The Confederation of Indian Industry (CII) has put forward a significant proposal for the government's disinvestment strategy, urging it to first test the market's appetite before selecting state-owned enterprises for privatization. This recommendation comes ahead of Finance Minister Nirmala Sitharaman's presentation of the Union Budget for 2026-27 on 1 February.
A New Framework for Privatization
The industry body has suggested that the government create a three-year rolling list of public sector entities marked for privatization. According to CII, this forward-looking measure would encourage deeper engagement from investors and lead to more realistic valuation and price discovery. The current process, where the government identifies specific companies for sale and then seeks investor interest, often stalls when sufficient demand or expected valuation is not met.
CII has proposed reversing this sequence. It advocates for a demand-based approach, where investor interest is first gauged across a broader set of enterprises. The government can then prioritize the sale of those entities that attract stronger interest and meet valuation expectations. This method, CII argues, would ensure smoother execution and better price discovery for the assets.
Unlocking Trillions for Development
The industry body highlighted a massive financial opportunity. It stated that reducing the government's stake to 51% in the 78 listed state-run companies could unlock close to ₹10 trillion. These funds could be channeled into fresh capital investments and critical development spending.
This recommendation is particularly timely. The central government is witnessing slower-than-expected tax revenue growth in the ongoing fiscal year after reducing both income tax and Goods and Services Tax (GST) rates. Mobilizing resources through disinvestment has become crucial to sustain the Centre's capital expenditure and address developmental priorities.
The Current Disinvestment Landscape
The government's disinvestment efforts have faced challenges in meeting targets. In FY25, it raised ₹33,000 crore from share sales, missing its target of ₹50,000 crore. For the current fiscal year ending 31 March, the target is set at ₹47,000 crore. However, official data shows only ₹8,768 crore has been raised so far from selling shares in Mazgaon Dock Shipbuilders Ltd, Bank of Maharashtra, and Indian Overseas Bank.
CII's proposal aligns with the government's stated policy of strategic disinvestment, which aims to exit sectors where competitive markets have matured. The economic potential of such entities, the policy states, may be better realized in the hands of strategic investors.
CII Director General Chandrajit Banerjee emphasized the rationale behind the push. "India's growth story is increasingly being powered by private enterprise and innovation. A forward-looking privatization policy, aligned with the vision of Viksit Bharat, will enable the government to focus on its core functions while empowering the private sector to accelerate industrial transformation and job creation," he said in a statement.
The industry body recommended a phased approach to stake reduction. Initially, the government could lower its stake in listed public sector enterprises (PSEs) to 51%, allowing it to remain the single largest shareholder while releasing significant value into the market. Over time, this stake could be brought down further to between 33% and 26%.
The government has already classified state-run enterprises into strategic (e.g., atomic energy, petroleum, banking) and non-strategic sectors. The intent is to retain a bare minimum presence in strategic sectors at the holding company level. Remaining companies in these sectors may be privatized, merged, or wound up. In non-strategic sectors, state-run companies will be privatized where feasible.
