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Growth remains priority, looking at more PSU divestment: FM Sitharaman

February 02, 2026 5 min read Economics GS3 (Indian Economy Mobilisation of Resources Growth Disinvestment Policy)
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What Happened

  • Finance Minister Nirmala Sitharaman stated in post-budget interactions that economic growth remains the government's primary objective, and PSU (Public Sector Undertaking) divestment will continue but in a selective, value-driven manner rather than through fixed annual targets.
  • The government is looking at more PSU divestment opportunities — including OFS (Offer for Sale), strategic sales where feasible, and minority stake sales via OFS and ETFs — without committing to a specific divestment target for FY27.
  • The FM's statement reflects a deliberate policy pivot since FY24: the government no longer announces headline disinvestment targets in the budget, instead prioritising improved CPSE governance, higher dividends, and selective privatisation.
  • Growth strategy is centred on capital expenditure (₹12.2 lakh crore in FY27), income tax relief for the middle class, and investment facilitation — not on aggressive fiscal monetisation through asset sales.

Static Topic Bridges

PSU Disinvestment Policy: Historical Evolution and Current Approach

India's disinvestment policy has evolved through three distinct phases since liberalisation in 1991.

  • Phase 1 (1991-1999): Minority stake sales (partial disinvestment) to financial institutions; no management transfer; no strategic intent.
  • Phase 2 (1999-2004): Strategic disinvestment with management transfer — aggressive privatisation under Arun Shourie's tenure (Balco, VSNL, CMC, Hindustan Zinc, IBP, Maruti sold). Opposed by coalition politics; pace slowed after 2004.
  • Phase 3 (2014-present): Mixed approach — strategic disinvestment (Air India completed 2022; BPCL, Concor, Shipping Corporation stalled), combined with large-scale OFS, ETF (CPSE ETF, Bharat 22 ETF), IPOs of subsidiaries, and aggressive dividend extraction.
  • Current approach (from FY24): No fixed annual disinvestment targets; focus on "value creation" before sale; sector-specific strategic plans; dividend maximisation from PSEs that are not being privatised.
  • Air India disinvestment (2022): Successfully privatised to Tata group — the flagship example of completed strategic disinvestment; took 4+ years from announcement to completion due to legal, labour, and valuation complexities.

Connection to this news: The FM's statement of "looking at more PSU disinvestment" without committing to targets reflects the lessons of FY22-23 when aggressive targets were announced but not met — creating credibility gaps. The new approach is flexible but less predictable for markets.

DIPAM and Mechanisms of Disinvestment

DIPAM (Department of Investment and Public Asset Management) is the nodal body for managing disinvestment and PSE shareholding under the Ministry of Finance (not Commerce/Industry).

  • Strategic Disinvestment: Substantial government stake sold along with management control transfer to private entity. Requires extensive Cabinet/CCEA approval, valuation, bidder qualification, and transaction execution. Longest timeline (2-5 years per deal).
  • OFS (Offer for Sale): Existing government shares sold on stock exchange without management transfer; fastest route; requires SEBI compliance. Example: ONGC, NTPC, Coal India stake sales via OFS.
  • CPSE ETF (Exchange Traded Fund): Basket of government-held CPSE shares packaged into an ETF (e.g., CPSE ETF with 12 companies; Bharat 22 ETF with 22 companies). Retail-friendly; taps domestic and international passive investment.
  • Buybacks: CPSEs buy back their own shares from the government — effectively returns cash to the government, reduces government's percentage holding. Used when CPSE has surplus cash.
  • IPO of subsidiaries: Government lists subsidiary companies separately (e.g., IRFC, RAIL VIKAS, LIC) — raises capital while retaining majority ownership.
  • Asset Monetisation (NMP): Distinct from equity disinvestment — monetises underlying assets through long-term leasing/InvIT structures without selling equity.

Connection to this news: The FM's reference to "more PSU disinvestment" likely encompasses OFS, ETF routes, and subsidiary IPOs — not necessarily new strategic sales, which remain politically and logistically complex.

Growth as Policy Priority: Supply-Side vs Demand-Side Approaches

The FM's statement that "growth remains the priority" encapsulates India's broader macroeconomic strategy — balancing fiscal discipline with active growth stimulation.

  • Supply-side growth measures (Budget 2026-27): Capex (₹12.2 lakh crore) for infrastructure; PLI schemes for manufacturing; data centre tax holiday for digital investment; safe harbour simplification for IT sector — all aimed at expanding productive capacity.
  • Demand-side measures: Income tax relief (zero tax up to ₹12 lakh); Viksit Bharat Rozgar Yojana (employment incentives); rural spending (VB-G RAM G rural employment). Aimed at sustaining consumer spending power.
  • Investment-to-GDP ratio: India's gross fixed capital formation (GFCF) is ~29-30% of GDP — below the 35%+ needed for sustained 8% growth. Budget 2026-27's capex push, plus private investment crowding-in, aims to lift this ratio.
  • Nominal vs real GDP growth: Government assumes 10% nominal GDP growth (FY27); with ~4.5-5% inflation, this implies real GDP growth of ~5-5.5% — considered moderate given India's potential. Faster growth would improve fiscal ratios automatically (denominator effect).
  • India's growth context: India remains the fastest-growing major economy (IMF FY26 projection: 6.5% real growth); the budget aims to sustain this while managing the transition to a more productive, formalised economy.

Connection to this news: The FM's emphasis on growth as priority over aggressive disinvestment reflects an implicit judgment that the macroeconomic dividends of growth (higher tax revenues, lower debt ratios, more PSE valuations before sale) outweigh the short-term receipts from forced asset sales.

Key Facts & Data

  • Disinvestment approach since FY24: No fixed annual targets; selective, value-driven
  • Air India privatisation: Completed 2022; sold to Tata Group (flagship strategic disinvestment)
  • DIPAM: Under Ministry of Finance; established 2016 (carved from DIPP)
  • OFS route: Fastest disinvestment mechanism; on-exchange sale of government's existing shares
  • CPSE ETF: Basket of 12 CPSEs; Bharat 22 ETF: 22 CPSEs — passive investment route
  • PSE dividend FY26: ₹70,577 crore (increasingly compensates for disinvestment shortfalls)
  • Combined disinvestment + asset monetisation FY26: Exceeded ₹34,400 crore
  • Capex FY27: ₹12.2 lakh crore (11.5% growth — the growth strategy's centrepiece)
  • India GFCF to GDP: ~29-30% (below 35%+ needed for sustained 8% growth)
  • Nominal GDP growth assumed FY27: 10%; implies real growth ~5-5.5%
  • India real GDP growth (IMF FY26 projection): 6.5% (fastest among major economies)