The government is likely to put on hold a plan to raise the minimum public shareholding in listed companies, a source with direct knowledge of the matter said, amid concerns it could force the issuance of billions of dollars worth of shares.

Indian stock markets fell sharply when Finance Minister Nirmala Sitharaman announced the proposal to raise the minimum public shareholding in companies to 35 per cent from 25 per cent in a budget speech last month.

"We may not notify this year the 35 per cent minimum shareholding norm as we have got some representation on the issue and we will look into it in detail and understand the viability of such a proposal," the source, who is dealing with the matter, told Reuters on Friday.

The source could not be named because of the sensitivity of the matter.

The rule if implemented could result in companies having to offer approximately Rs 1 lakh crore in shares currently owned by controlling shareholders to the public, analysts have said.

The government is also looking at a number of other issues such as foreign portfolio investors' tax concerns, the source added.

The government's proposal to increase taxes on those with annual incomes of more than Rs 2 crore has rattled many foreign portfolio investors (FPIs).

Foreign investors have been urging the government to reconsider its decision, arguing the move will hit the competitiveness of Indian capital markets.

"(On) the FPI tax issue we are putting our heads together," the source said, adding that the Prime Minister's Office, his Economic Advisory Council and the government's think-tank Niti Aayog are looking at the issue.

"The economic affairs department has been asked to do a study on the issue," the source added. "We are also mulling an investment advisory council with representations from government and businesses for early resolution of issues faced by investor and business community in the country."