Which of the following is correct regarding Sale of government assets like sale of shares in Public sector unit (PSU)?
Show answer & explanation
Correct answer: B
Explanation
The correct answer is Option 2: The amount received from the sale of shares constitutes a part of capital receipts.
Explanation:
The sale of its shares by the government in Public Sector Units (PSUs) is termed 'Disinvestment'.
When the government sells its assets, the proceeds generated are considered 'Capital Receipts' because this results in a reduction of the government's financial assets.
This is not a 'Revenue Receipt' because it does not represent regular income; rather, it is funds obtained through the reduction of assets.
Additional Facts:
- Disinvestment: Its primary objective is to better manage government resources and reduce the fiscal deficit.
- Capital Receipts: These include borrowing, the sale of assets (disinvestment), and the recovery of loans. These transactions either increase the government's liabilities or decrease its assets.
- Revenue Receipts: These comprise tax and non-tax income, which have no impact on the government's assets or liabilities.
- DIPAM: The process of disinvestment is managed by the 'Department of Investment and Public Asset Management' (DIPAM) under the Ministry of Finance.
Potential Questions for Upcoming Exams:
Question: Which department oversees the disinvestment process in India?
Answer: DIPAM (Department of Investment and Public Asset Management).
Question: What is a receipt called that creates a liability for the government or reduces its assets?
Answer: Capital Receipt.
Question: What was the primary objective of disinvestment under the New Economic Policy of 1991?
Answer: Privatization and enhancing the efficiency of public sector undertakings.