Easing PSU stake sale to duty correction: Pointers for Budget, Pg1

Key Highlights:

• The Economic Survey 2025-26 suggests reducing minimum government shareholding in listed PSUs to 26% to facilitate deeper disinvestment.
• The survey recommends correcting inverted duty structures and focusing on input tariff neutrality to enhance manufacturing competitiveness.
• It advocates for a pragmatic approach to Quality Control Orders (QCOs) and proactive steps to attract more Foreign Direct Investment (FDI).
• The survey emphasizes reforms across five pillars: ease of doing business, R&D and innovation, skilling, infrastructure and logistics, and scaling up MSMEs.

Detailed Insights:

• The current definition of a "government company" under the Companies Act requires a minimum 51% government stake, limiting further disinvestment in many listed Central PSUs.
• Amending the definition to 26% for listed entities would allow the government to monetize its stake while retaining special resolution rights, or phased Offer for Sale (OFS) can be continued for eventual privatization.
• Input tariff neutrality is crucial, as higher import tariffs on intermediates and capital goods can create inverted duty structures, raising costs for domestic manufacturers.
• The survey suggests improving logistics infrastructure, lowering logistics costs, and reducing regulatory costs to enhance India's export competitiveness.
• QCOs should be implemented with comprehensive value-chain analysis to avoid increasing costs and eroding cost competitiveness.
• India needs to better leverage its political stability and macroeconomic fundamentals to attract more FDI, especially for infrastructure development.

Key Concepts Involved:

• Disinvestment: The process where the government sells its stake in Public Sector Undertakings (PSUs) to private entities.
• Inverted Duty Structure: A situation where import duties on raw materials are higher than finished goods, harming domestic manufacturing.
• Quality Control Orders (QCOs): Mandatory standards enforced by the government to ensure product quality, safety, and reliability.