Public sector firms have the power to close units

New Delhi: The Union Cabinet on Wednesday approved a decision to give more autonomy to Public Sector Undertakings (PSEs) by empowering their boards to close units or subsidiaries and decide on investments.

The cabinet has also given additional powers to the alternative system to give ‘in-principle’ approval for investment in Maharatna PSU and sale of minority shares.

An official statement said the decision was aimed at reforming the effectiveness of PSEs, allowing them greater autonomy and helping boards make timely and quick financial decisions.

The proposal would allow their subsidiaries, units or joint ventures (JVs) to exit their investments in a timely manner, enabling them to monetize their investments at an appropriate time or close their loss-making and inefficient units at the appropriate time. “This will result in faster decision making and save on waste management / financial costs by PSEs,” it says.

Currently, the board of directors of Holding or Parent PSE has the power to decide on JVs and wholly owned subsidiaries and equity investments to consolidate or acquire, subject to a net pricing threshold. However, they do not have the power to decide whether to invest or close their subsidiary or unit or partnership in JV. An exception is Maharatna PSEs which have some limited decision making power to invest in minority shares in their subsidiaries.

Therefore, Cabinet approval is required for both strategic investments and the sale of minority partnerships or the closure of subsidiaries / units or the sale of their stake in JV, regardless of the size or capital of the operations deployed in such subsidiaries.

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