Disinvestment Policy
Government policy of selling PSU stakes to manage finances, fund development, and boost efficiency, primarily managed by DIPAM.
Govt to sell 5% stake in Cochin Shipyard at ₹1,400/share via OFS
The Indian government is selling a 5% stake in Cochin Shipyard Ltd (CSL) through an Offer for Sale (OFS) at a floor price of ₹1,400 per share. This move, managed by the Department of Investment and Public Asset Management (DIPAM), is part of the government's broader disinvestment strategy to achieve its budgeted target of ₹80,000 crore for the current fiscal year.
Syllabus mapping
Mains syllabus topics
Indian Culture Art Architecture
Modern Indian History
Indian Society Diversity
Globalization Indian Society
Indian Constitution
Prelims takeaways
- Understand the concept and mechanism of Offer for Sale (OFS) as a method of disinvestment.
- Identify the Department of Investment and Public Asset Management (DIPAM) as the nodal agency for disinvestment.
- Recognize disinvestment as a key component of government's fiscal policy and revenue generation.
- Be aware of the government's annual disinvestment targets and their significance for public finance.
- Familiarize with Cochin Shipyard Ltd (CSL) as a Public Sector Undertaking (PSU).
Elimination traps
- Memorizing specific dates, exact percentages, or monetary figures, which are dynamic.
- Confusing OFS with other methods of disinvestment like IPO or strategic sale.
- Over-focusing on the daily stock market fluctuations of CSL shares.
Static concepts
- Offer for Sale (OFS)
- Disinvestment
- Public Sector Undertaking (PSU)
- Floor price
- Green-shoe option
- Retail investors
- Non-retail investors
- Fiscal year
- Budgeting
Probable question areas
Question areas
- What are the different methods of disinvestment employed by the Government of India?
Question areas
- What are the objectives of the government's disinvestment policy?
Question areas
- Role and functions of the Department of Investment and Public Asset Management (DIPAM).
Question areas
- How does disinvestment impact government finances and the broader economy?
Question areas
- Distinction between capital receipts and revenue receipts in the government budget, and where disinvestment fits.
UPSC concepts in this story
Durable syllabus ideas for revision — not article memory.
Department of Investment and Public Asset Management (DIPAM)
Ministry of Finance department managing government investments in PSUs, primarily through disinvestment and asset monetization.
Previous year Prelims questions on overlapping themes and topics.
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.
Explanation
Correct answer
D. I, II and III
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
Indian Economy
Public Finance & Taxation
Fiscal Policy & Public Debt
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?
Explanation
Correct answer
A. ₹48,500 crores
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
Indian Economy
Fiscal Policy & Public Debt
Public Finance & Taxation
Which one of the following effects of creation of black money in India has been the main cause of worry to the Government of India?
Explanation
Correct answer
D. Loss of revenue to the State Exchequer due to tax evasion.
A. Diversion to Real Estate: While this can happen, it still involves some economic activity and might generate taxes (though potentially not on the full value of the transaction if black money is used). B. Investment in Unproductive Activities: This can hurt the economy, but the government loses tax revenue regardless of the type of investment if it's funded by black money. C. Donations to Political Parties: This is a concern, but the lost tax revenue likely outweighs the impact of such donations. D. Loss of Revenue: Black money, by definition, avoids taxes. This directly reduces the government's income, limiting its ability to fund public services, infrastructure, and social welfare programs. Tax evasion through black money creation significantly hinders the government's ability to function effectively and meet the needs of its citizens. This is why it's a major concern.
Indian Economy
Indian Polity & Governance
Public Finance & Taxation
Fiscal Policy & Public Debt
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.
Explanation
Correct answer
C. 1 and 3 only
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)
Indian Economy
Fiscal Policy & Public Debt
Public Finance & Taxation
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.
Explanation
Correct answer
A. 1 and 3 only
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).
Indian Economy
Fiscal Policy & Public Debt
Public Finance & Taxation
Along with the Budget, the Finance Minister also places other documents before the Parliament which include “The Macro Economic Framework Statement”. The aforesaid document is presented because this is mandated by
Explanation
Correct answer
D. Provisions of the Fiscal Responsibility and Budget Management Act, 2003
Fiscal Responsibility and Budget Management (FRBM) became an Act in 2003. The objective of the Act is to ensure inter-generational equity in fiscal management, long run macroeconomic stability, better coordination between fiscal and monetary policy, and transparency in fiscal operation of the Government. FRBM Act provides a legal institutional framework for fiscal consolidation. The Act also requires the government to lay before the parliament three policy statements in each financial year namely 1. Medium Term Fiscal Policy Statement 2. Fiscal Policy Strategy Statement 3. Macroeconomic Framework Policy Statement
Indian Economy
Indian Polity & Governance
Fiscal Policy & Public Debt
Public Finance & Taxation
If a commodity is provided free to the public by the Government, then
Explanation
Correct answer
D. the opportunity cost is transferred from the consumers of the product to the tax-paying public.
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.
Indian Economy
Public Finance & Taxation
Fiscal Policy & Public Debt
The term ‘Base Erosion and profit shifting’ is sometimes seen in the news in the context of
Explanation
Correct answer
B. curbing of the tax evasion by multinational companies
The term "Base Erosion and Profit Shifting (BEPS)" refers to tax planning strategies used by multinational companies to artificially shift profits from higher-tax jurisdictions to lower-tax jurisdictions, thereby reducing their overall tax liabilities. This practice often involves exploiting gaps and mismatches in tax rules between different countries. BEPS has been a major concern for governments worldwide as it can lead to significant revenue losses and erode the tax base of countries where economic activity occurs. Efforts to address BEPS involve cooperation among countries to develop common standards and guidelines to prevent tax avoidance by multinational corporations.
Indian Economy
Current Affairs
Public Finance & Taxation
Fiscal Policy & Public Debt
With reference to Union Budget, which of the following is/are covered under Non-Plan Expenditure?
1. Defence -expenditure
2. Interest payments
3. Salaries and pensions
4. Subsidies
Select the correct answer using the code given below.
Explanation
Correct answer
C. 1, 2, 3 and 4
There are two components of expenditure - plan and non-plan. Of these, plan expenditures are estimated after discussions between each of the ministries concerned and the Planning Commission. Non-plan revenue expenditure is accounted for by - interest payments, - subsidies (mainly on food and fertilisers), - wage and salary payments to government employees, - grants to States and Union Territories governments, - pensions, - police, - economic services in various sectors, - other general services such as tax collection, - social services, and - grants to foreign governments. Non-plan capital expenditure mainly includes defence , loans to public enterprises,and loans to States, Union Territories and foreign governments. The Plan and Non-Plan classification was done away with from fiscal 2017-18. Now emphasis is on Revenue and Capital expenditure.
Indian Economy
Public Finance & Taxation
Fiscal Policy & Public Debt
In India, deficit financing is used for raising resources for
Explanation
Correct answer
A. Economic development
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.
Indian Economy
Fiscal Policy & Public Debt
Public Finance & Taxation
Previous year Mains questions mapped to overlapping GS syllabus topics.
Does tribal development in India centre around two axes, those of displacement and of rehabilitation? Give your opinion.
Salient features of Indian Society and Diversity
Women, population, poverty, urbanization and development
View Mains PYQ
Achieving sustainable growth with emphasis on environmental protection could come into conflict with poor people’s needs in a country like India – Comment.
Salient features of Indian Society and Diversity
Women, population, poverty, urbanization and development
View Mains PYQ
How do you account for the growing fast food industries given that there are increased health concerns in modern society? Illustrate your answer with the Indian experience.
Salient features of Indian Society and Diversity
Women, population, poverty, urbanization and development
Effects of globalization on Indian society
View Mains PYQ
Discuss the evolution of collegium system in India. Critically examine the advantages and disadvantages of the system of appointment of the Judges of the Supreme Court of India and that of the USA.
Indian Constitution — evolution, features, amendments, basic structure
Comparison of Indian constitutional scheme with other countries
Executive, Judiciary and pressure groups
View Mains PYQ
Indian Constitution has conferred the amending power on the ordinary legislative institutions with a few procedural hurdles. In view of this statement, examine the procedural and substantive limitations on the amending power of the Parliament to change the Constitution.
Indian Constitution — evolution, features, amendments, basic structure
Parliament and State legislatures
View Mains PYQ
Mahatma Jotirao Phule’s writings and efforts of social reforms touched issues of almost all subaltern classes. Discuss.
Modern Indian history (mid-18th century to present)
Salient features of Indian Society and Diversity
Social empowerment, communalism, regionalism and secularism
View Mains PYQ
Which of the following government departments is responsible for managing the Offer for Sale (OFS) in Cochin Shipyard Ltd (CSL), as mentioned in the article?
Explanation
The article explicitly states that the 'Department of Investment and Public Asset Management (DIPAM) Secretary Arunish Chawla said on X' regarding the OFS in Cochin Shipyard Ltd (CSL).
According to the article, what is the primary objective of the government's disinvestment strategy, which includes the Offer for Sale (OFS) in Cochin Shipyard Ltd (CSL)?
Explanation
The article states, 'This move... is part of the government's broader disinvestment strategy to achieve its budgeted target of ₹80,000 crore for the current fiscal year.'
The Offer for Sale (OFS) for Cochin Shipyard Ltd (CSL) shares has a floor price of ₹1,400 per share. How does this price compare to its closing price on the day prior to the OFS opening for non-retail investors?
Explanation
The article mentions, 'The floor price of ₹1,400 per share is at a 7% discount over Monday's closing price on BSE.'
The government's decision to sell a stake in Cochin Shipyard Ltd (CSL) is part of its broader disinvestment strategy to achieve its budgeted target for the current fiscal year. In light of this statement, discuss the various objectives of the government's disinvestment policy in India. Evaluate the challenges and opportunities associated with pursuing such a strategy for public finance and economic growth.
Introduce disinvestment, explain its fiscal and economic objectives, discuss challenges like valuation and market conditions, highlight opportunities for resource allocation and efficiency, and conclude with a balanced perspective on its impact.
The article mentions the use of 'Offer for Sale (OFS)' as a mechanism for the government to divest its stake in Public Sector Undertakings. Examine the features and operational aspects of the Offer for Sale (OFS) method. How does it serve as an effective tool for the government's disinvestment program, and what are its key advantages?
Define OFS, explain its process including base offer, green-shoe option, and retail/non-retail participation. Highlight its advantages for the government such as speed, transparency, and market-driven pricing in achieving disinvestment targets.