Will the government's newfound zeal to push stake sales in CPSEs succeed?

Centre looks to step up stake sales in CPSEs to meet Sebi's MPS norms, revive strategic disinvestment, and boost market discipline amid legal hurdles, execution delays, and limited investor appetite

In the Union Budget for FY 2021-22, Union Minister for Finance and Corporate Affairs Nirmala Sitharaman announced a strategic disinvestment policy aimed at utilising disinvestment proceeds to fund social sector and developmental programmes, while also infusing private capital, technology and efficient management into Central Public Sector Enterprises (CPSEs).

 

The policy divided sectors into strategic and non-strategic. Strategic sectors included atomic energy, space, defence, transport, telecom, power, petroleum, mining, banking, insurance and financial services. In these, only a small public sector presence will be allowed. In non-strategic sectors, CPSEs will be privatised or shut down.

 

The announcement signalled a shift in the government’s thinking and led to expectations of accelerated privatisation and disinvestment activity. However, complex regulatory and legal processes, limited investor appetite, execution bottlenecks and political compulsions forced the government to dump the idea of large-scale sell-offs. The focus shifted to asset monetisation and collecting dividends from profitable CPSEs.

 

Pranav Haldea, managing director, PRIME Database Group, said, “I firmly believe the government should restrict its presence to core sectors like education, healthcare, infrastructure and defence. Beyond these, there's no compelling reason for the government to run businesses. Instead of waiting for privatisation, at the very least, all profit-making CPSEs should be listed. Listing brings in greater transparency, formalisation and corporate governance, something many unlisted CPSEs still lack. Many of these enterprises operate as monopolies or dominant players in their fields, and public listing would impose a discipline that’s currently missing.”

 

The newly appointed secretary of the Department of Investment and Public Asset Management (DIPAM), Arunish Chawla, in his interview with Business Standard last month, signalled that the government is going to step up stake sales in CPSEs in the current and next financial years. Chawla said that the stock market has returned to previous levels and market participants are looking ahead, making current activity quite encouraging.

 

“This year, we will follow a strategy of regular offers for sale (OFS) in small tranches. We are officially giving forward guidance for small investors to look out for it,” he said.

 

The aggressive disinvestment strategy is also aimed at meeting the Securities and Exchange Board of India (SEBI)’s mandate requiring listed government entities to achieve at least 25 per cent public shareholding by August 1, 2026.

 

While most CPSEs have now met the minimum public shareholding (MPS) norms, a few in sectors such as defence, railways and finance are still lagging. “We are actively pursuing their disinvestment. Hopefully, within the next one year, we would like all of them to achieve MPS norms. That is critical because it helps create sufficient stock and float in the market. The pricing decision is better, and the market discipline on behalf of the enterprise is also better,” Chawla added.

 

Chawla further noted that since SEBI has permitted Life Insurance Corporation (LIC) of India to increase its public shareholding to 10 per cent by March 2027 (from the current 3.5 per cent), LIC will dilute 6.5 per cent stake in small tranches over the next two financial years.

 

In February, the finance ministry issued a request for proposal (RFP) to dilute its equity in select public sector banks (PSBs) and listed public financial institutions (PFIs), inviting bids from merchant bankers and legal advisors. Around a dozen merchant bankers have been empanelled for these transactions.

 

Five public sector lenders — Bank of Maharashtra (86.46 per cent), Indian Overseas Bank (96.38 per cent), UCO Bank (95.39 per cent), Central Bank of India (93.08 per cent) and Punjab and Sind Bank (98.25 per cent) — are required to bring down government stakes significantly below 75 per cent. Other CPSEs requiring higher public shareholding include KIOCL Ltd (99.03 per cent), Andrew Yule & Company Ltd (89.25 per cent), Mangalore Refinery and Petrochemicals Ltd (88.58 per cent), India Tourism Development Corporation (87.03 per cent), Indian Railway Finance Corporation (86.36 per cent), and General Insurance Corporation of India (82.4 per cent).

 

However, the key question remains, are the markets and Indian CPSEs ready for such dilution? “Geopolitical uncertainties and global economic growth volatility indeed affect the disinvestment plan. We cannot ignore the global headwinds. However, the stake dilution in public sector banks to meet MPS norms will help make the sector more competitive and efficient,” said Lekha S Chakraborty, professor at the National Institute of Public Finance and Policy (NIPFP), India.

 

Haldea said that there's never really an ideal time to disinvest or dilute government stake in CPSEs. “Trying to time the market, even as an investor, is a fallacy—and it's even more difficult for the government. I’ve often said that the government should not chase value maximisation in disinvestment. These are assets built with taxpayers’ money, and any value eventually flows back to the people,” he said.

 

For FY 2025-26, the Union finance ministry has already recorded disinvestment receipts of Rs 3,673.42 crore. Notably, the practice of fixing separate disinvestment targets or estimates was discontinued starting with the revised estimates (RE) of FY 2023-24. During FY 2024-25, there was no separate disinvestment target either, an amount of Rs 50,000 crore was kept under “miscellaneous capital receipts” (MCR) at the Budget Estimate (BE) stage, later revised to Rs 33,000 crore at RE stage. MCR includes estimated receipts from equity management and public asset monetisation. The BE for MCR in FY 2025–26 has been pegged at Rs 47,000 crore.

 

Gaura Sengupta, chief economist at IDFC FIRST Bank, said, “Over the last few years, disinvestment revenue has undershot target levels due to volatility in equity markets. But at the same time, collections of dividends from PSUs have exceeded targets. In FY26 we expect the same pattern to continue given volatility in equity markets. We don’t see a risk to the fiscal deficit target of 4.4 per cent of GDP, with RBI dividend exceeding budget estimates and increase in excise duty on petrol and diesel,” she added.

 

Haldea said instead of waiting for the perfect time to unlock maximum value, the government should adopt a structured and continuous approach to stake dilution, at least to meet the minimum public shareholding (MPS) requirements. “Privatisation is not just an economic decision—it’s a practical and political one as well. It requires strong political will. If there was ever a government capable of pushing through this agenda, it was the one with the strong mandates in 2014 and 2019. Sadly, we may have missed the bus. Since Air India, we haven’t seen meaningful progress—IDBI Bank is still pending, and momentum seems lost. Many announcements are made, but actual execution has been lacking,” Haldea added.

 

This time, the government would like to prove the sceptics wrong, not with promises, but with execution.