EconomicsCBSE Class 12 · Liberalisation, Privatisation and Globalisation: An Appraisal

Privatisation, Disinvestment and PSU Autonomy (Class 12 Economics)

Updated 17 October 2026 · Fact-checked

Privatisation means shedding government ownership or management of a public enterprise, by withdrawing from it or selling it outright. Disinvestment is selling part of the equity of public sector enterprises to the public. The aims are financial discipline, modernisation, private capital and FDI; critics say assets are undervalued and proceeds cover revenue shortfalls.

Privatisation can hand over the whole firm, disinvestment sells only some shares, and autonomy lets profitable PSUs stay public yet decide more freely.

Illustration drawn for QuestionBuddy.

Understand Privatisation, Disinvestment and PSU Autonomy

Privatisation. The government's withdrawal from ownership or management of public sector companies, either by (i) ceasing to own and manage the company or (ii) selling it outright. It is one of the three heads of the 1991 reforms with liberalisation and globalisation.

Disinvestment. Selling part of the equity (shares) of public sector enterprises (PSEs) to the public. The government may retain a majority stake, or sell most of it.

Aims (NCERT): improve financial discipline, facilitate modernisation, use private capital and managerial skills, and attract foreign direct investment.

Improving efficiency without selling: autonomy. To make profitable PSUs more efficient and let them compete globally, the government gave them autonomy in decisions: the maharatnas, navratnas and miniratnas. NCERT examples: Indian Oil Corporation and Steel Authority of India as maharatnas; Hindustan Aeronautics as a navratna; Bharat Sanchar Nigam among miniratnas.

Privatisation versus disinvestment.

Basis	Privatisation	Disinvestment
Meaning	Withdrawal of government from ownership or management	Sale of part of the equity of a PSE
Control	May transfer control entirely to private owners	Government may keep a majority stake and control
Form	Sale of the whole undertaking or withdrawal from management	Sale of shares to the public

Criticism (NCERT): assets have been undervalued and sold cheaply to a few; proceeds of disinvestment have been used to meet revenue shortfalls (such as the deficit) rather than to develop PSUs or build social infrastructure; instead of helping PSEs become global players, the government partly privatised them.

Why it matters for exams. Expect definition, difference between privatisation and disinvestment, aims, autonomy to the 'ratna' companies, and a balanced appraisal. Numerical items use share proceeds and undervaluation.

Neighbouring topics. Liberalisation measures of 1991 and globalisation are on separate pages.

Privatisation, Disinvestment and PSU Autonomy: key facts

Disinvestment proceeds: Proceeds = number of shares sold x price per share; Use the same unit for shares and price.
Stake sold: Stake sold (%) = shares sold / total shares x 100; Government stake after sale = 100 - stake sold (if it owned 100%).
Undervaluation loss: Loss = (fair price - sale price) x number of shares sold; Fair price assumed in sums.
Three heads of reform: Liberalisation
Privatisation
Globalisation; 1991 New Economic Policy.

How to answer Privatisation, Disinvestment and PSU Autonomy questions

Questions ask for definitions, the difference between privatisation and disinvestment, aims, autonomy to selected PSUs and a critical assessment; some give share data.

1Define privatisation (withdrawal from ownership or management) and disinvestment (sale of part of equity) separately.
2List four aims: financial discipline, modernisation, private capital and managerial skill, FDI.
3Mention the ratna companies with NCERT examples to show you know the autonomy route.
4For sums, find stake sold and proceeds first, then compare with fair value or with the use of funds.
5Finish appraisal questions with both benefits and criticisms (undervaluation, revenue shortfalls).

Privatisation, Disinvestment and PSU Autonomy in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Disinvestment proceeds

Suppose a state-owned shipping company has 50 crore shares, all owned by the government. The government sells 20% of the shares in the market at ₹40 each.

How much does it raise, and how much stake does it keep?

Try it first, then show the solutionSolution

Shares sold = 20% of 50 crore = 10 crore.
Proceeds = 10 crore x ₹40 = ₹400 crore.
Government stake = 80%, so it still controls the company.

Answer: ₹400 crore is raised and the government keeps an 80% stake. This is disinvestment, not full privatisation.

Memory hook: Sell a slice, keep the control.

Using the proceeds

Imagine the government uses the ₹400 crore proceeds to meet a ₹300 crore shortfall in day-to-day revenue.

Why do critics object?

Try it first, then show the solutionSolution

₹300 crore goes to meet current spending, not to modernise PSUs or build schools and roads.
Only ₹100 crore remains for development.
A one-time sale cannot repeatedly finance recurring deficits.

Answer: Critics say proceeds should build assets and social infrastructure, not plug a revenue gap; here 75% of the proceeds went to current spending.

Memory hook: Selling family silver to pay the bills.

Tricks to remember Privatisation, Disinvestment and PSU Autonomy

Short memory aids. Say each one aloud once, then use it on a question the same day.

Privatise = exit, Disinvest = partial exit
Privatisation is a full or control withdrawal; disinvestment is a share sale.
Use it when: Difference.
Ratna ladder
Maharatna > Navratna > Miniratna: autonomy grows with the ratna level.
Use it when: Autonomy to PSUs.
FOUR aims
Finance discipline, Optimise by modernising, Use private capital and skill, Reach FDI.
Use it when: Aims of privatisation.

Privatisation, Disinvestment and PSU Autonomy: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Disinvestment · 1 mark · MCQBoard level

A government sells 25% of the shares of a public sector company to the public and keeps 75%. This is best described as:
(a) full privatisation
(b) disinvestment
(c) nationalisation
(d) liberalisation

Try it first, then show the solutionSolution

Sale of part of the equity with the government keeping control is disinvestment.

Answer: (b) disinvestment

Example 2: Privatisation versus disinvestment · 4 marks · Short answerBoard level

Distinguish between privatisation and disinvestment. State two aims of privatisation. (4 marks)

Try it first, then show the solutionSolution

Two differences and two aims.

Answer: Privatisation means the government withdraws from ownership or management of a public enterprise, either by ceasing to own and run it or by selling it outright; disinvestment means selling part of the equity of public sector enterprises to the public, and the government may keep control. Aims of privatisation: to improve financial discipline and facilitate modernisation; to use private capital and managerial skills and attract foreign direct investment.

Example 3: Share sale · 4 marks · Short answerHarder board level

Suppose a public enterprise has 40 crore shares, all held by the government. The government sells 15% at ₹60 per share. Find (i) the number of shares sold, (ii) proceeds in crore rupees, (iii) the government's remaining stake in per cent and in number of shares. (4 marks)

Try it first, then show the solutionSolution

(i) 15% of 40 crore = 6 crore shares.
(ii) Proceeds = 6 crore x ₹60 = ₹360 crore.
(iii) Remaining stake = 100 - 15 = 85%, i.e. 40 - 6 = 34 crore shares.

Answer: (i) 6 crore shares. (ii) ₹360 crore. (iii) 85%, i.e. 34 crore shares; the government retains control.

Example 4: Undervaluation and use of proceeds · 4 marks · Short answerHarder board level

Suppose the government sells 10 crore shares of a PSE at ₹32 per share, while an independent valuation puts a fair price at ₹40 (assumed). It uses 60% of the proceeds to meet its revenue shortfall. (i) Find the proceeds and the loss from undervaluation. (ii) Find the amount used for revenue shortfall and the amount left for development. (iii) Which criticisms of NCERT does this illustrate? (4 marks)

Try it first, then show the solutionSolution

(i) Proceeds = 10 crore x 32 = ₹320 crore; fair value = 10 crore x 40 = ₹400 crore; loss = 400 - 320 = ₹80 crore (also (40 - 32) x 10 = 80).
(ii) Revenue shortfall = 60% of 320 = ₹192 crore; left = 320 - 192 = ₹128 crore.
(iii) Undervalued assets sold cheaply; proceeds used for revenue shortfalls instead of development.

Answer: (i) Proceeds ₹320 crore; loss ₹80 crore. (ii) ₹192 crore for the shortfall and ₹128 crore left. (iii) Both of NCERT's criticisms: undervaluation and use of proceeds to cover revenue gaps.

Example 5: Privatise, disinvest or give autonomy? · 6 marks · Long answerHOTS / competency

Suppose a profitable public enterprise suffers from slow decisions, outdated technology and low exports. Compare three options: giving it autonomy as a ratna company, partial disinvestment, and full privatisation. Evaluate each against the aims in NCERT and recommend one, giving reasons. (6 marks)

Try it first, then show the solutionSolution

Autonomy: faster decisions and the chance to compete globally while the state keeps ownership; limited access to private capital.
Partial disinvestment: brings private capital and market discipline while the government retains control; risk of undervaluation and of proceeds being used for deficits.
Full privatisation: maximum efficiency incentive and capital, but the state loses control of a profitable asset and may undervalue it.
Recommendation: autonomy plus limited disinvestment with proceeds reinvested, since the firm is profitable and has issues of decision speed and technology.
State the criticisms to avoid.

Answer: A profitable enterprise is best given autonomy with limited disinvestment, using proceeds for modernisation, avoiding the undervaluation and revenue-gap use that critics highlight.

Where students lose marks in Privatisation, Disinvestment and PSU Autonomy

The slips examiners see most often, and what to write instead.

Mistake: Treating disinvestment and privatisation as identical
Both reduce government's role.
Wrong working
Disinvestment means selling the whole company to private owners.
Right working
Disinvestment is sale of part of the equity; privatisation is withdrawal from ownership or management, and can be through full sale.
Do this: Use 'part of equity' for disinvestment.
Usually costs: 1 mark.
Mistake: Forgetting that the aims include FDI
Listing only 'efficiency'.
Wrong working
Aims: efficiency and profit.
Right working
Aims: financial discipline, modernisation, private capital and managerial skill, and FDI.
Do this: Use the FOUR mnemonic.
Usually costs: 1 mark.
Mistake: Computing stake sold on proceeds instead of shares
Mixing rupees and shares.
Wrong working
Stake sold = 360 / 40 = 9%.
Right working
Stake sold = 6 crore / 40 crore = 15% (shares, not rupees).
Do this: Stake is a share of shares.
Usually costs: 1 mark.

Exam tips

Use NCERT's examples of ratna PSUs (Indian Oil, SAIL, HAL, BSNL) only when asked for examples.
Always give both sides in 'appraise disinvestment' questions.
In share-sale sums, convert to the same units (crore shares x rupees per share = crore rupees).

Practice questions on Privatisation, Disinvestment and PSU Autonomy

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
Maharatna, navratna and miniratna are categories of:
(a) private companies
(b) profitable public sector undertakings given greater autonomy
(c) foreign banks
(d) cooperative societies
Hint
Autonomy.
Answer
(b) profitable public sector undertakings given greater autonomy
Q2 · 2 marks · Short answerBoard level
State two criticisms of the disinvestment policy. (2 marks)
Hint
Valuation and use of proceeds.
Answer
(1) Assets were undervalued and sold cheaply. (2) Proceeds were used to meet revenue shortfalls rather than to develop PSUs or build social infrastructure.
Q3 · 3 marks · Short answerHarder board level
A PSE has 25 crore shares, all held by the government. It sells 8 crore shares at ₹55. Find the proceeds, the stake sold in per cent and the stake retained. If it uses ₹150 crore of the proceeds for revenue expenses, what fraction of the proceeds is that? (3 marks)
Hint
Proceeds = shares x price.
Answer
Proceeds = 8 x 55 = ₹440 crore. Stake sold = 8 / 25 x 100 = 32%; retained = 68%. Share used for revenue expenses = 150 / 440 = about 34.1%.
Q4 · 4 marks · Short answerHarder board level
Explain how giving 'ratna' status can raise efficiency without privatisation, and note one limitation. (4 marks)
Hint
Autonomy in decisions.
Answer
Profitable PSUs get autonomy in decision-making (maharatna, navratna, miniratna status), so they can act faster, invest and compete globally while remaining publicly owned. Limitation: they still face public-sector constraints and limited access to private capital and may not match private efficiency.
Q5 · 1 mark · Assertion-reasonHOTS / competency
Assertion (A): Critics argue that disinvestment proceeds should be used to build assets rather than to cover revenue shortfalls.
Reason (R): A one-time sale of shares cannot repeatedly finance recurring deficits.
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true.
Hint
Think one-off vs recurring.
Answer
(a) Both A and R are true and R is the correct explanation of A.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Define disinvestment.Show answer
Sale of part of the equity of public sector enterprises to the public.
2.Name two aims of privatisation.Show answer
Improving financial discipline and facilitating modernisation (also using private capital and attracting FDI).
3.Give an NCERT example of a maharatna.Show answer
Indian Oil Corporation (or Steel Authority of India).
4.Name one criticism of disinvestment.Show answer
Assets were undervalued, or proceeds covered revenue shortfalls.
5.Which three policies form the 1991 reforms?Show answer
Liberalisation, privatisation and globalisation.

Privatisation, Disinvestment and PSU Autonomy: frequently asked questions

What is the difference between disinvestment and privatisation?

Disinvestment is the sale of part of a PSE's equity (government may retain control); privatisation is withdrawal from ownership or management, including outright sale.

Why were some PSUs given autonomy?

To improve their efficiency and help them compete in global markets.

Were all PSEs privatised after 1991?

No. Only some were disinvested; many remain public, including the ratna companies.

Are the share prices in the sums real?

No. Share numbers, prices and fair values are assumed for practice.