Executed with unusual discretion and speed, the finance ministry’s offer for sale (OFS) in Life Insurance Corporation of India (LIC) last week delivered an impressive outcome. The process was managed so efficiently that the market had little inkling of it before the shares were offered. The government eventually raised about `32,000 crore by selling a 6.5% stake — more than twice the amount initially planned.
The strong response from institutional and retail investors suggests that both the pricing and timing were right, particularly with two large initial public offerings scheduled over the next few months. For a disinvestment department better known for delays than speed, completing the country’s largest secondary-market placement through the exchanges was a significant achievement. It must now build on this momentum.
The immediate priority should be to conclude the strategic sale of IDBI Bank, a transaction that has been in the works for years. Expectations that the sale would be completed by July-end have not been met. The proposed sale of a 60.1% stake would put another substantial transaction in the bag and yield useful resources at an uncertain time.
The government should simultaneously pursue more stake sales through the OFS route. Admittedly, its holding in about a third of listed state-owned enterprises is already below 60%, limiting the scope for further dilution under the existing framework. The Economic Survey 2025-26 proposed amending the Companies Act to allow an enterprise to retain its status as a government company even if state ownership falls to 26%.
Currently, a company must have at least 51% government ownership to retain that classification; any dilution below this threshold changes its status to that of a private company. The Survey argued that a 26% holding would still provide the government effective control and the ability to block special resolutions.
It also offered an alternative where eventual privatisation is the objective: The government could progressively dilute its stake through OFS transactions, first below 51% and subsequently towards a complete exit, without linking the legal definition of a government company rigidly to the 51% threshold. Either approach would create more room for calibrated stake sales.
Alongside minority stake dilution, the government should revive strategic sales of public-sector enterprises. Prime Minister Narendra Modi’s remarks in late 2024 about the improved performance of several public sector undertakings (PSUs) were interpreted as signalling a slowdown in the privatisation programme.
The government may have concluded that retaining profitable enterprises makes sense because they contribute substantial dividends to the exchequer. It is indeed true that many state-owned companies have delivered strong performances. But that is not, by itself, an argument for indefinite government ownership.
Privatising some well-run enterprises could unlock further value by giving them greater operational autonomy, sharper commercial discipline, and better access to private capital.
The proceeds would also give the government greater room to fund priorities for which public expenditure is indispensable. More importantly, the case for disinvestment is not merely fiscal. The government has previously articulated the sectors in which it believes a state presence is strategically necessary and those where private ownership would be more appropriate.
It should follow through on that policy instead of allowing the improved performance of some PSUs to weaken the larger reform agenda. The LIC transaction demonstrates that a large stake sale can be executed efficiently and at a price acceptable to investors. That’s a great foundation to build on.