CII’s Four-Pronged Strategy for Accelerated PSE Privatisation

News Context

1. Source and Core Proposal

• The Original Report. This strategy was detailed in the pre-Budget proposals for the Union Budget 2026-27 released by the Confederation of Indian Industry (CII). You can access the full context here: https://epaper.thehindu.com/ccidist-ws/th/th_international/issues/165840/OPS/GMFFD491G.1+GQ8FE84TS.1.html.
• The Efficiency Mandate. The CII advocates for a shift in how the government handles Public Sector Enterprises (PSEs), moving from a bureaucratic supply-led model to a market-aligned approach. The goal is to sustain high capital expenditure by unlocking productive capital from state-owned assets.

2. Shifting to a Demand-Led Model

• Reversing the Selection Sequence. The CII recommends that the government should first gauge investor appetite across a broad pool of enterprises before finalizing a sale list. Traditionally, the government identifies units first, often resulting in failed auctions due to lack of buyer interest or poor valuation.
• Structured Investor Feedback. By engaging in pre-bid dialogues, the government can identify regulatory or procedural bottlenecks early in the process. This ensures that only those PSEs with strong market demand and realistic valuation potential are prioritized for the immediate roadmap.

3. Implementing a Rolling Three-Year Pipeline

• Long-Term Planning Visibility. The industry body has called for the announcement of a rolling three-year pipeline that clearly outlines which enterprises are slated for privatisation. This predictability allows institutional investors to prepare capital and perform due diligence well in advance.
• Realistic Price Discovery. Advanced visibility reduces the “surprise” element in the market, leading to more stable valuations. It also ensures that the privatisation process remains continuous rather than being a series of ad-hoc, year-to-year announcements that often stall.

4. Phased Reduction to 51% Stake

• Retaining Majority Control. The primary interim step suggested is reducing the government’s stake in 78 listed PSEs to exactly 51%. This allows the State to remain the single largest shareholder and keep management control while still monetizing a significant portion of its equity.
• Phased Market Release. The CII suggests that this dilution should happen in a phased manner to avoid overwhelming the stock market. A gradual release ensures that share prices remain stable while the government systematically pulls out “excess” equity.

5. Further Dilution to 33% and 26%

• Deepening Private Participation. Once a PSE has stabilized at a 51% government holding, the roadmap suggests a second phase of dilution to between 33% and 26%. This transition is critical for bringing in strategic private partners who can overhaul technology and management.
• The Veto Threshold. Dropping to 26% is a strategic choice, as it is the minimum threshold required under the Companies Act to exercise veto power over special resolutions. This allows the government to exit active management while still protecting national or strategic interests.

6. The ₹10 Lakh Crore Valuation Analysis

• Phase 1 Potential. Disinvestment in 55 PSEs where the government currently holds 75% or less could mobilize approximately ₹4.6 lakh crore. This is considered the “low-hanging fruit” of the disinvestment strategy.
• Phase 2 Potential. In a subsequent stage, targeting 23 PSEs with higher government ownership (above 75%) could yield an additional ₹5.4 lakh crore. Combined, these two phases represent a massive ₹10 lakh crore (trillion) windfall for the exchequer.

7. New Institutional Framework

• Dedicated Ministerial Board. To streamline decision-making, the CII proposes a dedicated body led by a Ministerial Board. This would remove the multi-layered departmental hurdles that currently slow down the disinvestment of individual units.
• Professional Management Team. The framework includes an Advisory Board of industry and legal experts. This professional team would handle complex tasks like due diligence, global market engagement, and the resolution of regulatory conflicts.

8. Redeployment of Productive Capital

• Funding Social Infrastructure. The CII Director-General, Chandrajit Banerjee, emphasized that the ₹10 lakh crore should be reintegrated into high-impact areas like healthcare and education. This moves capital away from commercial business operations and toward social welfare.
• Support for Fiscal Consolidation. Beyond infrastructure, the proceeds are viewed as a vital tool for fiscal consolidation. By using non-tax revenue from stake sales, the government can meet its deficit targets without cutting back on essential public spending.

9. Strategic vs. Non-Strategic Sectors

• The Exit Mandate. The proposal aligns with the National PSE Policy, which mandates a complete exit from non-strategic sectors. In these areas, the CII argues that the government has “no business being in business” and should leave operations to the private sector.
• Minimalist Strategic Presence. Even in strategic sectors like energy or defense, the CII recommends keeping only a “bare minimum” presence. This ensures that even strategic units benefit from the efficiency and technological infusion that private minority shareholders bring.

10. Sustaining Global Competitiveness

• Technological Infusion. Privatisation is not just about raising money; it’s about bringing in modern global technology. Private owners are more likely to invest in the R&D necessary for Indian PSEs to compete on an international stage.
• Operational Discipline. Market discipline and accountability to private shareholders typically lead to better governance. The CII believes this transformation is essential for Indian enterprises to survive global economic uncertainties and contribute to the “Viksit Bharat” (Developed India) vision.