SSC CPO 2025 PYQ — Question 92

Answer – It reduces the government's financial assets.

Explanation:

• What is Disinvestment? When the government sells its stake (shares) in its companies (PSUs), it is termed disinvestment.
• Reduction in Assets: Government companies constitute the government's 'financial assets.' When the government sells them, its stock of assets diminishes.
• Capital Receipt: The proceeds generated from disinvestment are considered a 'capital receipt' for the government. These funds are often utilized to reduce the fiscal deficit or for infrastructure development.
• Impact on Earnings: Although disinvestment yields a substantial one-time cash inflow, it results in a reduction of the recurring income—in the form of future dividends—derived from those companies.

Additional Points:

• Strategic Disinvestment: In this process, the government not only sells its shares but also transfers the management and control of the company into private hands (e.g., Air India).
• DIPAM: The Department of Investment and Public Asset Management oversees the disinvestment process in India.
• Benefits: Disinvestment introduces professional management into government companies, enhances efficiency, and provides the government with funds for public welfare schemes.

Potential Q&A:

Question: What is the primary use of the funds generated through disinvestment?

Answer: To control the fiscal deficit and to invest in social and infrastructure projects (such as roads, schools, and hospitals).

Question: Does disinvestment increase the government's liabilities?

Answer: No; while disinvestment reduces the government's assets, it does not increase its debt burden.