By Dr. Nilanjan Banik
The Union Cabinet’s approval, on 14 October 2026, to sell the government’s and LIC’s combined 60.72% stake in IDBI Bank to a Fairfax Financial Holdings subsidiary for about ₹52,878 crore is more than another entry in India’s disinvestment ledger. At roughly $5.6 billion, it is the largest foreign investment yet in India’s financial-services sector, and it reopens a question the country has avoided for too long: why should the state own commercial businesses at all, except where ownership itself serves a demonstrable public purpose?
For decades, India’s public-sector debate has been trapped in a false binary—public ownership versus privatisation. Supporters of the public sector invoke employment, national interest and the dangers of private monopoly; advocates of privatisation point to inefficiency, political interference and weak returns on public capital. Both positions often miss the real issue. The question is not whether government or private ownership is inherently superior. It is whether, in a particular enterprise, continued state ownership creates more value for citizens than deploying the same capital elsewhere. That is the standard the IDBI transaction should establish.
Every rupee of government equity is ultimately public capital. It could finance schools, primary healthcare, urban transport, climate adaptation, defence modernisation or debt reduction. When the state retains a controlling stake in a bank, airline, mining company or manufacturer, it makes an implicit choice: this use of taxpayer-backed capital is more valuable than the alternatives.
Sometimes it is. The state may need ownership in enterprises central to national security, critical infrastructure, systemic financial stability or essential public-service obligations. But a commercial bank operating in a competitive lending market does not automatically meet that test. Nor does an airline, a zinc producer or a telecom company merely because it was created by the state in an earlier era.
India’s New Public Sector Enterprise Policy already accepts this logic. It seeks to minimise the government’s presence in commercial enterprises; even in the four notified strategic sectors—power, petroleum, coal and other minerals—the objective is to retain only a “bare minimum” presence. Enterprises outside these sectors may be privatised, merged or closed. The policy’s weakness has not been its principle but the slow, episodic and politically cautious manner of its execution.
IDBI offers a chance to move from principle to practice. The Centre holds 30.48% and LIC 30.24%; Fairfax is acquiring the combined controlling stake at ₹81 per share, a price reported to represent a premium of about 23% over IDBI’s book value as of June 2026. The government and LIC are expected to retain minority holdings, while the transaction remains subject to regulatory approvals. This structure matters: the state need not choose between absolute control and complete exit. A strategic minority can preserve influence where needed, while private capital takes responsibility for future investment, risk and turnaround.
The case for strategic disinvestment does not rest on faith in markets. India’s own experience provides evidence. The Economic Survey 2019-20 examined 11 enterprises strategically disinvested between 1999-2000 and 2003-04, including Maruti Suzuki, BALCO, CMC, IPCL, Hindustan Zinc and Tata Communications. Comparing them with peer firms, it found significant post-privatisation improvements in performance.
The aggregate numbers are striking. Average net worth of these firms rose from about ₹700 crore before privatisation to ₹2,992 crore afterwards. Average net profit increased from roughly ₹100 crore to ₹555 crore, while gross revenue climbed from ₹1,560 crore to ₹4,653 crore. The Survey also recorded gains in return on assets, return on equity and productivity.
These results should not be romanticised. Not every privatised firm succeeded; ownership change alone cannot guarantee commercial competence. But the evidence does undermine the assumption that continued government ownership is necessary for an enterprise to serve a wider economic purpose. Maruti remained central to India’s automobile ecosystem after the government exited. BALCO, IPCL and Hindustan Zinc showed that established public enterprises could attract private capital and management without the state needing to remain their permanent controlling shareholder.
Hindustan Zinc is especially instructive. The Survey found that its average net worth rose from about ₹818 crore to ₹12,875 crore after privatisation; average net profit increased from ₹72 crore to ₹3,237 crore, and gross revenue from ₹999 crore to ₹7,924 crore. In FY25, the government monetised a further 1.62% through an offer for sale, raising ₹3,449 crore and reducing its holding to 27.92%. The Supreme Court’s November 2021 judgment further clarified that HZL ceased to be a government company once state shareholding fell below 51%, and that the government could sell its residual stake through a transparent process designed to obtain the best price.
The lesson is not that every public asset must be sold. It is that the burden of proof should lie with continued ownership, not with exit.
Critics will rightly ask whether strategic sectors require state equity. Minerals, energy, banking and infrastructure can involve externalities, market power, national-security concerns and long-term risks. These concerns are legitimate. But equity ownership is a blunt instrument for addressing them.
The state already possesses more precise tools: mining leases, environmental clearances, safety standards, competition law, capital and prudential regulation, price oversight where warranted, and contractual conditions. A government can protect public interest through regulation without owning every firm operating in a strategic sector. Indeed, when the state is both owner and regulator, it risks confusing commercial objectives with policy objectives—and shielding enterprises from the discipline that competition and independent regulation provide.
In banking, the issue is especially sensitive. IDBI’s sale must therefore be judged not only by the ₹52,878 crore proceeds but by the strength of regulatory safeguards: fit-and-proper scrutiny of the buyer, capital-adequacy requirements, governance standards, depositor protection and supervision by the Reserve Bank of India. If those safeguards are robust, transferring control to a credible private owner can improve the bank’s ability to raise capital, modernise operations and compete—without weakening financial stability.
India should institutionalise a simple three-part test for every significant government holding. First, does state ownership provide control the government genuinely needs? Second, does it protect a clearly defined public interest that regulation cannot secure effectively? Third, does retaining the capital create more public value than deploying it in infrastructure, health, education, climate resilience or fiscal consolidation?
Profitability should not be a veto on disinvestment. A profitable public enterprise may be the best candidate for sale because the government can monetise it from strength rather than distress. Conversely, loss-making firms should not be retained simply because sale is politically difficult. Timing, valuation and market absorption also matter: disinvestment must not become a mechanical annual target pursued regardless of price.
The IDBI-Fairfax deal should therefore be read as a test of policy maturity. If it is completed transparently, at a fair valuation, with strong regulatory oversight and credible use of proceeds, it can become a template for a more disciplined approach to public capital. Majority ownership may remain appropriate in a small number of enterprises. A strategic minority may suffice in others. Where neither control nor a specific public-policy objective justifies continued ownership, eventual exit should remain on the table.
Privatisation, properly understood, is not the withdrawal of the state from the economy. It is the redeployment of public capital towards purposes where the state’s presence is most necessary. The government should own businesses because ownership serves a public purpose—not merely because it has historically owned them. (IPA Service)
(The Author is Head and Professor, Center for Economic Policy, Mahindra University).
