In public finance and privatisation policy, what is meant by disinvestment by the government?

Introduction / Context:
Disinvestment is a key term in discussions on economic reforms, privatisation and the role of the state in business. Government disinvestment policies affect public sector undertakings and capital markets, so this topic appears often in banking, economics and general awareness sections of interviews and exams.

Given Data / Assumptions:
- The question is about the meaning of disinvestment when used for government policy.
- It refers to the government reducing its stake rather than completely exiting in all cases.
- The focus is on public sector enterprises, not on general private investments by individuals.

Concept / Approach:
Disinvestment usually means the government selling part of its equity in public sector undertakings. This can be done through initial public offerings, follow on offers, strategic sales to private investors or offers for sale in the market. The objective can include raising resources, improving efficiency by bringing in private participation and widening ownership among the public. It does not refer to reducing foreign direct investment or arbitrary exits from private companies where the government does not already hold shares.

Step-by-Step Solution:
Step 1: Focus on the fact that disinvestment relates to government holding in public sector units.
Step 2: Understand that it means selling part of this holding, thereby reducing the percentage of government ownership.
Step 3: Note that this can still leave the government with a majority stake or can eventually lead to privatisation, depending on the level of disinvestment.
Step 4: Choose the option that best matches this definition.

Verification / Alternative check:
Budget speeches and policy documents often talk about disinvestment targets as amounts to be raised through sale of government equity in public sector units. This usage confirms that the term is about reducing government shareholding in such enterprises, not about reducing foreign investment or other unrelated activities.

Why Other Options Are Wrong:
Option A talks about reducing government share in foreign direct investment, which is not how the term disinvestment is normally used in Indian policy. Option C mentions government share in the market in a vague way and does not specifically refer to public sector equity sales. Option D refers to private sector companies where the government does not hold shares in the first place, so there is nothing to disinvest from in that context.

Common Pitfalls:
Some candidates equate disinvestment with complete privatisation, but in practice the government may retain a significant stake even after several disinvestment rounds. Another confusion is to think that any reduction in investment by any investor is disinvestment, whereas in exam and interview contexts the term is often used specifically for government equity sales in public enterprises.

Final Answer:
Correct option: To reduce the government shareholding in public sector undertakings by selling part of its equity.