UPSC Prelims 2011 Q85: Indian Economy – Fiscal Policy & Budget
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Answer: (d) Neither 1 nor 2
Explanation
Why the Government disinvests equity in CPSEs
Disinvestment of Central Public Sector Enterprise (CPSE) equity has specific, limited stated objectives.
| Statement | Verdict | Reason |
|---|---|---|
| 1. Revenue mainly used to repay external debt | Incorrect | Disinvestment proceeds are generally directed toward purposes like the National Investment Fund, capital expenditure, and fiscal consolidation — not specifically or mainly external debt repayment |
| 2. Government no longer wants management control of CPSEs | Incorrect | In most disinvestment cases (especially minority stake sales), the Government retains majority ownership and management control; giving up control is not the general objective |
Why India disinvests CPSE equity (actual reasons):
| Point | Detail |
|---|---|
| Fiscal purpose | Raise non-tax revenue, support fiscal consolidation |
| Efficiency purpose | Bring market discipline, improve CPSE performance |
| Control | Government usually retains majority control in most cases |
Answer: (d) Neither 1 nor 2.
Why each option is right or wrong
- (a) Incorrect. Disinvestment revenue is not mainly earmarked for external debt repayment.
- (b) Incorrect. The Government generally retains control, so 'no longer wants management control' is not the general objective.
- (c) Incorrect. Since neither statement is accurate, 'both' cannot be correct.
- (d) CORRECT. Neither the debt-repayment claim nor the giving-up-control claim accurately describes the general objectives of CPSE disinvestment.
Key point
Disinvestment of CPSE equity is mainly about raising fiscal revenue and improving efficiency — NOT primarily to repay external debt, and the Government typically retains management control, contrary to both listed statements.
Remember
CPSE disinvestment: for revenue/efficiency, NOT mainly external-debt repayment; Government usually keeps management control.
Common mistakes
- Assuming disinvestment proceeds are earmarked for external debt, rather than general fiscal/consolidation use.
- Thinking disinvestment always means the Government gives up control of the enterprise.
- Overgeneralizing a specific disinvestment case into a universal policy objective.
Exam tip
CPSE disinvestment ≠ giving up control, and its revenue isn't earmarked specifically for external debt. Watch for these two common overgeneralizations.
Sources
- Department of Disinvestment, Ministry of Finance, Government of India — Annual Report 2010–11
- Ministry of Finance, Government of India — Economic Survey 2010–11 (public sector disinvestment)