Economists point out that the reform process of the early 1990s led t…

Economists point out that the reform process of the early 1990s led to a fall in the number of formal sector workers, whose major employer is the public sector. Which reform measure directly reduced the government’s share in public sector enterprises?

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → Disinvestment

Selling part of the equity (shares) of public sector enterprises to the public is called disinvestment. It cut the government’s share in these enterprises.

Option (1) Disinvestment — Correct. It directly reduces the government’s share.

Option (2) Nationalisation — Incorrect. Nationalisation means the government takes over private firms. It raises the government’s share.

Option (3) Import substitution — Incorrect. This was the pre-1991 policy of producing at home what was earlier imported. It is about trade, not ownership.

Option (4) Industrial licensing — Incorrect. Licensing meant firms needed government permission to start or expand. It was largely removed in 1991 and does not change ownership.

This question uses Employment and Liberalisation, Privatisation and Globalisation: An Appraisal together.

NCERT (2026-27): “Box 6.1: Formal Sector Employment … Do you know who is the major employer in the formal sector in India? In 2012, out of about 30 million formal sector workers, about 18 million workers were employed by the public sector. Here also men form the majority, as women constitute only about one-sixth of the formal sector workforce. Economists point out that the reform process initiated in the early 1990s resulted in a decline in the number of workers employed in the formal sector. …”

Indian Economic Development - Chapter 3: Liberalisation, Privatisation and Globalisation: An Appraisal, 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. …”