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Making Democracy Actually Work

Aditya Govindaraj writes about a unique non-government organisation that tracks governance & transparency issues for the common man

 
While the popular media keep ordinary citizens informed about headline-making events, scandals and governance issues, we, the people, know so little about the state of governance of our own locality or municipal ward. For instance, how many Mumbaikars know that their municipal councillors are concerned only about renaming the roads instead of improving their quality and providing better civic amenities? Consider this data: one out of every five questions asked by Mumbai’s municipal councillors between March and December 2012 was about renaming roads. On the other hand, the total number of complaints lodged by taxpayers increased by a whopping 50%, between 2011 and 2012; a majority of these pertained to roads and drainage. In other words, little had been done to improve the sorry state Mumbai’s infrastructure.
 
Mumbaikars would never have known these surprising statistics were it not for Praja, a Mumbai-based NGO set up in 1998 by eight like-minded individuals whose goal was to establish and improve accountability and transparency in governance at the grassroots. Praja’s online portal contains almost every piece of local information that you may want to know—from the telephone number of your local ward councillor to the crime or health statistics of your ward. Mumbaikars can leverage this information in many ways.
 
For instance, the MLA’s (member of the legislative assembly) report card, which grades and ranks performance of MLAs, can be downloaded from Praja’s website. This information can be used to make MLAs more accountable, because it is invariably newsworthy for the media and easy to share on social media as well. Nitai Mehta, the managing trustee of Praja Foundation, says, “The MLA who was ranked last came to meet the team and went back satisfied with the matrix and made a statement that he would improve his ranking in the next report card. On the whole, the report cards have been a success as we have started getting many phone calls from elected representatives, citizens and civil society groups.” 
 
Similarly, Mumbaikars can leverage the ‘City Scan’ feature on the website to search for information on health, crime, education and civic issues. Praja’s volunteers use the Right to Information Act extensively to gather important and relevant statistics relating to municipal governance. The information is then compiled and uploaded on the website.
 
The ‘Citizen Charter’, one of the early projects undertaken in collaboration with the Municipal Corporation of Greater Mumbai (MCGM), was created to document best practices and standards to measure delivery of services to the public. Workshops are held to train staff of MCGM to ensure high level of service to the public. The ‘Mumbai Citizen’s Handbook’, a useful reckoner in three distinct volumes, provides useful information on how the Mumbai municipality functions. Services such as water, sewerage and sanitation, education, health, police and environment were assessed to understand the problems in the delivery of each of these areas.
 
“Praja helps the state administration at various levels, right from the municipal commissioner, chief secretary, police commissioner to the ward officers, police inspectors, which monitors the state of the city and also enables dialogues with the key stakeholders to create solutions for better governance,” says Nitai Mehta on the importance of Praja for Mumbai. Praja is run by a team of 19 with support from a board of trustees and advisors with knowledge in governance, social sciences, business, market research and media. They can accept up to 10 regular volunteers. Apart from volunteering, you could help by donating to the Praja Foundation; donations are tax-exempt under Section 80G of the Income Tax Act.
 

 

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Do companies care at all about SEBI’s diktat regarding 25% free float?

Most companies are yet to increase their public holding to the requisite level (25%) and compliance before 3rd June for companies (PSUs have to do it by August) is surely impossible. Probably they do not care at all about the SEBI diktat

 
Most companies are yet to increase their free float to the requisite level, and compliance may entail significant stake sales by promoters, which could depress share prices in the near term. The recent offer for sale (OFS) by DLF and a similar announcement by Oracle Financial are examples of companies taking steps to meet the new requirement. Oracle Financial’s share price correction, down 6% over the five trading days following its OFS announcement, is an example of what can happen if companies announce share sale to increase public holding.
 
But the fact is that prices are not falling even as the deadline nears. This only means neither the companies nor the stock market players give a damn about the Securities and Exchange Board of India (SEBI) diktat which has been around for over seven years now. SEBI has had three chairmen during this period. 
 
The guidelines issued on 4 June 2010 by the finance ministry makes it mandatory for Indian companies to have a free float of at least 25% before 3 June 2013. State-run companies or public sector units (PSU) too have to comply with these guidelines by 8 August 2013. Market regulator SEBI has clearly said that the deadlines would not be extended.
 
Companies that need to reduce promoter stakes 
 
- free float, shares, shareholding, stake, promoter's stake,
According to BNP Paribas Securities (Asia), these guidelines have created an asymmetrical situation between sellers of equity i.e. company promoters and potential buyers or secondary market investors. “The promoters have to sell by a certain date, but the buyers are not forced to buy. In fact, secondary market investors may not even be interested in buying the equities of many of the companies. This, in our view, creates downside risk to the share prices of companies that need to increase free float,” the brokerage said in a research note.
 
Companies with large share sale requirement as proportion of market cap 
 
- free float, shares, shareholding, stake, promoter's stake,
 
Few companies like L&T Finance Holdings and Bharti Infratel have more time to comply with the 25% free float requirement as they were listed after the SEBI’s announcement in June 2010. Some other companies such as Wipro, DLF and Thomas Cook (India) have already complied with the free float requirement. While Wipro transferred the promoter group’s equity shares to an “irrevocable independent trust”, DLF recently concluded an OFS and Thomas Cook (India) also carried out an institutional placement programme (IPP). 
 
BNP Paribas said, “We estimate that more than 80% of the overall upcoming share sale will come from the top 15 issuers by market cap. In isolation, $2 billion to $2.1 billion of equity sales is not large for the Indian market. However, it is a significant quantum to be completed in a 14 trading day period. Not all companies will opt for selling equity in the market through OFSs or other routes. Some may shift promoter group shareholdings to independent trusts, like Wipro did.”
 
Leading companies that potentially need to issue equity 
 
- free float, shares, shareholding, stake, promoter's stake,
PSUs are by and large compliant with the free float guidelines. There are five PSUs, which need to sell equity of about $575 million. Of these five, just one—MMTC—accounts for 80% of the total.
 
PSU companies with less than 10% free float 
 
- free float, shares, shareholding, stake, promoter's stake,
Multi-national companies (MNC) are a slightly different choice. They may choose to dilute their parent’s stake to 75% or may choose to buy more from the market and take the Indian subsidiary private. Parents of some of these MNCs, for instance Styrolution ABS, have expressed the desire to delist subsidiaries, according to a report in a business newspaper, BNP Paribas said.
 
Multinationals with less than 25% free float 
 
- free float, shares, shareholding, stake, promoter's stake,
According to the research report, some of these MNCs, where an expectation of delisting has built up in the market, announcements of stake sales by parents have come as negative surprises to shareholders and has led to significant share price declines. The recent sharp corrections in the share prices of Gillette India (10-11 February) and Oracle Financials (8th May) are two examples. It is important, therefore, to take stock of companies where potential equity sales could form a significant proportion of their market capitalization, the report said.
 
Companies that could face near-term corrections 
BNP Paribas said, “Looking at the companies that have to sell at least 10% of outstanding equity (making small exceptions for large companies like MMTC and Bajaj Corporation) and whose market cap is at least $200 million, we arrive at a list of eight companies which could face significant correction around the time of share sale. Some of these, like Gillette India and Bombay Rayon, have already faced such correction in share price at the time of the announcement of their equity sale. However, actual equity sale by OFS or IPP could lead to further correction—going by the recent examples.”
 
Companies with large share sale requirement as proportion of market cap
 
- free float, shares, shareholding, stake, promoter's stake,

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