The Confederation of Indian Industry has urged the government to accelerate privatisation of public sector enterprises through a comprehensive market-driven strategy ahead of Union Budget 2026-27. The industry body's recommendations focus on unlocking substantial value from state-owned firms while supporting infrastructure spending and fiscal stability during uncertain global economic conditions.

Strategic Framework for Privatisation

CII has proposed a four-part privatisation framework targeting sectors where private ownership can enhance efficiency, introduce modern technology, and strengthen global competitiveness. The organisation emphasises the need for faster, more transparent processes better aligned with investor demand to avoid delays and poor valuations. According to CII Director General Chandrajit Banerjee, "A calibrated reduction of the government's stake in listed PSEs to 51 per cent and even lower is a pragmatic step that balances strategic control with value creation."

Phased Stake Reduction Strategy

The industry body recommends initially reducing government holdings in listed PSEs to 51 per cent through a phased approach, allowing the state to remain the single largest shareholder while releasing substantial market value. The stake could subsequently be lowered to between 33 per cent and 26 per cent over time.

Three-Year Pipeline Proposal

CII recommends announcing a rolling three-year privatisation pipeline that clearly identifies public enterprises likely to be considered for stake sales over the specified period. This approach would provide investors with advance visibility, generate stronger interest, improve price discovery, and attract long-term capital. The organisation notes that while full privatisation of non-strategic public enterprises is complex and time-consuming, enhanced transparency would facilitate better outcomes.

Demand-Driven Approach

The chamber has identified significant issues with the current privatisation method, where government first identifies enterprises for sale before inviting bids, often resulting in stalled transactions when expected valuations are not achieved. CII proposes shifting to a demand-based approach where government would:

• Assess investor interest across a broad set of enterprises
• Prioritise stake sales for entities with strongest demand
• Accept structured feedback from potential investors
• Identify and resolve regulatory hurdles early in the process

Institutional Framework for Execution

CII suggests establishing a dedicated institutional structure comprising three key components:

This professional management team would handle due diligence, investor outreach, market coordination, and regulatory clearances to ensure faster execution and better outcomes.

Resource Allocation for Development Priorities

The industry body emphasises that strategic privatisation, supported by strong regulation and governance, can free government resources for essential sectors including healthcare, education, and green infrastructure. CII states that "India's growth story is increasingly being powered by private enterprise and innovation" and advocates for a forward-looking privatisation policy aligned with the Viksit Bharat vision. The unlocked ₹10 lakh crores would provide vital resources to accelerate physical and social infrastructure development while supporting fiscal consolidation.

The Confederation of Indian Industry (CII) has recommended that the government test market appetite for investing in state-owned enterprises before selecting them for disinvestment, as part of its budget recommendations ahead of the 2026-27 budget presentation on 1 February. The industry body proposes a fundamental shift from the current approach to privatization of public sector enterprises.

Demand-Based Disinvestment Strategy

CII suggests the government should create a three-year rolling list of state-owned entities to be privatized, which would encourage deeper investor engagement and enable more realistic valuation and price discovery. The industry body advocates for reversing the current sequence where the government identifies specific companies for sale and subsequently invites investor interest.

Under the proposed approach, the government would first gauge investor interest across a broader set of enterprises and then prioritize those that attract stronger interest and meet valuation expectations. This method would ensure smoother execution and better price discovery, addressing the current challenge where processes often stall when sufficient demand or valuation is not achieved.

Financial Impact and Targets

The recommendations come at a critical time when the central government is experiencing slower than expected tax revenue after reducing both income tax and goods and services tax (GST) rates in the ongoing fiscal year. The government's disinvestment performance has fallen short of targets:

The current fiscal year's collections of ₹8,768 crore came from share sales in Mazgaon Dock Shipbuilders Ltd, Bank of Maharashtra, and Indian Overseas Bank, according to official data.

Phased Stake Reduction Proposal

CII estimates that reducing the government's stake to 51% in the 78 listed state-run companies could unlock close to ₹10 trillion for fresh capital investments and development spending. The industry body proposes a phased approach:

• Initial Phase: Reduce government stake to 51% in listed public sector enterprises, allowing the government to remain the single largest shareholder while releasing significant value
• Subsequent Phase: Further reduce stake to between 33% and 26% over time

This calibrated approach to privatization would focus on sectors where private participation can enhance efficiency, technology infusion, and global competitiveness.

Strategic Framework for Privatization

The government's current policy of strategic disinvestment aims to discontinue presence from sectors where competitive markets have matured and economic potential may be better realized under strategic investors. The central government has classified state-run enterprises into strategic sectors (atomic energy, petroleum, banking) and non-strategic sectors.

Strategic Sectors:

• Retain minimum presence at holding company level under government control
• Consider remaining companies for privatization, merger with other state-run companies, or closure

Non-Strategic Sectors:

• Prioritize privatization where feasible
• Wind up remaining entities

Industry Perspective

"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," stated CII Director General Chandrajit Banerjee.

The industry body emphasizes that to sustain the Centre's capital expenditure and address developmental priorities, the government should mobilize resources through this calibrated approach to privatization, ensuring better alignment between market demand and disinvestment execution.