Rethinking India’s disinvestment policy: From asset sales to strategic ownership

Representative image The government’s approval, on 14 October 2026, to sell its combined 60.72% stake in IDBI Bank—held by the Centre and LIC—to a subsidiary of Fairfax Financial Holdings for approximately ₹52,878 crore has brought strategic disinvestment back into focus. Subject to regulatory clearances, the transaction offers a timely opportunity to reassess the purpose of government ownership and the most productive use of public capital.

After more than three decades of experience, the debate can move beyond the traditional binary of public versus private ownership. A more relevant question today is: what purpose does government ownership serve in a particular enterprise, and is retaining that ownership the best use of public capital?

That approach is consistent with the government’s New Public Sector Enterprise Policy. The policy seeks to minimise the government’s presence in commercial enterprises. Even in four identified strategic sectors, including power, petroleum, coal and other minerals, the stated objective is to retain only a “bare minimum” public-sector presence, while other enterprises may be considered for privatisation, merger or closure.

This provides a useful framework. Government equity is ultimately public capital. Where ownership is essential for national security, critical infrastructure, public-service obligations or another clearly defined strategic purpose, retaining it may be justified.

But where an enterprise operates in a competitive commercial market, permanent state ownership needs to be tested against the opportunity cost of that capital. India’s own experience provides evidence for this argument. The Economic Survey 2019-20 examined 11 enterprises that underwent strategic disinvestment between 1999-2000 and 2003-04, including Maruti Suzuki, BALCO, CMC, IPCL, Hindustan Zinc and Tata Communications.

Using a difference-in-differences comparison with peer companies, the Survey found that the performance of privatised enterprises improved significantly after privatisation relative to their peers. At an aggregate level, average net worth of the privatised firms increased from about ₹700 crore before privatisation to ₹2,992 crore afterwards.

Average net profit rose from around ₹100 crore to ₹555 crore, while gross revenue increased from ₹1,560 crore to ₹4,653 crore. The Survey also found improvements in return on assets, return on equity and productivity measures. Its conclusion was that strategic disinvestment can unlock enterprise value, improve productivity and release public capital for infrastructure and other priorities.

The experience was not uniform, and that is an important qualification. Some companies performed better than others, and ownership change alone cannot guarantee commercial success. But the evidence weakens the assumption that an enterprise must remain government-owned to continue serving a wider economic purpose.

Maruti is a useful illustration. The government’s exit did not prevent the company from remaining a major part of India’s manufacturing ecosystem. BALCO, IPCL and other strategic sales similarly demonstrated that private capital and management could be introduced into established public enterprises without the state remaining their shareholder control indefinitely.

The Economic Survey’s assessment found substantial post-privatisation improvements across several of these companies, even while individual outcomes differed. Air India represented a different case. The strategic disinvestment completed in January 2022 transferred 100% of the government’s equity in Air India to the Tata group’s Talace, with the transaction structured at an enterprise value of ₹18,000 crore.

Here, privatisation also transferred responsibility for future capital, commercial risk and operational turnaround to a strategic private owner. Taken together, these examples suggest that disinvestment should not be seen only as a mechanism for raising fiscal resources. It is also a tool for deciding where government capital is genuinely necessary and where private ownership may be better placed to fund future growth.

The more recent reliance on offers for sale adds another dimension. Government need not choose only between 51% ownership and a complete exit. It can monetise holdings progressively, preserve control where necessary and take market valuations into account.

FY27 transactions in LIC, Coal India, NHPC and Hindustan Copper demonstrate this more flexible approach. Hindustan Zinc offers one useful example of why the same principle can extend to an enterprise already under private management. The Economic Survey’s pre- and post-privatisation study showed HZL’s average net worth rising from about ₹818 crore to ₹12,875 crore, average net profit from ₹72 crore to ₹3,237 crore and gross revenue from ₹999 crore to ₹7,924 crore.

In FY25, the government monetised a further 1.62% through an offer for sale, raising ₹3,449 crore and reducing its holding to 27.92%. The legal question around a further reduction has also been substantially clarified. In its November 2021 judgment, the Supreme Court held that HZL had ceased to be a government company once the government’s shareholding fell below 51% and that the Union Government, acting as a shareholder, was entitled to sell its residual stake through a transparent and lawful process designed to realise the best price.

There is a legitimate counterargument in sectors involving minerals, energy or other strategic resources. Governments may want influence over assets important to national security or long-term economic resilience. But equity ownership is only one instrument available to the state.

Mining legislation, lease conditions, environmental regulation, competition rules and other sovereign powers can protect public interest without necessarily requiring the government to remain a permanent shareholder in every commercial enterprise in a strategic sector. The same principle can guide the wider disinvestment programme.

Each significant government holding could periodically be subjected to three tests: Does ownership provide control that the state genuinely needs? Does it protect a clearly defined public interest that cannot be secured effectively through regulation? And does retaining the capital create more public value than deploying it elsewhere?

Profitability should not, by itself, be an argument against disinvestment. Profitable companies may offer the government the strongest opportunity to monetise from a position of strength rather than distress. Equally, disinvestment should not become a mechanical annual exercise.

Timing, valuation and market absorption matter if the objective is to maximise value for taxpayers. India’s next phase of disinvestment can therefore be less about privatisation as ideology and more about disciplined capital allocation. Majority ownership may remain appropriate in a limited number of enterprises.

A strategic minority may be sufficient in others. And where neither control nor a specific public-policy objective requires continued ownership, an eventual exit should remain an option. The guiding principle can be simple: government should own businesses where ownership itself serves a public purpose, not merely because it has historically owned them.

Seen this way, privatisation is not the withdrawal of the state from the economy. It is the redeployment of public capital towards areas where the state’s presence is most necessary, while allowing competitive commercial enterprises to grow under the ownership structure best suited to them.

Disclaimer : Views expressed above are the author's own.