Q. Why is the Government of India disinvesting its equity in the Central Public Sector Enterprises (CPSEs)?

1. The Government intends to use the revenue earned from the disinvestment mainly to pay back the external debt.
2. The Government no longer intends to retain the management control of the CPSEs.

Which of the statements given above is/are correct? (UPSC Prelims 2011)
Answer: Neither 1 nor 2
Notes: The correct answer is Neither 1 nor 2. Disinvestment refers to the sale or liquidation of assets or stakes by the government in Central Public Sector Enterprises (CPSEs). While the government has been actively disinvesting, the reasons and methods stated in the options are factually incorrect or incomplete.

• Usage of Revenue (Statement 1 is Incorrect): The revenue earned from disinvestment is not primarily used to pay back external debt. Instead, it is directed into the National Investment Fund (NIF). The proceeds from the NIF are used for:
  • Investment in social sector projects (like health and education).
  • Capital investment in other profitable CPSEs to promote their growth.
  • Meeting the budgetary requirements for infrastructure development.
• Management Control (Statement 2 is Incorrect): Disinvestment does not automatically mean the government is giving up management control. There are different types of disinvestment:
  • Minority Disinvestment: The government retains a majority stake (at least 51%) and continues to hold management control.
  • Strategic Disinvestment: The government sells a substantial portion of its shareholding (usually 50% or more) along with the transfer of management control.
  • Because the government still holds majority stakes in many "Maharatna" and "Navratna" companies, saying it "no longer intends to retain control" as a general rule is false.