Govt is considering a new definition for PSUs. Find out what

The government is considering relaxing the criteria to allow entities to qualify as PSEs even if the government share falls below 51 percentNew Delhi: As the government seeks to cut down its share in public sector undertakings (PSUs), it is also planning a major overhaul of the definition of the term PSU. According to sources in the Department of Public Enterprises (DPE), the government is considering relaxing the criteria to allow entities to qualify as public sector enterprises (PSE) even if the government share falls below 51 percent.

The sources said that the change in the definition is being discussed with the Finance Ministry and an announcement on the same can be expected once the new government assumes charge.

'New definition will allow govt to raise additional revenue'

"There is a thinking that PSU definition should be maintained with government holding of, say, 40 percent or 26 percent in case of certain non-strategic entities. This will not only give flexibility to PSU boards in decision-making but also allow more room for the Centre to raise additional revenue from disinvestment," said a top PSE official who is in the know.

Currently, the government holding in a company must be at least 51 percent or more for it to be called a PSU.

How would the new definition impact PSUs and govt?

The new definition would envisage bringing down the government shares in these enterprises to, say 40 percent. This is expected to facilitate consolidation of PSUs in different sectors. For instance, the Power Finance Corporation (PFC) that bought all of the government share in Rural Electrification Corporation (REC) now wants to merge the entity with itself. However, doing this would bring down the Centre's share in the company to just about 42-43 percent and take the company outside the PSU category — same as what happened when LIC bought the government's share in IDBI Bank.

If the government share in a PSU is lowered, these kinds of consolidations would be easier to execute without companies and employees fearing to lose the PSU character. According to an industry expert, it would also allow PSU boards to be widely represented.

For the government, on the other hand, a change in the definition would ensure ease in mobilising funds even in a choppy market where PSUs could be asked to buy back government shares. In cases where markets are good, the companies will be able to offer a larger number of government shares at a premium.