Budget 2026: Time to set a 10-year calendar for privatising CPSUs

FM Nirmala Sitharaman

It is about time to set a 10-year calendar for privatising central public sector undertakings (CPSUs) to unlock their true potential, drive efficiency, and significantly reduce the government's fiscal burden, allowing resources to be reinvested into critical public services.

Finance minister Nirmala Sitharaman should look at announcing a systematic and transparent privatization programme for CPSUs that is crucial for unlocking their true potential and significantly boosting India's economic growth.

By transferring ownership and management to the private sector, these enterprises can benefit from enhanced operational efficiency, market-driven decision-making, technological upgrades, and access to private capital for expansion and innovation.

This shift would foster greater accountability and competitiveness, allowing these entities to operate purely on commercial principles and contribute more effectively to the economy.

Years 1-3: Foundational divestment

The strategy should focus on identifying and categorizing all CPSEs by strategic importance. Independent valuation committees will be established, and transparent bidding frameworks created.

Privatization should begin with non-strategic sectors such as hospitality, trading companies, and manufacturing units.

The target should be to privatize 25-30 smaller CPSUs, generating an estimated Rs 1.5-2 lakh crore.

Years 4-7: Mid-market transition

In the medium term, the strategy should focus on moving to medium-sized enterprises operating in competitive sectors, including telecommunications equipment, engineering firms, pharmaceuticals, and select mining operations.

Employee Stock Ownership Plans (ESOPs) should be implemented, offering 5-10% equity to workers to ensure wealth-sharing.

The target should be to privatize 40-50 medium CPSUs, generating Rs 3-4 lakh crore.

Years 8-10: Strategic asset transformation

The longer term roadmap should turn the lens on addressing larger strategic enterprises in sectors like energy distribution, ports, airports, and select financial institutions where private sector participation can significantly enhance efficiency without compromising national security.

The target should be to privatize 15-20 large CPSUs, generating Rs 5-6 lakh crore.

Operational efficiency gains

Evidence suggests that private sector management typically achieves a 30-40% improvement in operational efficiency within three years post-privatization through better resource allocation, technology adoption, and performance-based incentives.

Case studies from past successful divestments highlight this potential: Maruti Suzuki's productivity increased by 250% post-privatization, and VSNL's revenue grew by 180% in 5 years after its acquisition by the Tata group.

Privatized entities can gain the freedom to enter or exit business lines based purely on profitability and market demand, and investment decisions will be driven by rigorous Return on Investment (ROI) analysis, ensuring optimal capital deployment, rather than being diluted by social obligations that commercial focus.

Such a comprehensive strategic plan will enable privatized entities can raise equity capital through Initial Public Offerings (IPOs) and rights issues, freeing them from government budgetary constraints and enabling rapid expansion.

It will also enhance access to domestic and international debt markets at competitive rates based on their creditworthiness, eliminating reliance on sovereign guarantees and boost the ability to attract private equity and strategic investors for essential expansion, Research & Development (R&D), and modernisation efforts.