Mumbai, Feb 27: The stock market is expecting a number of good things fromMr Yashwant Sinha's Budget 2001. Scrapping or a substantial cut in thedividend tax,raising FII investment limit to 49per cent, increase in tariffbarriers to protect domestic industry from the onslaught of multinationalsand unstinted commitment to divestment of public sector units (PSUs) areonly some points which figure prominently in the marketmen's wishlist. Thedividend tax which was at 10 per cent, was hiked to 20 per cent in the lastyear's budget. Along with the associated surcharges, the total tax collectedin this form amounted to 22 per cent, though it's called tax-free in thehands of the investors. This is perceived to be a dampener in attractingsmall investor or savings towards the stock market, which is considered tobe an engine to accomplish the dreams of 8-9 per cent growth in grossdomestic product (GDP).The demand on dividend tax seems to be unequivocal - it is a demand from allquarters, including brokers and mutual funds. Even the regulator has beenexpressing tacit support to the demand as a measure to boost volumes onmarkets.
The fear of mandatory lifting of quantitative restrictions under the new WTOtrade regime has already led to tightening of the bear grip in themarketplace. Unless this is done, the Indian industry would suffer fromcheaper imports, particularly textile, paper, sanitaryware, tiles and somechemicals. This, along with dividend tax abolition, would help really changethe mindset of the market, market players opined. When developed countrieslike US were resorting to general tax-based restrictions or dumping dutiesto protect their industry and agriculture, there was no need for India tobehave otherwise, they added.
The other thing that has been bothering the market, alongwith the economistsand intellectuals, is the way the government is dealing with its agenda ofdivestment for the last few years. It is considered to be a mockery of sortsby making the banks or other institutions to pick up stake in some PSUs tomeet the divestment targets. This time the market hopes for a target ofabout Rs 40,000 crore for 2001-02 and that too it expects the government toensure real divestment of these shares to the private sector or individualinvestors. The market has been demanding allowing investment by banks,provident funds and insurance sector into the equities market so that theflow of fresh funds would boost the market sentiment. Though banks wereallowed to invest 5 per cent of their incremental deposits in the market,according to estimates, the flow from this source was not more then 2 percent.
Besides, there are specific demands from stock exchanges, particularly thosethat are run by brokers' associations. Exempting them from application ofcapital gains tax when they shift their assets to the new company, wouldfacilitate ease of their corporatisation plans.
Copyright © 2001 Indian Express Newspapers (Bombay) Ltd.
