[op-ed snap] Go easy on the public float rule

Mains Paper 3 : Indian Economy |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Budget decision on public shareholding and its impact

The government’s budget decision to raise the minimum public shareholding in listed companies to 35% from 25% has worried the markets.

Impact

1. The number of companies that would be affected by this proposal is quite large. As many as 1,100 listed companies currently have a promoter stake of more than 65% – reduction to the prescribed limit could entail as much as a trillion rupees worth of share sales.
2. This may lead the promoters to rush through the sales at low prices since share prices are mostly in a slump. 
3. A slowdown in the economy and a pullout by foreign investors are also pressuring markets.

Way ahead

1. Defer the implementation of the proposal to a day when the economy is in better shape
2. Companies should be allowed a few years to comply so that fire sales are avoided. This way, promoters would get the best value for their shares. It will ensure markets face the least disruption.