Given below are two statements: one is labelled as Assertion (A) and the other is labelled as Reason (R).
Assertion (A): Disinvestment of a public sector enterprise results in dilution of the stake of the Government in that enterprise.
Reason (R): The new economic reforms aimed at giving a greater role to the private sector and a reduced role to the public sector in the nation building process.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Both (A) and (R) are true but (R) is not the correct explanation of (A).
Assertion (A): Disinvestment of a public sector enterprise results in dilution of the stake of the Government in that enterprise. — True. Disinvestment means transfer of public sector enterprises to the private sector. As shares pass to private hands, the government’s share falls.
Reason (R): The new economic reforms aimed at giving a greater role to the private sector and a reduced role to the public sector in the nation building process. — True. This is the aim of privatisation under the 1991 reforms.
Why R does not explain A?
R gives the aim behind the reforms, which is why the government chose disinvestment. It does not say why disinvestment dilutes the government’s stake.
A holds because of what disinvestment means: ownership of a public enterprise moves to the private sector, so the government owns less of it.
NCERT (2026-27 Edition): “Privatisation: The new set of economic reforms aimed at giving greater role to the private sector in the nation building process and a reduced role to the public sector. This was a reversal of the development strategy pursued so far by Indian planners. To achieve this, the government redefined the role of the public sector in the New Industrial Policy of 1991, adopted the policy of planned disinvestments of the public sector and decided to refer the loss making and sick enterprises to the Board of Industrial and Financial Reconstruction. The term disinvestments used here means transfer in the public sector enterprises to the private sector. It results in dilution of stake of the Government in the public enterprise. If there is dilution of Government ownership beyond 51 percent, it would result in transfer of ownership and management of the enterprise to the private sector.” |