Budget 2026: What is divestment, its purpose, divestment target, and why is divestment target important?

With all eyes on February 1, Finance Minister Nirmala Sitharaman’s Union Budget will set the course for India’s economic priorities in the year ahead. We explore some of the phrases related to the exercise in light of the impending budget. Beyond taxes and borrowing, the government relies on divestment as a key source of non-tax revenue. More than being a routine accounting exercise, it signals the government’s reform agenda.

In the Union Budget, divestment highlights a shift towards greater market participation. For businesses and investors, understanding divestment and divestment targets offers a clearer lens to assess the Budget’s impact on markets and public sector reforms.

What is divestment?

Divestment means the government selling a part of its ownership in public sector companies (PSUs) to private investors or the general public, usually through the stock market. Instead of running businesses directly, the government reduces its stake and, in some cases, exits almost entirely.

Why is divestment done in India? 

In India, divestment serves three clear purposes. First, it helps raise money. The funds earned from selling PSU shares provide the government with much-needed resources to support development programmes without raising taxes or borrowing more. Second, it improves efficiency. Private participation brings better management, stronger accountability and sharper business focus. 

Third, it helps redefine the government’s role, allowing it to step back from non-strategic businesses and concentrate on priority areas such as defense, infrastructure and public welfare. Divestment can be partial, where the government keeps control, or strategic, where management control passes to a private player.

What is divestment target?

In the Union Budget, the government announces the amount it expects to raise during the financial year by divesting its stake in public sector undertakings (PSUs). This figure is known as the divestment target. It is projected as part of the government’s non-tax revenue and helps bridge the gap between expenditure commitments and overall fiscal discipline. 

Why are divestment targets important? 

Divestment targets matter because they signal the government’s reform priorities and confidence in market conditions. Higher targets point to a stronger push for privatisation and asset monetisation, while lower or missed targets often reflect market volatility, valuation challenges or delays in large strategic sales. For businesses and investors, these targets offer insight into potential PSU stake sales and the broader economic direction set by the Budget.