Whalesbook
Government Proposes 'Golden Share' for PSU Control
A parliamentary panel's recent call to finalize a 'golden share' strategy for Indian Public Sector Undertakings (PSUs) shows how the government plans to manage its stakes in state-owned enterprises. This mechanism, which gives the state special overriding rights, would allow the government to keep strategic freedom and protect national interests even if its direct ownership in PSUs falls below the usual 51% ownership level. This contrasts with current policy, which requires a majority stake to maintain PSU status and government control. The 'golden share' concept, used internationally by countries like China in technology firms and the US in the Nippon Steel/U.S. Steel acquisition, gives holders veto power over key decisions such as mergers, asset sales, or changes in corporate structure. India has previously considered similar measures, notably for PSU banks to manage recapitalization needs without diluting control.
Broader Fiscal Reforms and PSU Governance
Beyond the 'golden share' proposal, the Standing Committee on Finance has recommended several measures to improve PSU performance and financial health. These include updating the Memorandum of Understanding (MoU) system to boost performance and mandate succession planning. The panel stressed that pursuing dividend revenue should not harm the money PSUs need internally for their annual capital expenditure (capex) targets, estimated at Rs 3 lakh crore, which are important for long-term growth. Other suggestions include quickly filling 38 vacant positions in the Finance Ministry, creating a clear plan for Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs) with strong valuation protections, and focusing on closing revenue gaps at the Revised Estimates stage for stable operations. The committee also recommended optimizing borrowing schedules, finding new ways to reduce debt, and revising the Debt Management Strategy to favor longer terms and reduce risks from refinancing debt. Proposals also cover finalizing the SME Growth Fund, directing Viability Gap Funding (VGF) towards new infrastructure, strengthening Public-Private Partnerships (PPPs), and expanding the reach of the Public Financial Management System (PFMS).
Shift from Divestment to Asset Management
The 'golden share' recommendation is more than just a tool for retaining control; it enables strategy. This fits a clear policy shift away from aggressive, target-focused disinvestment, which has had trouble being carried out and delivering value. Instead, the government is increasingly focused on getting the most value from its PSU stakes through enhanced dividends and strategic asset monetization. Combined PSU market capitalization has surged from approximately ₹12 lakh crore in March 2020 to near ₹69 lakh crore by June 2025, reflecting better profitability and investor confidence. During this period, PSUs have reported strong earnings growth, doing better than private companies in some areas. The government is actively encouraging higher dividends, which have reached record levels, while ensuring PSUs keep enough capital for critical investments. Revised guidelines aim to balance these goals, promoting efficiency and shareholder returns while allowing PSUs to drive economic growth and infrastructure development.
Risks and Valuation Concerns
Despite the positive outlook, several risks warrant attention. The valuation of some high-performing PSUs, such as Bharat Electronics Ltd (BEL), appears high. BEL's Price-to-Earnings (P/E) ratio, around 53.87-65.1 as of March 2026, is significantly above its 10-year median and has led some analysts to consider it 'Significantly Overvalued'. Conversely, Power Finance Corporation Ltd (PFC) trades at a considerably lower P/E ratio of around 4.02-5.30, indicating it might be undervalued. The effectiveness of 'golden shares' depends on how they are legally structured and enforced within India's corporate law framework. The historical preference of Foreign Institutional Investors (FIIs) for private sector companies over PSUs remains a factor. Furthermore, concerns remain about possible political interference and the many goals PSU management might have, beyond just commercial ones. The challenge of balancing demands for high dividends with ensuring sufficient internal capital for expansion is ongoing.
Future Outlook: Unlocking Capital and Efficiency
The proposed 'golden share' mechanism offers a way to unlock more capital through flexible future stake sales, while protecting national interests. This reflects a global trend of governments rethinking their role in state-owned companies, moving towards more active asset management and value creation. The continued focus on improving PSU operational efficiency, financial discipline, and profitability is expected to be most important. As India continues its drive for infrastructure development and economic growth, the strategic role of these revamped public sector entities is likely to expand. The government's strategic realignment prioritizes strengthening existing PSUs and leveraging them as instruments of growth, marking a departure from a singular focus on divestment.