Public Sector Undertakings (PSUs) for NRIs: Legal Framework

Overview of Public Sector Undertakings (PSUs) in India

Public Sector Undertakings (PSUs) in India constitute a major segment of the economy and play a crucial role in the nation’s industrial and infrastructural development. These entities are owned by the government, either wholly or through a majority stake, and can be classified into different sectors such as energy, finance, services, and manufacturing. The government’s involvement in these corporations is aimed at economic development, job creation, and the provision of essential services that are not sufficiently incentivized for the private sector.

In terms of ownership and management, PSUs are categorized into three groups:

  • ‘Maharatna’ PSUs: These are the largest and most significant entities, exhibiting high performance standards and having substantial operations. They enjoy considerable operational and financial autonomy.
  • ‘Navratna’ and ‘Miniratna’ PSUs: These enterprises also perform essential functions on a slightly smaller scale and enjoy varied degrees of financial autonomy, depending upon their classification as Navratna or Miniratna.

PSUs have been instrumental in the development of several key industries in India, including:

  • Exploration and production in the oil and gas sector
  • Heavy engineering and manufacturing
  • Telecommunications
  • Power generation and distribution
  • Coal and metal mining
  • Banking and financial services
  • Transportation and logistics, including railways and air travel

The strategic importance of PSUs cannot be overstated, as many of these undertakings operate in sectors critical to national security and development. They help to maintain state control over industries considered as the backbone of the economy, while also aiming to offer goods and services at a reasonable cost to the broader public.

However, the landscape of PSUs has been evolving with changing economic perspectives and reforms. There has been a concerted push towards the disinvestment of government shares in some PSUs, opening doors for private and foreign investors to bring in capital and management expertise. This movement towards privatization, while bringing in new opportunities for investment, also brings in fresh challenges with regards to balancing public welfare with commercial profitability.

Procedures and Compliance for NRIs Investing in PSUs

In order to invest in Public Sector Undertakings (PSUs) in India, Non-Resident Indians (NRIs) must adhere to certain procedures and comply with the regulations set forth by the authorities. The process is designed to ensure that investments are made in an orderly and legitimate manner, complementing the economic interests of the country while offering investment opportunities to the diaspora. Below is a breakdown of the procedures and compliance measures for NRIs investing in PSUs.

  • Demat Account Opening: NRIs need to open a Dematerialized (Demat) account through a registered broker with the National Securities Depository Ltd (NSDL) or the Central Depository Services (India) Ltd (CDSL). This account is required for holding and trading shares of PSUs in electronic form.
  • Portfolio Investment Scheme (PIS) Approval: They need to acquire approval under the PIS, which is a scheme of the Reserve Bank of India (RBI) allowing NRIs to buy and sell shares and convertible debentures of Indian companies on a recognized stock exchange.
  • Bank Account: NRIs are required to maintain a Non-Resident (External) Rupee (NRE) or Non-Resident (Ordinary) Rupee (NRO) account with an authorized Indian bank to route their investments.
  • KYC Documentation: Compliance with Know Your Customer (KYC) norms is mandatory, and NRIs need to submit proof of identity, proof of address, and a copy of the PAN card among other documents as required by the Securities and Exchange Board of India (SEBI).
  • Repatriation and Non-repatriation Basis: Investments can be made on a repatriation or non-repatriation basis. NRIs need to specify the nature of investment, as this determines how the proceeds are managed and whether the funds can be repatriated.
  • Compliance with FDI Policy: NRIs must ensure that their investments comply with the Foreign Direct Investment (FDI) policy applicable to PSUs. The investment limits and conditions must be strictly adhered to as per the FDI guidelines.
  • Transaction Through Registered Brokers: All transaction of shares must be conducted through stock exchanges in India using the services of registered brokers only.
  • Reporting Requirements: Upon execution of any investment transaction, NRIs are required to report their trades to the RBI, as per the guidelines laid down under the FEMA regulations.
  • Adherence to SEBI Regulations: NRIs need to comply with the regulations set by SEBI, which includes restrictions on insider trading and market manipulation. They must ensure that all trades are conducted in line with the rules prescribed by SEBI.

These procedures and compliance measures are intended to facilitate a smooth investment experience for NRIs while safeguarding the integrity of the Indian financial markets and ensuring alignment with the country’s strategic and economic interests.