The case for granting autonomy to state-run listed entities. Starting with LIC

livemint.com:

Life Insurance Corporation of India, as a publicly listed entity, recently disclosed that the Department of Economic Affairs has granted it a one-time exemption allowing it to reach the 25% MPS mark within 10 years from the listing date, extending until May 2032. This is where potential conflict of interest arises for the government. As the overseeing authority, it appoints the securities markets regulator and also acts as the promoter/majority shareholder for its entities entering the public domain.

While the government may prioritise public interest, especially in sectors like banking, financial services, and infrastructure such as railways, it must navigate and balance these interests carefully within the market’s mechanisms to ensure fairness and transparency. By retaining almost the entirety of the stake in an entity like LIC, it sends wrong signals. It looks like the government wants the cake and to eat it too.

Maintaining an absolute majority of shareholding in entities slated for listing or partial divestment is a concern. This practice exposes public shareholders to the uncertainties of government and bureaucratic decisions regarding the destiny of a for-profit listed entity. Such a scenario raises valid concerns among investors about potential interference from policy or political considerations impacting the business.

Ensuring clarity on the business direction during disinvestment can enhance valuations and attract strategic investors, fostering a more attractive investment landscape. As an alternative, the government could structure its disinvestments and listings with a clause incorporating a designated portion of such businesses to include a public-interest component. However, to ensure transparency and