Test investor demand before stake sale in state-owned firms, CII tells govt

New Delhi: Government should test market's appetite for investing in state-owned enterprises before these entities are picked up for disinvestment, industry body Confederation of Indian Industry (CII) said in its budget recommendations.

The government should make a three-year rolling list of state-owned entities to be privatized, which will encourage deeper investor engagement and more realistic valuation and price discovery, the industry body said in a statement on Sunday.

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, CII said.

Finance minister Nirmala Sitharaman is set to unveil the budget for 2026-27 on 1 February.

CII’s recommendations for mobilizing funds through stake sale in state-run businesses comes at a time when the central government is witnessing slower than expected tax revenue after reducing both income tax and goods and services tax (GST) rates in the ongoing fiscal year.

The government raised ₹33,000 crore from share sales in FY25, missing its disinvestment target of ₹50,000 crore.

The government has set a target to raise ₹47,000 crore from stake sale this fiscal year ending 31 March, but has so far raised only ₹8,768 crore from selling shares in Mazgaon Dock Shipbuilders Ltd, Bank of Maharashtra, and Indian Overseas Bank, official data showed.

The government’s policy of strategic disinvestment is to discontinue from sectors, where competitive markets have come of age and economic potential of such entities may be better discovered in the hands of strategic investors.

CII said that to sustain the Centre’s capital expenditure and to address developmental priorities, the government should mobilize resources through a calibrated approach to privatization, focusing on sectors where private participation can enhance efficiency, technology infusion, and global competitiveness.

“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,” CII director general Chandrajit Banerjee said in the statement.

The industry body said that the government should shift to a demand-based approach in selecting companies for privatization.

At present, the government identifies specific companies for sale and subsequently invites investor interest. But, when sufficient demand or valuation is not achieved, the process often stalls, CII stated. It proposed reversing this sequence by first gauging investor interest across a broader set of enterprises and then prioritizing those that attract stronger interest and meet valuation expectations.

Such an approach, the industry body said, would ensure smoother execution and better price discovery.

The government could reduce its stake in listed public sector enterprises (PSEs) in a phased manner to 51% initially, allowing it to remain the single largest shareholder while releasing significant value into the market. Over time, this stake could be brought down further to between 33% and 26%, CII said.

The central government has classified state-run enterprises as strategic—for example, atomic energy, petroleum, banking—and non-strategic. The idea is to retain bare minimum presence of the existing public sector commercial enterprises at holding company level under government control. The remaining companies in strategic sectors will be considered for privatization or merger with another state-run companies or will be wound up. In non-strategic sectors, state-run companies will be considered for privatization where feasible, and the rest would be wound up.