PSU stakes can go below 51% with a golden share' shield

A “golden share” is a special type of share that gives the government disproportionate control rights, even if it owns only a small equity stake.

The Parliamentary Standing Committee on Finance has asked the finance ministry to spell out a clear legal strategy, including options such as a “golden share” or indirect control structures, to maintain strategic oversight in public sector entities if state ownership falls below 51 per cent.

Economic Survey on definition of government company

The 2025-26 (FY26) Economic Survey had proposed to amend the definition of a “government company” so that listed central public sector enterprises (CPSEs) with as little as 26 per cent government ownership would retain that status, preserving special-resolution rights while allowing deeper disinvestment.

This would allow the government to pursue phased stake sales below 51 per cent without changing the law, enabling professionally managed CPSEs with dispersed ownership to emerge.

Part of the proceeds, the Survey suggested, could be channelled into National Investment and Infrastructure Fund (NIIF)-like platforms investing in technology and innovation.

During consultation with the finance ministry, the committee sought its strategy for safeguarding entities that drop below 51 per cent government shareholding, specifically questioning how these companies will be protected from hostile takeovers by foreign funds or domestic monopolies once they lose “Government Company” status under the Companies Act.

“The committee sought clarification on the legal and corporate governance structures being proposed, such as a ‘golden share’ or indirect control models, to maintain strategic oversight despite a minority equity position,” the panel’s report said.

What is a 'golden share'

A “golden share” is a special type of share that gives the government disproportionate control rights, even if it owns only a small equity stake.

Though not a “golden share” deal, in the shareholding agreement for the strategic sale of Hindustan Zinc to Vedanta in 2002, the government retained veto power over major decisions, such as changing the line of business, merging, or demerging Hindustan Zinc.

This has become a contentious issue between the government and Vedanta over the years.

The Department of Investment and Public Asset Management (DIPAM) said in its response to the parliamentary panel that the proposal is currently at an ideation stage.

“The Economic Survey for 2025-26 had made certain suggestions whereby government’s stake in selected PSEs could be reduced below 51 per cent.

"This is at an ideation stage and some alternatives have been suggested.

"It is clarified that no firm decision has been taken in this regard.

"While reducing stake below 51 per cent, it is possible to retain government control indirectly through holding companies or other public entities to ensure that our national security and strategic interests are protected,” DIPAM said.

What the parliamentary committee said

The parliamentary committee in its recommendations said: “The department must finalise a clear legal strategy — incorporating “golden share” or indirect control models — to safeguard strategic autonomy in entities where state shareholding may drop below 51 per cent.”

The committee appreciated the strategic shift of the department from a purely “revenue-centric” disinvestment approach to a holistic public asset management strategy focused on "value maximisation”.

However, the panel said dividend payout expectations should be reviewed in appropriate cases to allow CPSEs greater flexibility in retaining earnings for research and development (R&D) and capacity expansion.

“Additionally, DPE (Department of Public Enterprises) must explore mechanisms for closer monitoring of subsidiary companies, and ensure that evaluation frameworks distinguish systemic constraints from workforce productivity to maintain fair and objective performance assessments,” it added.