Is Strategic Disinvestment the Next Frontier in Economic Reform?

Over the last two months, social media has been active with both President Donald Trump and Prime Minister Narendra Modi hailing each other as “friends.” Yet, the stalemate in US–India trade talks continues. Despite this exogenous tariff shock, the Indian economy has remained resilient, with GDP growth of 7.8% in April–June. Given the present trend, tariff-led protectionism and global uncertainty driven by conflicts are likely to continue. However, to make the Indian economy shock-resilient, further reforms are necessary.

Although GST rate rationalisation was lauded, another low-hanging fruit that could come next is strategic disinvestment. In Modi’s own words, the government has “no business to be in business.” Reforms in the form of strategic disinvestment will not only reinforce his reformist image but also strengthen the Indian economy in these turbulent times.

Unlike minority stake sales, strategic disinvestment involves transferring majority ownership along with management control of public sector enterprises to private investors or other government entities, transforming operational dynamics and unlocking value.

India’s fiscal health has faced increasing pressure as government expenditures have risen to meet development goals. Achieving a fiscal deficit of 4.8% of GDP in 2024–25 demonstrated improved fiscal discipline, yet gross government debt continues to rise and is likely to hit ₹196.78 trillion in 2025–26. The Central Government’s debt-to-GDP ratio stood at 57.2% as of late 2024, which the government aims to reduce to 50% by 2031. Strategic disinvestment is pivotal to this fiscal consolidation journey, as it generates government revenue without increasing borrowing.

Divestment receipts in 2024–25 were ₹93.19 billion, the lowest since 2014–15, clearly reflecting a deliberate policy shift from blunt stock sales to optimising PSE performance and value creation. Annual targets have been replaced with a more flexible strategy focusing on increasing capital expenditure, improving dividend payouts, phased share dilution, and targeted privatisation. For 2025–26, the government has announced a ₹470 billion target for disinvestment proceeds, emphasising quality and strategic impact over mere volume. Since 2014–15, disinvestment has raised over ₹4.37 trillion, reaffirming its fiscal importance.

Hindustan Zinc’s privatisation in 2002 gave the government a large upfront fiscal inflow and shifted the company into private management. Since then, capacity has expanded nearly six-fold, making it the world’s largest and one of the lowest-cost integrated zinc producers.

In 2024–25, the company reported revenues of ₹340.8 billion, with profits up 33% year-on-year, contributing ₹189.63 billion to the exchequer through taxes and royalties. Alongside zinc, Hindustan Zinc has turned around its silver portfolio significantly, with 20x growth since disinvestment. It has now become one of the top five silver producers globally. With rising global demand for both metals—zinc for infrastructure and steel, and silver for solar, EVs, and electronics—profits are set to expand further, translating into higher tax and royalty collections for the government.

The company has delivered total shareholder returns of over 1,300x since disinvestment. Its market capitalisation has risen from ₹2.37 billion in 2002 to over ₹2.09 trillion in 2025, reaffirming how strategic disinvestment converted a low-performing state asset into a globally competitive enterprise that continues to generate recurring fiscal value and support national priorities.

The Air India privatisation highlights another facet of strategic disinvestment. It ended the government’s daily ₹20 million subsidy burden and shed light on how the ₹600 billion accumulated debt will eventually be addressed. After the acquisition by the Tata Group, Air India has regained competitiveness and removed a persistent fiscal drag on the exchequer. Together, Hindustan Zinc and Air India illustrate how well-designed privatisations deliver both fiscal relief and long-term operational transformation.

Persistent PSU losses continue to weigh on public finances. The 2022 Comptroller and Auditor General report showed 63 loss-making PSUs with combined losses of ₹40.65 billion and cumulative net worth erosion exceeding ₹180 billion. Between 2015 and 2020, operational inefficiencies led to losses of over ₹1.5 trillion. Revamping these entities through strategic disinvestment can reduce fiscal drain and enhance competitiveness.

The 2021 Public Sector Enterprise Policy prescribes a minimal government presence in strategic sectors such as atomic energy, defence, space, and banking, while advocating privatisation or closure in non-strategic sectors. This ensures focus on national security while unlocking economic potential in competitive areas.

The IDBI Bank sale epitomises upcoming large-scale disinvestment, with the government and LIC together holding 94% equity. Financial bids of around ₹500 billion, expected by late 2025, will likely offer substantial fiscal relief and improved operational efficiency under private stewardship.

Academic studies link strategic disinvestment to improved returns on capital and productivity enhancements across sectors. While Maharatna PSUs outperform private firms, smaller entities lag, making them prime candidates for privatisation. Revenue gains from disinvestment, which exceeded ₹1 trillion in 2017–18, play a key role in non-debt capital receipts that ease fiscal pressures.

Strategic disinvestment generates vital immediate fiscal space and enhances operational efficiency, but it must also manage potential long-term impacts on public welfare, employment, environmental sustainability, and strategic sovereignty. Smart policy design can harness technological innovation and value maximisation to align disinvestment with sustainable development goals.

Strategic disinvestment is no longer an opportunistic manoeuvre; it is an indispensable fiscal strategy for India. By unlocking capital, enhancing efficiency, and enabling fiscal consolidation, it supports India's transition to a robust, market-aligned economy while intelligently retaining government control in sectors critical to national interest. Hindustan Zinc’s transformation exemplifies how strategic disinvestment can create recurring fiscal dividends, global competitiveness, and shareholder value—making it a model for future privatisations.