprises (CPSEs), which has shown an upward trend of late and ensure that CPSE boards are more professionally managed, she added.
To begin with, equity cross-holdings of PSUs will be taken into account. In case of ONGC, for instance, the government holding is 64.25 per cent but around 19 per cent is held by state-run Indian Oil Corporation, GAIL (India) Ltd., and Life Insurance Corp (LIC). This means even if the government lowers its holding by 32.25 per cent, the broader government shareholding will still remain at 51 per cent. Such is the case in about 250 PSUs, where the government effectively holds more than 80 per cent, taking into account the holding of other PSUs like LIC, SBI, and GIC.
Department of Investment and Public Asset Management (DIPAM) Secretary Atanu Chakraborty said the government could bring down its stake gradually in many companies below 51 per cent, before selling the residual stake in PSUs which are not identified for strategic sales.
“Investment space can only be created if we vacate our holdings. How many promoters hold above 50 per cent in the private sector,” he asked, referring to the fact that most promoters control firms with stakes as low as 30-40 per cent. The companies in which the government is likely to pare its stake include large ones such as NTPC Ltd., Steel Authority of India and Power Grid Corporation of India Ltd, among others.
While the move to dilute equity, so as to open a much larger investment space for investors to come in is desirable, including from overseas, experts question whether this will really unshackle PSUs. “The government has to consider bringing in strategic investors and give them a say in the management,” said Deven Choksey, MD at KR Choksey Shares and Securities Pvt. Ltd. “That will spur the growth of these companies.”
Industry observers, however, said companies, where the government pares its stake to below 51 per cent, may not come under the scrutiny of government vigilance agencies such as the Central Vigilance Commission (CVC) and the accounting watchdog Comptroller and Auditor General (CAG).
“Clarity is yet to come. There might be a need to change the definition of PSUs, under the Companies Act, if the government wants to retain them under various regulations such as the Right to Information Act and Corporate Social Responsibility spending. The question on whether these firms will be out of the ambit of CAG, CVC, and other governmental regulations for state-run firms will also need clarifications,” SCOPE chairman UD Choubey told this publication.
While many argued that huge delays in the conduct of the CAG audit have often interfered with the freedom of PSE boards to take prompt decisions, chances are that reducing government shareholding to below 51 per cent may not disentangle PSUs from any such constraints, even if there is no CAG interference, as the government’s control would not be diluted in the process. Broadly, the move is seen as a ‘meaningful’ disinvestment strategy as the government has set an ambitious disinvestment target of Rs 1.05 lakh crore in the financial year 2019-20.
Given that CPSE ETFs have played a critical role in achieving the targets over the last two years, the government has chosen a balanced approach this time. Experts say that the government cannot look for strategic sales of all PSUs at the same time and that privatisation may not yield handsome dividends, which is why it has chosen to dilute stake through the secondary market like follow-on public offers or exchange-traded funds.
Vigilance agencies
Experts also note that companies, where the government pares its stake to below 51 per cent, may not come under the scrutiny of government vigilance agencies such as the Central Vigilance Commission and the Comptroller and Auditor General.