Faster, demand-led approach needed for PSE privatisation: CII

The Confederation of Indian Industry's (CII) proposal for a "faster, demand-led approach" to Public Sector Enterprise (PSE) privatization, including a "rolling three-year pipeline" for the Union Budget 2026-27, signals a significant push from the industry towards accelerating economic reforms. This recommendation is deeply rooted in India's economic history and has profound implications for its future trajectory.

**Background Context: The Genesis and Evolution of PSEs in India**

India's journey with Public Sector Enterprises began in the post-independence era, heavily influenced by the socialist leanings of its first Prime Minister, Jawaharlal Nehru. The Industrial Policy Resolution of 1956 laid the foundation for a mixed economy, where PSEs were envisioned as the 'commanding heights' of the economy. Their primary objectives were to accelerate industrialization, achieve self-reliance, ensure equitable distribution of wealth, create employment, and develop backward regions. Sectors like heavy industries, infrastructure, defense, and strategic sectors were reserved for the public sector. While many PSEs played a crucial role in nation-building, over time, a significant number faced challenges such as operational inefficiencies, technological obsolescence, political interference, overstaffing, and mounting losses, becoming a drain on the public exchequer.

The economic liberalization reforms of 1991, necessitated by a severe balance of payments crisis, marked a paradigm shift. India moved away from a largely state-controlled economy towards greater market orientation. This shift brought the concept of disinvestment and privatization to the forefront, as the government sought to reduce its fiscal deficit, unlock capital, and improve the efficiency of these state-owned entities.

**What Happened: CII's Specific Proposals**

CII, a prominent industry lobby, has submitted its recommendations for the Union Budget 2026-27, advocating for a more streamlined and aggressive approach to PSE privatization. The core of their proposal is a "faster, demand-led approach," implying that the privatization process should be responsive to market interest and move at a quicker pace. Crucially, they suggest establishing a "rolling three-year pipeline." This means the government would proactively identify and announce a list of enterprises slated for privatization over a three-year horizon. Such a pipeline would provide clarity and predictability to potential investors, allowing them to plan their investments better, and could potentially reduce the time taken for each divestment by creating a continuous process rather than ad-hoc decisions.

**Key Stakeholders Involved**

Several key players are central to the privatization discourse. The **Government of India**, particularly the **Ministry of Finance** and its **Department of Investment and Public Asset Management (DIPAM)**, is the primary decision-maker and executor of disinvestment policy. DIPAM's role is to manage government investments in equity including the disinvestment of Central Public Sector Enterprises (CPSEs). The **Public Sector Enterprises (PSEs)** themselves, their management, and employees are directly affected, often leading to resistance from **Trade Unions** concerned about job losses and changes in working conditions. The **Confederation of Indian Industry (CII)** represents the interests of the private sector, advocating for policies that promote business growth and efficiency. **Potential Investors**, both domestic and international, are crucial as they are the buyers of these assets. Finally, the **general public and consumers** are stakeholders whose access to services and pricing might be impacted by the shift from public to private ownership.

**Significance for India: Economic, Governance, and Social Impact**

This renewed push for privatization holds immense significance for India. Economically, it can be a vital source of revenue generation for the government, helping to bridge the fiscal deficit and fund crucial social sector schemes and infrastructure development. It can also lead to improved efficiency and productivity in privatized entities, as private ownership often brings better management practices, technological upgrades, and market-driven decision-making. This, in turn, can foster greater competition, attract foreign direct investment (FDI), and enhance India's overall economic competitiveness. From a governance perspective, it reduces the government's direct involvement in commercial activities, allowing it to focus more on its core functions of policy-making, regulation, and social welfare. Socially, while concerns about job security are valid, proponents argue that privatization can lead to job creation in the long run through business expansion and new investment, albeit with potential initial disruption.

**Historical Context of Disinvestment in India**

India's disinvestment journey began tentatively in the early 1990s, primarily through the sale of minority stakes in PSEs. The late 1990s and early 2000s, particularly under the Atal Bihari Vajpayee government, saw a more aggressive strategic disinvestment policy, involving the sale of majority stakes and transfer of management control in companies like VSNL, BALCO, and IBP Ltd. This phase demonstrated the potential for significant revenue generation and efficiency improvements. However, political challenges and economic downturns led to a slowdown in subsequent years. The current government has revived the strategic disinvestment agenda, culminating in the landmark privatization of Air India in 2022, signaling a strong commitment to this reform.

**Future Implications and Constitutional/Policy References**

If the government adopts CII's recommendations, India could witness a more aggressive and predictable privatization drive. This could lead to a leaner public sector, greater private sector participation in various industries, and potentially a more dynamic economy. However, challenges remain, including political opposition, valuation complexities, market appetite, and ensuring fair competition post-privatization. The success of this approach will depend on transparent processes, robust regulatory frameworks, and effective communication with all stakeholders.

While the Indian Constitution does not explicitly deal with privatization, the broad economic framework it establishes is relevant. Concepts like 'socialist' in the Preamble have historically been interpreted to justify state control, but post-liberalization, the interpretation has evolved to accommodate market reforms. The **Directive Principles of State Policy (DPSP)**, particularly **Article 39(b) and 39(c)**, which speak of equitable distribution of material resources and prevention of concentration of wealth, are often cited in debates around state ownership vs. private ownership. However, these are non-justiciable. The **Industrial Policy Resolutions** (e.g., 1948, 1956, 1991) are key policy documents that have defined the role of the public and private sectors. The **Companies Act, 2013**, governs the functioning of all companies, including PSEs. The **Securities and Exchange Board of India (SEBI) Regulations** come into play for listed PSEs undergoing divestment. Ultimately, the **Union Budget** is the annual document where disinvestment targets are announced and the policy direction is outlined, with the **Department of Investment and Public Asset Management (DIPAM)** being the nodal agency for its implementation.