CII Recommends Testing Investor Demand Before State-Owned Enterprise Disinvestment

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.