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Social cost of disinvestment of Central Public Sector Enterprises (CPSEs) far exceeds the perceived social benefits, according to EAS Sarma, former secretary to government. These disinvestments, particularly that of IDBI, needs to be reviewed, he said in a letter addressed to the President of India.

“Since it is the President who holds equity shares in CPSEs on behalf of the people, I seek your intervention in directing the government to review CPSE disinvestment in general and IDBI disinvestment in particular,” Sarma noted in the letter.

There are 475 Central Public Sector Enterprises (CPSEs) with a total capital investment of ₹37,12,393 crore employing 7,81,552 persons, out of whom 4,16,118 belong to the SC/ST/OBC categories. Those CPSEs earn a net profit of ₹3,08,674 crore annually. On behalf of the people, the President of India holds ₹4,50,740 crore of equity holdings, which, in return, declare dividends annually of the order of ₹1,38,503 crore.

“I feel that an independent inquiry should be ordered to examine the legality and prudence of disinvesting IDBI. The findings from that inquiry should be placed before Parliament for a discussion, not only on disinvestment of IDBI but also on the desirability of disinvestment of other CPSEs. Pending such an inquiry, the government should keep in abeyance the decision to hand over IDBI’s ownership and management control to Fairfax,” Sarma said quoting from a letter he wrote earlier to the Union Finance Minister.

The government has presently undertaken an aggressive exercise to privatise several CPSEs through strategic disinvestment and monetise assets, which raises serious concerns of public interest, Sarma noted.

The justification that disinvestment helps raise additional fiscal resources is fallacious, as private firms that successfully bid for CPSE equity raise borrowings from the same pool of national savings that the state can readily access on far better terms, without having to lose ownership control. The excuse that privatisation leads to better management of an undertaking is equally questionable, as there are several CPSEs that have been functioning efficiently and have withstood global competition.

Under Article 12 of the Constitution, CPSEs are instruments in the hands of the state for fulfilling the welfare role as well as the mandate enjoined upon it by the Directive Principles: “that the ownership and control of the material resources of the community are so distributed as best to subserve the common good, that the operation of the economic system does not result in the concentration of wealth and means of production to the common, and so on.”

Moreover, CPSEs play a crucial role in promoting self-reliance in strategic areas of the economy, Sarma said. Private companies operate primarily with the objective of maximising their profits, and therefore, cannot be expected to function in alignment with the Directive Principles. The model of disinvestment presently adopted for disinvestment is inherently flawed, as the government has precluded other CPSEs from taking part in bidding, thereby severely restricting competition and proper price discovery. This has invariably resulted in what Sarma described as ‘underselling of valuable public assets.’

In the long run, therefore, it is imprudent for the government to privatise CPSEs and/or monetise public assets to raise fiscal resources. Most of the lands in the occupation were originally acquired by concerned states under the erstwhile land acquisition legislation on the ground that those lands were needed for a “public purpose”, a term defined in that legislation as land needed for a company wholly owned by the government.

It is therefore prima facie illegal for the government to alienate those lands to a private entity in the name of disinvestment, Sarma averred. In recent times, at least two cases of disinvestment, that of Central Electronics Ltd (CEL) and Pawan Hans, had to be aborted by the government at an advanced stage of approval, when there was public uproar against the possibility of their slipping into the hands of dubious bidders.

The latest case of CPSE disinvestment is that of IDBI, which raises similar concerns of public interest as referred above. Set up in 1964 as a development finance institution, IDBI has enlarged its presence in terms of its portfolio of activities and its outreach across the country. It has presently a network of 2,122 branches across the country, providing access to people in many remote areas.

IDBI has on its rolls 19,108 employees, including 9,500 employees belonging to SC/ST/OBC categories. It has 6,911 women employees and 884 differently abled employees. The Centre and LIC hold 45.48 per cent and 49.24 per cent equity shares in IDBI. The Cabinet Committee on Economic Affairs (CEA) recently approved strategic sale of IDBI in favour of Fairfax, a Canadian company, for a consideration of Rs 52,878 crore, leaving a residual shareholding of 15 per cent with the Centre and 19 per cent with LIC.

This leaves both the Centre and LIC as minority shareholders having little say in decisions on the future of IDBI. It was in May 2021 that the Centre took a decision on strategic disinvestment. Except for the cursory information provided in the Preliminary Information Memorandum (PIM) issued on October 7, 2022, there has been no transparency in the disinvestment process. Names of agencies that valued IDBI, methodology adopted for valuation, and inputs that went into valuation have not been disclosed either to Parliament or to the public.

By deliberately excluding other public sector undertakings from bidding for IDBI equity, in terms of Para 11.1(viii) of the PIM, the possibility of a banking behemoth like SBI introducing competition in bidding has been eliminated, leaving the field open to a few smaller private entities. It is ironic that competent, highly professional public sector undertakings were excluded but foreign entities were allowed to bid for IDBI.

The outcome was that the entire bidding process became restricted to two foreign entities, one from the UAE and another from Canada, suggesting that the government would rather entrust IDBI’s ownership and management control to a foreign agency than to its own domestic public sector banks, Sarma noted.

As part of the opaque process of valuation of IDBI and fixation of the reserve price, the initial bids were invited in the financial year 2025–26, with the reserve price fixed at ₹94.42 per share. When it fixed the reserve price at that level, the government’s team of e