[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.
Capital Markets: Challenges and Developments
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