Assistant Provident Fund Commissioner (APFC) 2016 recruitment test, advertisement 170. Transcribed from the Commission's own booklet (series A, B-CRHE-O-PAPA); answer as per the official UPSC final answer key. This question is in Part B. Answer last reviewed 24 August 2026.

When the Government ownership in Public Sector Undertakings is diluted, it is called

(a)Privatization
(b)Public-Private Partnership
(c)Disinvestment
(d)Deflation

Answer

Why

Correct — C, (c) Disinvestment.

Disinvestment is the sale by the Government of a part of its shareholding in a Public Sector Undertaking. The Government's holding is thereby DILUTED — reduced as a proportion of the company's equity — which is exactly the word the stem uses. The shares may be sold to institutional and retail investors through a public offer, to another public sector company, or to a strategic buyer.

The crucial feature of the term is that it says nothing about control. A dilution from, say, 100% to 90% or from 90% to 60% is disinvestment, and the Government continues to own and run the undertaking. That is why the vocabulary distinguishes between:

MINORITY STAKE SALE — the Government sells part of its holding but retains more than 51% and with it management control. The company remains a public sector undertaking. STRATEGIC DISINVESTMENT — the Government sells a substantial holding, usually more than 51%, TOGETHER WITH the transfer of management control to the buyer. This crosses over into privatisation.

So disinvestment is the general term for the dilution and privatisation is the particular outcome that follows when enough is diluted for control to pass. The stem describes only the dilution, which is why the general term is the answer.

Note also that 'disinvestment' carries a second, older meaning in pure economics: negative net investment, where an economy's capital stock is allowed to run down because gross investment falls short of depreciation. That is not the sense used here. The stem's reference to Government ownership in Public Sector Undertakings fixes the public-finance meaning, and a candidate who has only the macroeconomic sense in mind may be tempted away from a correct option by its unfamiliarity in this setting.

In India the function sits with the Department of Investment and Public Asset Management, which was the Department of Disinvestment until it was renamed in 2016.

Why the others are wrong

(a)Privatization — The most defensible wrong option, and the reason the stem is worded as carefully as it is. Privatisation means the transfer of OWNERSHIP AND CONTROL of an undertaking from the State to private hands — the private party ends up running the business. Dilution of the Government's stake may or may not reach that point. If the Government sells 10% of a wholly owned company it has disinvested and privatised nothing; the undertaking is still a public sector undertaking with the same management. Privatisation is therefore the outcome of a large enough disinvestment accompanied by the transfer of control, not a synonym for the dilution itself. The stem says only 'diluted' and stops there, so the general term is what it asks for.
(b)Public-Private Partnership — A public-private partnership is a long-term contractual arrangement in which a government body and a private party jointly deliver an asset or a service, with the private party taking on construction, finance or operation and a defined share of the risk in return for a defined stream of payments or user charges — the build-operate-transfer road concession is the familiar Indian example. It creates a contract for a project; it does not involve the Government selling shares in an existing company, and the Government's shareholding in any public sector undertaking is unchanged by it. Different instrument, different purpose, no dilution of equity.
(d)Deflation — Deflation is a macroeconomic condition, not a transaction: a sustained fall in the general price level, so that the purchasing power of money rises. It is associated with falling demand, postponed spending and rising real debt burdens, and is distinct from disinflation, which is merely a slowing in the rate at which prices rise. It has no connection whatever with the ownership of public sector undertakings. It is on the page as a category decoy — an economics term that begins with the same letter as the answer and belongs to a completely different part of the subject.

Concept

The vocabulary of public enterprise reform is a small family of terms that are used loosely in newspapers and precisely in examinations, and the whole item is about keeping them apart.

DISINVESTMENT — the Government sells part of its equity holding in a public sector undertaking. It is measured by the percentage sold and the receipts raised, and it is neutral as to control. MINORITY STAKE SALE — disinvestment that leaves the Government above 51%. Control is retained; the entity remains a public sector undertaking. STRATEGIC DISINVESTMENT — sale of a substantial holding together with the transfer of management control. This is privatisation in substance. PRIVATISATION — transfer of ownership and control to private hands. PUBLIC-PRIVATE PARTNERSHIP — a contractual, risk-sharing arrangement for a project or service, with no sale of equity in an existing undertaking. NATIONALISATION — the reverse of privatisation: the State takes a private undertaking into public ownership, as with the major commercial banks in 1969 and 1980.

The RATIONALES offered for disinvestment are worth carrying because they are what descriptive questions ask for: raising non-debt receipts for the Budget; reducing the fiscal burden of loss-making undertakings; widening share ownership and deepening the capital market; introducing market discipline and improving efficiency; and releasing public capital locked in non-strategic activities for social spending. The objections are equally standard: sale of profitable assets to meet a current-year gap, the risk of undervaluation, the position of employees, and the loss of an instrument of public policy.

The institutional arrangement in India has moved with the policy. The Department of Disinvestment became the Department of Investment and Public Asset Management in 2016, a change of name that signals a shift from selling stakes to managing the Government's investment portfolio as a whole. Proceeds have at different times been credited to the National Investment Fund and to the Consolidated Fund, and the annual disinvestment target is a standard line in the Budget's non-debt capital receipts.

The economy strand of this paper repeatedly tests whether a candidate can name a policy instrument precisely, and this item is the purest example: one sentence of definition, four one-word or two-word options, and no data. Nothing can be computed and nothing can be inferred; either the term is known or it is not.

The option set is built the way definition items usually are — one term that is close enough to be genuinely tempting, one that belongs to the same policy area but names a different instrument, and one that belongs to another part of economics altogether. Working out which of the four is the close one, and then finding the distinction between it and the correct term, is the whole exercise.

The paper comes back to the same subject a dozen questions later with the Rangarajan Committee on disinvestment of shares in public sector enterprises, which asks about the recommended percentages rather than the definition. Taken together the two items make the point that the topic is examined at both levels, so the definition alone is not enough preparation.

The stem ends on 'it is called' with no punctuation, and 'Privatization' is spelt with a z in option (a); both are the booklet's own setting.

Key facts

Disinvestment is the sale by the Government of part of its shareholding in a public sector undertaking, diluting its stake; it is neutral as to who controls the company.
Minority stake sale leaves the Government above 51% and control intact; strategic disinvestment transfers management control and amounts to privatisation.
Privatisation means the transfer of ownership AND control to private hands, so it is an outcome of a large enough disinvestment rather than a synonym for it.
A public-private partnership is a contractual risk-sharing arrangement for a project or service and involves no sale of equity in an existing undertaking.
Deflation is a sustained fall in the general price level, distinct from disinflation, which is a slowing in the rate of price increase.
The Department of Disinvestment was renamed the Department of Investment and Public Asset Management in 2016.
In pure economics, 'disinvestment' also means negative net investment — a running down of the capital stock — which is a different sense from the one used here.

Study next

The vocabulary of public enterprise reform: disinvestment, strategic disinvestment, privatisation, nationalisation and public-private partnership, and the boundary between each pair.The evolution of India's disinvestment policy from 1991 onwards, including the Rangarajan Committee's recommendations and the later strategic sales.Disinvestment receipts in the Union Budget: where they sit among non-debt capital receipts and why they are not treated as revenue.The Department of Investment and Public Asset Management and the National Investment Fund — the institutional machinery and where proceeds go.Arguments for and against disinvestment: fiscal, efficiency, capital-market and employment considerations.

Common traps

Treating disinvestment and privatisation as the same thing. Dilution of a stake becomes privatisation only when control passes.
Choosing public-private partnership because both involve the private sector. A partnership is a project contract, not a sale of shares in an existing undertaking.
Being put off by the macroeconomic sense of 'disinvestment' as negative net investment. The stem's reference to public sector undertakings fixes the public-finance sense.
Assuming any dilution below 100% ends public sector status. The undertaking remains in the public sector as long as the Government holds more than 51% with control.

Definition items in the economy strand of EPFO papers give one sentence and four short options, and the discrimination is almost always between two terms that a newspaper would use interchangeably — disinvestment and privatisation, deflation and disinflation, devaluation and depreciation, revenue deficit and fiscal deficit. The reliable preparation is to learn such terms in PAIRS with the distinguishing feature attached, rather than one at a time. Where the same topic is worth several questions, as disinvestment is on this paper, expect one item on the definition and another on the committee, the percentages or the institutional machinery, so learn the policy history alongside the word.

Related PYQs

EPFO_APFC_2016_Q53

The Rangarajan Committee on disinvestment of shares in Public Sector Enterprises suggested that 1. The percentage of equity to be divested should be no more than 49% for industries explicitly reserved for the public sector and it should be either 74% or 100% for others. 2. Year-wise targets of disinvestment should be maintained. Which of the above statements is/are correct ?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer(a) 1 only

The same topic examined at the level of policy rather than definition — the Rangarajan Committee's recommended percentages for disinvestment of shares in public sector enterprises.

EPFO_APFC_2016_Q20

Special Economic Zones (SEZ) are developed to

(a) Generate additional economic activity throughout the country
(b) Beautify suburban areas
(c) Upgrade the facilities in the countryside
(d) Promote investment from domestic and foreign sources

Answer(d) Promote investment from domestic and foreign sources

Another item asking what a named policy instrument is developed to achieve, in that case Special Economic Zones; both reward learning the instrument's stated purpose rather than its general reputation.

Practice

practice — not a real PYQ
The sale of a majority stake in a public sector undertaking together with the transfer of management control to the buyer is known as
- (a)minority stake sale
- (b)strategic disinvestment
- (c)public-private partnership
- (d)nationalisation
Answer(b) strategic disinvestment — it is disinvestment in which control passes to the buyer, and it therefore amounts to privatisation in substance. A minority stake sale leaves the Government above 51% and in control; nationalisation is the reverse transaction, taking a private undertaking into public ownership.
practice — not a real PYQ
Which of the following best describes deflation ?
- (a)A slowing in the rate at which prices are rising
- (b)A sustained fall in the general price level
- (c)A fall in the external value of the currency
- (d)A reduction in government expenditure
Answer(b) A sustained fall in the general price level — the purchasing power of money rises. Option (a) describes disinflation, where prices still rise but more slowly; option (c) describes depreciation or devaluation of the currency; option (d) describes fiscal contraction, which may cause deflation but is not what the word means.

Why