Budget has few, but good, capital market initiatives

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: The Budget is on expected lines. It is a continuum Budget. In fact, most of the experts were of the view that a “no change” Budget would actually be a good Budget. The finance minister has delivered on that expectation. He has continued with the “moderate and stable tax regime.” The 25% increase in STT is innocuous. The base rate itself, announced last year, was so low that this increase will have a very marginal impact, specially given the fact that there is no long-term capital gains tax any more, while the short-term one is only 10%. Investors would not mind this, given the huge capital gains made last year.

I am personally very pleased with the announcement regarding the setting up of an Investor Protection Fund under the aegis of Sebi, funded by fines and penalties recovered by Sebi. This is an important initiative. Until now, all fines/ penalties collected by Sebi were credited to the Consolidated Fund of India; these monies would now be credited to the new Fund. Sebi would thus be able to launch a large number of investor education and protection initiatives, for which it presently has no funds. Since the amounts being collected by Sebi are increasingly becoming larger, the new Fund would be able to make a substantive impact. And bolster confidence among retail investors.

It is also heartening to note that the government has fully accepted the recommendations made by the high-level expert committee on corporate bonds it had set up last year (of which the author too was a member). The government will now take steps to create a single, unified exchange-traded market for corporate bonds.

The secondary market, which is almost entirely telephone-based and is non-transparent, will get a huge boost with the creation of such a mechanism. It is, however, hoped that this does not translate into a monopoly. There is also a proposal to increase the limit on FII investment in corporate bonds from $0.5 billion to $1.5 billion. This will make it easier for the corporates to raise more debt funds.