Public shareholding kept at 25%, Why?

Government of India took this initiative of increasing public shareholding in companies to 25% to meet their several objectives.

1. First of all 25% provision is standard across several developed economies, that's why Govt. want to implement same provision in India.

2. The main hidden motive apart from increasing market depth and better corporate governance, behind this initiative is that, Govt. want to raise money to decrease it's debt ratio which is nearing 80%. After 3G Auction Govt. is able to raise Rs. 1.05 Lakh Crore but still they are lagging behind in achieving the revenue target of this fiscal.

3. In high inflationary situation and during fiscal and monetary exit measures, govt. has to keep in mind that the strategy shouldn't worsen the situation. If this percentage would have been higher it will result in, exit of MNCs from India, make India less attractive to foreign entities, Increase in interest rates in the market as more people will borrow from banks and market in order to share purchase. When interest rates rises, it will further increase the inflation which is bad for any economy. In nut shell, it will lead to crowding out of the investments from India and hamper the liquidity position.

By keeping all the above mentioned features in mind, Govt. proposed to make public shareholding to 25%.