Disinvestment Policy
Indian Economy
- PYQs8
- Articles1
Background
Understanding government's fiscal management strategies, economic reforms, and the evolving role of the public sector in the Indian economy. It impacts public finance, capital markets, and industrial policy.
Disinvestment refers to the sale or liquidation of assets by the government, typically shares of Public Sector Undertakings (PSUs). It is a key fiscal policy tool employed to reduce the fiscal deficit, raise resources for social sector spending, and enhance the efficiency and competitiveness of PSUs.
Facts & tables
- Key Mechanisms
- Offer for Sale (OFS), Initial Public Offerings (IPOs), Follow-on Public Offers (FPOs), Strategic Sale, Exchange Traded Funds (ETFs).
- Nodal Agency
- Department of Investment and Public Asset Management (DIPAM) under the Ministry of Finance.
- Current Fiscal Target (2026-27)
- ₹80,000 crore (as per article).
| Type | Reference |
|---|---|
| Conceptual area | Indian Economy |
| Body | Role |
|---|---|
| Department of Investment and Public Asset Management (DIPAM) | Implements |
Prelims angle
Prelims angle: Conceptual understanding
Prelims angle: Application of economic principles
- Sale of government assets (PSU shares).
- Aims: fiscal deficit reduction, resource generation, efficiency.
- Methods: OFS, IPO, strategic sale.
- DIPAM is the nodal agency.
- Key part of government's fiscal strategy.
| Year | Framing tags |
|---|---|
| 2025 | Conceptual understanding, Application of economic principles |
| 2025 | Conceptual understanding, Terminology-based question |
| 2024 | Statement-based questions, Conceptual understanding |
| 2019 | Conceptual understanding, Multi-statement analysis |
| 2018 | Conceptual understanding, Application of economic principles |
| 2016 | Multi-statement analysis, Conceptual understanding |
| 2015 | Conceptual understanding, Policy measures |
| 2013 | Purpose or function of a policy tool, Conceptual understanding |
Timeline
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Indian Economy
Conceptual area
-
Prelims 2013
Purpose or function of a policy tool, Conceptual understanding
-
Prelims 2015
Conceptual understanding, Policy measures
-
Prelims 2016
Multi-statement analysis, Conceptual understanding
-
Prelims 2018
Conceptual understanding, Application of economic principles
-
Prelims 2019
Conceptual understanding, Multi-statement analysis
-
Prelims 2024
Statement-based questions, Conceptual understanding
-
Prelims 2025
Conceptual understanding, Application of economic principles
-
Prelims 2025
Conceptual understanding, Terminology-based question
-
Govt to sell 5% stake in Cochin Shipyard at ₹1,400/share via OFS
Government policy of selling PSU stakes to manage finances, fund development, and boost efficiency, primarily managed by DIPAM.
See also
Past papers
2013–2025 · 8 questions
In the news
Govt to sell 5% stake in Cochin Shipyard at ₹1,400/share via OFS
Government policy of selling PSU stakes to manage finances, fund development, and boost efficiency, primarily managed by DIPAM.
Try these PYQs
Suppose the revenue expenditure is ₹80,000 crores and the revenue receipts of the Government are ₹60,000 crores. The Government budget also shows borrowings of ₹10,000 crores and interest payments of ₹6,000 crores. Which of the following statements are correct?
I. Revenue deficit is ₹20,000 crores.
II. Fiscal deficit is ₹10,000 crores.
III. Primary deficit is ₹4,000 crores.
Select the correct answer using the code given below.
Revenue Deficit, Fiscal Deficit, and Primary Deficit are key indicators used to assess a government's financial health. ✅ I. Revenue Deficit = ₹20,000 crores – Correct * Definition: Revenue Deficit = Revenue Expenditure − Revenue Receipts
* Calculation: ₹80,000 crores − ₹60,000 crores = ₹20,000 crores ✅ II. Fiscal Deficit = ₹10,000 crores – Correct * Definition: Fiscal Deficit = Total Expenditure − Total Receipts (excluding borrowings)
* Alternatively, it reflects total borrowings needed to meet the gap
* Given: Borrowings = ₹10,000 crores ⇒ Fiscal Deficit = ₹10,000 crores ✅ III. Primary Deficit = ₹4,000 crores – Correct * Definition: Primary Deficit = Fiscal Deficit − Interest Payments
* Calculation: ₹10,000 crores − ₹6,000 crores = ₹4,000 crores
Consider the following statements:
Statement-I: If the United States of America (USA) were to default on its debt, holders of US Treasury Bonds will not be able to exercise their claims to receive payment.
Statement-II : The USA Government debt is not backed by any hard assets, but only by the faith of the Government.
Which one of the following is correct in respect of the above statements?
* Statement-I: This statement is correct. If the United States of America (USA) were to default on its debt, holders of US Treasury Bonds would not be able to exercise their claims to receive payment. This statement is correct because, in the event of a default, the government would not be able to fulfil its debt obligations, meaning bondholders would not receive the payments they are due. * Statement-II: This statement is correct. The US government debt is not backed by any hard assets, but only by the faith of the Government. This statement is also correct. US Government debt, such as Treasury Bonds, is backed by the full faith and credit of the US Government rather than any specific physical assets. * Statement II explains Statement I because the faith and credit of the US Government are the guarantees behind its debt. If this faith is shaken or if the government defaults, bondholders cannot claim any specific assets to recover their investment, hence they would not receive their payments.
In India, deficit financing is used for raising resources for
In India, deficit financing is used to raise resources for meeting the government's expenditure requirements when its revenue or receipts fall short of its planned expenditures. In other words, deficit financing is a way for the government to finance its budget deficit to stimulate economic growth.
A country’s fiscal deficit stands at ₹50,000 crores. It is receiving ₹10,000 crores through non-debt creating capital receipts. The country’s interest liabilities are ₹1,500 crores. What is the gross primary deficit?
Fiscal Deficit represents the government's total borrowing requirement, while the Primary Deficit shows how much the government is borrowing excluding interest payments on past debt. ✅ Formula:
Primary Deficit = Fiscal Deficit − Interest Payments Given: * Fiscal Deficit = ₹50,000 crores
* Interest Liabilities = ₹1,500 crores
* Non-debt capital receipts are already factored into the fiscal deficit, so no need to adjust further. Calculation:
Primary Deficit = ₹50,000 − ₹1,500 = ₹48,500 crores
There has been a persistent deficit budget year after year. Which action/actions of the following can be taken by the Government to reduce the deficit?
1. Reducing revenue expenditure
2. Introducing new welfare schemes
3. Rationalizing subsidies
4. Reducing import duty
Select the correct answer using the code given below.
Actions that can help reduce the deficit: 1. Reducing revenue expenditure (Correct): This involves cutting back on non-essential government spending. Examples include reducing administrative costs, curtailing travel expenses, or postponing discretionary infrastructure projects. 3. Rationalizing subsidies (Correct): This means making subsidies more targeted and efficient. The government can identify and eliminate wasteful subsidies or ensure they reach the intended beneficiaries. Actions that will likely increase the deficit: 2. Introducing new welfare schemes (Incorrect): This would increase government spending and contribute to the deficit. 4. Reducing import duty (Incorrect): Lower import duties can lead to a decrease in government revenue collected from customs duties. This can worsen the deficit. Therefore, the correct answer is 1 and 3 only (Reducing revenue expenditure and Rationalizing subsidies)
Show 3 more PYQs
There has been a persistent deficit budget year after year. Which of the following actions can be taken by the government to reduce the deficit?
1. Reducing revenue expenditure
2. Introducing new welfare schemes
3. Rationalizing subsidies
4. Expanding industries
Select the correct answer using the code given below.
To reduce a persistent budget deficit, the government can take actions that decrease spending or increase revenue. 1. Reducing revenue expenditure (Correct): This involves cutting back on non-essential government spending. This can include areas like administrative costs, travel, or certain subsidies. 2. Introducing new welfare schemes (Incorrect): This would likely increase government spending and worsen the deficit. 3. Rationalizing subsidies (Correct): Subsidies can be a significant source of government expenditure. Reviewing and potentially reducing or reforming subsidies can help control spending. 4. Expanding industries (Depends): While industrial expansion can lead to increased tax revenue in the long run, it might not have an immediate impact on the budget deficit. In the short term, the government might need to invest in infrastructure to support expansion, potentially increasing expenditure. Therefore, the correct answer is 1 and 3 only (Reducing revenue expenditure and Rationalizing subsidies).
In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis?
1. The foreign currency earnings of India’s IT sector
2. Increasing the government expenditure
3. Remittances from Indians abroad
Select the correct answer using the code given below.
Statement 1 is correct: Foreign currency earnings - The IT sector generates foreign exchange through exports of services. This increases the supply of foreign currency reserves, making it easier to defend the rupee's value in the foreign exchange market during times of stress. Statement 2 is incorrect: While government spending can stimulate economic growth, it can also lead to a higher budget deficit. If the deficit is financed by excessive borrowing, it can put pressure on the currency if investors lose confidence in the government's ability to repay its debts. Statement 3 is correct: Remittances from abroad - When Indians working abroad send money back home, it adds to the inflow of foreign currency. This strengthens the country's foreign exchange reserves and provides a buffer against external shocks. Therefore, the correct code is 1 and 3 only.
If a commodity is provided free to the public by the Government, then
Opportunity cost: It refers to the potential benefit an individual or entity gives up when choosing one option over another. In simpler terms, it's what you miss out on by making a specific choice. Free commodity by the government: When the government provides a good or service for free, it doesn't eliminate the opportunity cost. The resources used to provide that free good could have been used for something else. Taxpayers bear the burden: The resources for "free" public goods come from somewhere, usually taxpayer money. So, the opportunity cost isn't eliminated, it's simply shifted. Taxpayers give up the potential use of those resources in exchange for a free good or service. In essence, while the individual consumer might not directly pay for the good, the cost is still there and borne by the tax-paying public.