India’s PSU Disinvestment: Minority Stake Sales Strategy

The Indian government primarily uses minority stake sales in Public Sector Undertakings (PSUs) to generate revenue, a method distinct from full privatization. This strategy allows the government to maintain management control, even though full privatization remains a stated policy objective.

Disinvestment targets have frequently been missed, with only two instances of exceeding annual goals between FY10 and FY21. Data from the Department of Investment and Public Asset Management (Dipam) shows that minority stake sales have generated approximately ₹3.30 trillion since FY15. This significantly overshadows the ₹69,412 crore raised through strategic disinvestment transactions during the same period.

Why Minority Sales Dominate

Experts explain this preference for minority stake sales due to their easier execution. Such sales can be conducted through exchange routes at market prices, bypassing extensive regulatory approvals, competition clearances, and complex negotiations.

Strategic sales, conversely, face substantial opposition from employees, unions, and political groups. These transactions are also prone to lengthy delays, with 21 proposals approved since 2015-16 still awaiting completion. Air India and Neelachal Ispat Nigam Ltd (NINL) are rare examples of successful strategic transactions involving non-government buyers.

Financial Control and Dividends

Retaining majority ownership allows the government to benefit financially from continued dividend receipts from profitable PSUs. CPSE dividend receipts were around ₹74,000 crore in FY25, with the FY26 Budget estimating ₹69,000 crore.

While strategic sales provide a one-time revenue injection, they also mean forfeiting these future dividends and relinquishing control. Strong PSU stock valuations further enhance the appeal of minority sales, offering a straightforward way to raise funds via Offer for Sale (OFS) without the complexities of finding a strategic buyer.

The Case for Full Privatization

However, critics argue that minority stake sales, despite offering short-term fiscal relief, do not address core management and efficiency issues. Nilanjan Banik, a professor of economics and finance at Mahindra University, highlights this limitation.

Banik advocates for a renewed focus on strategic privatization. He believes this approach could unlock potential gains in efficiency, foster innovation, and deliver greater long-term fiscal benefits by fundamentally transforming PSU operations.

Future Outlook for PSU Reform

India has not entirely abandoned strategic privatization, instead adopting a more selective and flexible approach to PSU reform. The government intends to maintain a minimum presence in four core strategic sectors. These include atomic energy, space, defence, and railways.

Privatization in other sectors will be considered based on feasibility. Potential candidates for future strategic sales include companies in oil and gas downstream and trading, shipping and logistics, and manufacturing and engineering sectors, reflecting an adaptive government strategy.