____________ happens when a government sells only a part of its stake in a public sector company and retains the majority of it.
Disinvestments
Understanding Disinvestment in Public Sector Companies
The question asks about the specific term used when a government sells only a portion of its ownership stake in a public sector company, while still keeping the majority ownership. This process is a key aspect of government economic policy.
What is Disinvestment?
Disinvestment is the action taken by a government or a corporation to sell or liquidate an asset or subsidiary. In the context of public finance, disinvestment refers to the sale of shares of Public Sector Undertakings (PSUs) held by the government. This sale can be partial or complete.
When the government sells only a part of its stake in a public sector company and retains the majority, it is a specific form of disinvestment. The primary purpose often is to raise funds for the exchequer, improve efficiency, or unlock value in the company.
Analyzing the Options
Let's look at why Disinvestment is the correct term and why the other options do not fit the description provided in the question.
- Nationalisation: This is the opposite process. Nationalisation occurs when the government takes ownership of private sector assets or industries. This is not relevant to the scenario described.
- Disinvestments: As explained, this involves the government selling its stake in PSUs. Selling a partial stake while retaining the majority perfectly aligns with the definition and the scenario given in the question.
- Devolution: This term refers to the transfer of powers, responsibilities, and funds from a central government to regional or local governments. It is related to administrative or political structure, not the sale of government stake in companies.
- Privatisation: Privatisation broadly means transferring ownership or control of a public sector enterprise to the private sector. While disinvestment is often a step towards privatisation, selling *only a part* and retaining the majority stake is a specific form of disinvestment. Full privatisation typically involves selling a majority stake or the entire stake, leading to the transfer of management control to private hands. The question specifically mentions retaining the majority, which aligns more precisely with a partial disinvestment rather than full privatisation.
Conclusion
Based on the definitions and the scenario presented, the action where a government sells only a part of its stake in a public sector company and retains the majority is correctly identified as Disinvestment.
| Term | Description | Relevance to Question |
|---|---|---|
| Nationalisation | Government takes ownership of private assets. | Incorrect (Opposite process). |
| Disinvestment | Government sells its stake (partial or full) in a public sector company. | Correct (Describes selling a partial stake while keeping the majority). |
| Devolution | Transfer of powers to lower levels of government. | Incorrect (Unrelated concept). |
| Privatisation | Transfer of ownership/control of public enterprise to private sector (often involves majority sale). | Incorrect (Question specifies selling only a part & retaining majority, which is partial disinvestment). |
Revision Table: Public Sector Reforms
| Concept | Brief Definition | Example Scenario |
|---|---|---|
| Disinvestment | Government selling shares in PSUs. Can be partial or full. | Government sells 10% stake in a bank but keeps 60%. |
| Privatisation | Transferring ownership and control of a PSU to the private sector. | Government sells 70% stake in a manufacturing unit to a private company. |
| Nationalisation | Government taking over private companies or assets. | Government takes over private banks to control the banking sector. |
Additional Information: Types of Disinvestment
Disinvestment can take various forms:
- Minority Disinvestment: Government sells a minority stake (less than 50%) while retaining majority control. This matches the scenario in the question.
- Majority Disinvestment: Government sells a majority stake (50% or more), transferring management control to the private sector. This is often considered privatisation.
- Strategic Disinvestment: Government sells a significant portion or the entire stake of a PSU along with the transfer of management control to a strategic partner. This is a type of privatisation.
- Public Offer: Selling shares to the public through Initial Public Offer (IPO) or Further Public Offer (FPO).
- Strategic Sale: Selling shares to another company or a group of companies.
The process of disinvestment is a policy tool used by governments globally for various reasons, including fiscal needs, improving efficiency of enterprises, and promoting market competition.
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