Privatisation of the public sector enterprises (PSEs) by selling off part of the equity of PSEs to the public is known as …………
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Disinvestment
A public sector enterprise (PSE) is owned by the government, which holds its shares, or equity. When the government sells a part of this equity to the public, private shareholders come in and the government’s own stake becomes smaller. This is called disinvestment: instead of putting money into the enterprise, the government takes money out of it, which is the opposite of investment. It is one of the ways of privatising a PSE.
Disinvestment is one route to privatisation, which means shedding the government’s ownership or management of an enterprise. A government company can become private in two ways:
the government withdraws from its ownership and management, for example by selling part of its equity, as in disinvestment; or
the enterprise is sold off in an outright sale.
Through disinvestment the government hoped to improve financial discipline, help modernisation, and bring private capital and managerial skill into the PSUs.
Why the other options are incorrect
Option (1) Net investment — Incorrect. Net investment is the addition to the stock of capital after allowing for depreciation. Selling the government’s shares adds no new capital; it only changes who owns the existing capital.
Option (2) Gross investment — Incorrect. Gross investment is the total spending on new capital goods, including the replacement of worn-out capital. A sale of equity is the reverse of investing, which is why it is called disinvestment.
Option (3) Reinvestment — Incorrect. Reinvestment means putting earnings back into a business. Here the government takes money out by selling part of its holding in the enterprise.
Note: A same/similar question was asked in CUET (UG) in the papers below.
| 2026 | 2025 | 2024 | 2023 | 2022 |
| 13-05 S1* 21-05 S1 31-05 S1* | – | – | 10-06 S3* 21-06 S2* 23-06 S3* | – |
* A similar question.
NCERT (2025-26): “3.4 Privatisation It implies shedding of the ownership or management of a government owned enterprise. Government companies are converted into private companies in two ways (i) by withdrawal of the government from ownership and management of public sector companies and or (ii) by outright sale of public sector companies. Privatisation of the public sector enterprises by selling off part of the equity of PSEs to the public is known as disinvestment. The purpose of the sale, according to the government, was mainly to improve financial discipline and facilitate modernisation. It was also envisaged that private capital and managerial capabilities could be effectively utilised to improve the performance of the PSUs.” |