Independence Day 2026: The companies India built for business backbone have entered a new chapter

India’s public sector was born out of necessity. It was built to do what the private sector could not. It did create steel plants, power stations, mines, refineries, banks and transport networks in a country that had just emerged out of colonial rule with little industrial capital and a shallow corporate base.

Nearly eight decades later, that role is being rewritten.

State-owned companies remain deeply embedded in India’s economy, from oil and coal to defence, power, railways and financial services. But the government is increasingly asking a different question: how much of these businesses does the state really need to own?

The answer is increasingly visible in the stock market.

In 2026, the government has accelerated minority stake sales in state-owned companies, raising more than Rs 620 billion through transactions involving 10 public-sector firms.

The biggest deal so far was the Rs 31,552-crore sale of a 6.5% stake in Life Insurance Corporation of India, taking public shareholding in the insurer to 10%.
The shift is the latest chapter in a story that began with a very different vision of what the Indian state should do.

1947-56: When the state became industrialist

At independence, India had a weak industrial base and scarce capital. The government believed large-scale industrialisation was essential not only for growth but also for economic sovereignty.

The first Industrial Policy Resolution of 1948 laid down the broad framework for state intervention. The decisive turn came with the Industrial Policy Resolution of 1956, which gave the public sector a commanding role in industrial development. The state was expected to build the foundations of an industrial economy, particularly in capital-intensive and strategic sectors.

The logic was straightforward. If private capital was unwilling or unable to take on enormous, long-gestation projects, the government would.

There were just five central public sector enterprises in 1951. By 1969, the number had risen to 84.

The expansion produced some of the defining institutions of independent India — in steel, coal, oil, engineering, power and heavy industry. Public Sector Unions (PSUs) were not simply commercial enterprises; they were instruments of economic policy, regional development, employment and infrastructure creation.

1969-80s: The state expands its reach

The public sector’s footprint widened beyond heavy industry.

The nationalisation of 14 major private banks in 1969, followed by six more in 1980, brought banking firmly into the state-led economic model. Insurance, coal and other industries also moved increasingly under government control.

State ownership was seen as a way of directing credit, investment and production towards national priorities. The result was a vast public-sector ecosystem and, over time, an increasingly bureaucratic one.

By the 1980s, concerns about efficiency, financial performance and managerial autonomy were becoming harder to ignore. The government began experimenting with greater autonomy and performance-based management, eventually leading to the MoU system for PSUs.

The introduction of India’s Memorandum of Understanding (MoU) system in 1988 completely changed how the government runs its Public Sector Undertakings PSUs. Born from the landmark 1984 Arjun Sengupta Committee report, this system replaced rigid bureaucratic control with an results-focused, performance-contract model.

By letting the government set specific financial targets and operational goals at the start of each year, the MoU framework successfully balances complete management freedom with strict accountability. Ultimately, this major policy shift helped transform struggling state enterprises into highly competitive, profit-making commercial giants.

1991: The great pivot

The balance changed dramatically with the 1991 economic crisis.

The structural balance of India’s state-led economy broke down completely during the devastating 1991 Balance of Payments (BoP) crisis.This disaster struck when a dangerous mix of massive government spending, a collapsing Soviet trade network, and skyrocketing oil prices from the Gulf War drained India’s foreign exchange reserves, barely enough to pay for two weeks of essential imports.

To rescue the economy, India launched sweeping Liberalisation, Privatisation, and Globalisation (LPG) reforms that dismantled the heavy-handed state monopolies.

Liberalisation reduced the role of central planning, opened large parts of the economy to private competition and began the process of selling government stakes in public enterprises.

Disinvestment formally began in 1991-92, when the government announced its intention to divest up to 20% of its equity in selected Central Public Sector Enterprises (CPSEs) . The stated objective was to bring greater market discipline to public enterprises.

The transformation was gradual. The state did not walk away from business. Instead, it increasingly became a shareholder rather than the sole operator.

1997-2010: The PSU gets a new identity

The next phase was less about dismantling PSUs and more about making the better-performing ones behave like competitive corporations.

In 1997, the government introduced the Navratna scheme, giving selected companies greater financial and managerial autonomy. The Maharatna category followed in 2010, giving the largest and strongest PSUs still greater freedom to make investments.

The idea was to create Indian companies capable of competing globally without requiring government approval for every major decision.

Companies owned by the state, listed on stock exchanges, began competing with private firms and, in some cases, becoming among India’s largest corporations.

2014 onwards: From “minimum government” to a stronger PSU push

Narendra Modi’s arrival in 2014 as Prime Minister was initially interpreted as a potential break with India’s traditional state-heavy model. Yet his government did not simply retreat from the public sector.

Instead, it sought to make PSUs larger, more efficient and more commercially aggressive, while simultaneously pursuing strategic sales and minority stake dilution.

State-owned companies emerged as some of the strongest performers in the Indian equity market, particularly in energy, defence, railways and infrastructure. The government also encouraged consolidation, greater autonomy and professionalisation.

2020s: Fewer owners, bigger companies

The government then sharpened its disinvestment policy.

The emphasis shifted from simply selling small portions of government equity to strategic sales of selected companies, while retaining government ownership in sectors considered strategic.

At the same time, some weaker entities were closed, merged or sold.

The result is a public sector that is smaller in some areas but still enormous in economic scale.

According to the latest Public Enterprises Survey, there were 475 central public sector enterprises in 2024-25, up from 389 in 2020-21. Of these, 291 were operating, 81 were under construction and 75 were under closure, liquidation or non-operating. Sixty-six CPSEs were listed on Indian stock exchanges.

The number of CPSEs has therefore not simply collapsed with disinvestment. New entities have continued to be created, particularly around infrastructure, energy and strategic projects.

2024-25: The public sector is still an economic heavyweight

The latest survey shows just how substantial the remaining public sector is.

Operating CPSEs span agriculture, mining, manufacturing, power, defence, petroleum, financial services, telecommunications, construction and transport. Of the 291 operating CPSEs, 166 were in services, 97 in manufacturing, processing and generation, 26 in mining and exploration and two in agriculture.

In manufacturing, processing and generation alone, CPSEs recorded gross revenue of Rs 25.93 lakh crore in 2024-25. Their financial investment stood at Rs 7.37 lakh crore and net worth at Rs 9.25 lakh crore.

Mining and exploration CPSEs generated Rs 3.70 lakh crore in gross revenue and contributed Rs 1.05 lakh crore to the central exchequer.

The listed portion of the sector is also substantial. The market capitalisation of 66 listed CPSEs reached Rs 38.57 lakh crore as of March 31, 2025, up 3.6% from a year earlier.

2026: The government starts selling faster

Now comes the latest turn.

The government has accelerated minority stake sales even as market conditions have remained uneven. It has sold stakes in companies including Cochin Shipyard, Indian Railway Finance Corp, NHPC and Coal India, while the LIC offering became one of India’s largest-ever offer-for-sale transactions.

The government has set an Rs 800-billion target for stake sales and other asset monetisation in 2026-27 and is on course to surpass it, according to government sources cited by Reuters.

The LIC sale is particularly symbolic. The government once owned the insurer outright; after its 2022 listing and subsequent dilution, it is now actively reducing its holding while retaining control.

That captures the broader evolution of India’s PSUs.

The state that once created companies because private capital could not is now increasingly using those same companies to raise capital for the state.

Yet the public sector is hardly disappearing. India still relies on government-owned companies to mine its coal, produce and transmit much of its power, refine petroleum, build defence equipment, finance infrastructure and execute projects in sectors where the government considers strategic control important.

The story of India’s PSUs, therefore, is not simply one of nationalisation followed by privatisation.

It is a story of transformation — from instruments of a planned economy, to protected national champions, to listed corporations and, increasingly, assets that the government can monetise while deciding where ownership still matters.

The question for the next chapter is no longer whether India will have a public sector.

It is how much of it the state needs to own.