The Economic Survey 2025-26, presented in Parliament on Thursday, has put forward a significant proposal to revitalize the government's disinvestment program through strategic legal reforms. The document makes a compelling case for amending the Companies Act to redefine what constitutes a "government company," potentially lowering the minimum ownership threshold from the current 51% to just 26% for listed entities.
Redefining Government Control for Strategic Disinvestment
Under existing regulations, state-run companies must maintain at least 51% government shareholding to retain their public sector character. Any reduction below this level automatically reclassifies the entity as a private company, creating a significant barrier to strategic stake sales.
The Economic Survey argues that effective control in most listed companies requires only about 26% ownership. "Since effective control requires only about a 26% stake, the government could consider amending the definition of 'government company' under the Companies Act, limited to listed entities, to allow them to remain as government companies with a minimum of 26% ownership," the survey states.
Dual Pathways for Public Sector Reform
The proposal outlines two distinct approaches for managing government shareholding in public sector enterprises:
- Retained Control Model: Amend the Companies Act to permit government companies to maintain their special resolution rights and public sector character with just 26% ownership, enabling substantial stake monetization while preserving strategic control.
- Privatization Pathway: Continue phased offer for sale (OFS) below 51% and toward complete exit without changing the legal definition, allowing for eventual privatization while maintaining current legal frameworks during transition periods.
The survey emphasizes that this approach would enable central public sector enterprises (CPSEs) to function post-disinvestment as professionally managed entities with dispersed ownership, clear governance standards, and transparent succession frameworks.
Addressing Current Disinvestment Constraints
The proposal comes against the backdrop of significant challenges in the government's disinvestment program. Currently, in approximately 30% of listed CPSEs, government shareholding has already fallen below 60%, severely limiting further disinvestment through OFS routes under existing regulations.
"Going forward, receipts from equity monetization can be strengthened by selectively reducing government equity in certain CPSEs beyond the minimum public shareholding norms, guided by market conditions and enterprise-specific factors," the survey recommends.
Strategic Capital Recycling for Future Growth
The Economic Survey also proposes innovative uses for disinvestment proceeds, suggesting that a portion of disinvestment receipts could be earmarked for strategic investments in emerging technology and innovation-driven companies through professionally managed platforms like the National Investment and Infrastructure Fund (NIIF).
This approach would facilitate recycling public capital toward future growth sectors while ensuring a steady stream of disinvestment receipts into the future, creating a sustainable cycle of public capital management.
Recent Disinvestment Performance and Future Outlook
The government's disinvestment program has faced consistent challenges in recent years, with targets repeatedly being missed:
- For fiscal year 2022-23, the government set a disinvestment target of ₹65,000 crore, revised to ₹50,000 crore, achieving only 47.8% of the revised estimate.
- In 2023-24, the target was ₹51,000 crore, revised to ₹30,000 crore, with achievement reaching just 28.6%.
- The previous fiscal year saw the ₹50,000 crore target remain unmet, while the ₹47,000 crore target for 2025-26 is also expected to be missed.
This consistent underperformance has prompted a strategic shift toward asset monetization rather than traditional equity offloading through OFS routes.
Implications for Public Sector Banks
The proposed amendment holds particular significance for public sector banks, several of which require additional capital infusion but are approaching the 51% government shareholding threshold. Lowering the definition would prevent mandatory share offloading while allowing these institutions to raise necessary capital without losing their public sector character.
The Economic Survey's recommendations represent a pragmatic approach to balancing fiscal requirements with strategic control, potentially unlocking significant value from government holdings while maintaining influence over key sectors of the economy.
