Disinvestment and Privatisation Policies in India

Disinvestment refers to the dilution of the government’s equity stake in a public sector enterprise, while privatisation means transferring both ownership and management control to a private entity. In India, these policies are used to improve efficiency, unlock public value and support fiscal management.

The process is overseen by the Department of Investment and Public Asset Management (DIPAM), with major strategic decisions requiring approval from the Cabinet Committee on Economic Affairs (CCEA). The framework has evolved through policy changes, budget targets and sector-specific rules for Central Public Sector Enterprises (CPSEs).

Institutional Framework and Key Agencies

• DIPAM: Functions under the Ministry of Finance as the nodal agency for managing central government equity in CPSEs, including disinvestment, strategic privatisation and capital restructuring.
• Origin: It was earlier known as the Department of Disinvestment and was renamed DIPAM in the Union Budget 2016-17 to reflect a wider mandate.
• Secretary: Dr. Arunish Chawla assumed office as Secretary of DIPAM on January 8, 2025.
• CCEA: Chaired by the Prime Minister, it has the apex authority to approve strategic disinvestment proposals and decide the modality of sale.

The New PSE Policy for Atmanirbhar Bharat

• Approval: The New Public Sector Enterprise (PSE) Policy was approved by the Union Cabinet on February 4, 2021.
• Purpose: It provides the framework for classifying CPSEs into strategic and non-strategic sectors.
• Strategic sectors: Atomic energy, space and defence; transport and telecommunications; power, petroleum, coal and other minerals; and banking, insurance and financial services.
• Government presence: The policy aims to retain only a bare minimum public sector presence in strategic sectors.
• Non-strategic sectors: All CPSEs in non-strategic sectors are earmarked for privatisation, or for closure if privatisation is not viable.

Financial Targets and Performance

• FY27 target: The Union Budget 2026 set a target of ₹80,000 crore from miscellaneous capital receipts, including disinvestment and asset monetisation, for FY27.
• FY26 actual: The central government realised ₹45,306.05 crore from disinvestment and asset monetisation in FY26, exceeding the revised estimate of ₹33,837 crore.
• Break-up of FY26 receipts: Disinvestment accounted for ₹16,885.56 crore, while asset monetisation fetched ₹28,420.49 crore.
• OFS example: In April 2025, a 3.61% stake sale in Mazagon Dock Shipbuilders Limited raised ₹3,673.42 crore through the Offer for Sale route.
• FY27 progress: By August 2026, cumulative receipts from disinvestment and asset monetisation had crossed ₹59,000 crore.

Capital Restructuring and Structural Reforms

• Dividend norms: DIPAM’s revised capital restructuring guidelines, issued on November 18, 2024, require CPSEs to pay an annual dividend of at least 30% of net profit or 4% of net worth, whichever is higher.
• Financial CPSEs: These entities must distribute a minimum of 30% of profit after tax annually.
• Lower government stake: The Economic Survey 2025-26 proposed allowing the government’s equity in selected CPSEs to fall below the traditional 51% threshold, possibly to 26%, while retaining management and policy control.
• Golden share idea: A Parliamentary Standing Committee on Finance recommended a golden share mechanism in March 2026 to protect administrative autonomy if the state’s holding falls below 51%.

Active Transactions and Banking Sector Status

• IDBI Bank disinvestment: The strategic disinvestment of IDBI Bank remains active, involving the sale of a combined 60.72% stake held by the government and Life Insurance Corporation of India.
• Stake breakup: The proposed sale includes 30.48% held by the government and 30.24% held by LIC, along with transfer of management control.
• Bid process: Revised financial bids were submitted in July 2026 by Fairfax Financial Holdings and Emirates NBD.
• No wider banking sale: Apart from IDBI Bank, no other public sector bank is currently approved or officially lined up for strategic disinvestment.

Key Prelims Takeaways

• Disinvestment vs privatisation: Disinvestment means dilution of government equity; privatisation means transfer of both ownership and management control.
• DIPAM: The nodal agency under the Ministry of Finance for disinvestment, strategic privatisation and capital restructuring.
• CCEA role: Approves strategic disinvestment proposals and decides the mode of sale.
• New PSE Policy: Classifies CPSEs into strategic and non-strategic sectors to guide privatisation decisions.
• Strategic sectors: Include atomic energy, space, defence, transport, telecom, power, petroleum, coal, banking, insurance and financial services.
• Dividend rule: CPSEs must pay at least 30% of net profit or 4% of net worth; financial CPSEs must pay 30% of profit after tax.
• Golden share: Proposed as a safeguard to preserve government veto power even if equity falls below 51%.