Infrastructure bonds: Govt may reduce withholding tax for FIIs
vibrant corporate debt market in the country, the size of which is estimated at 11.8 per cent of GDP, lower than the average for emerging East Asia at 17.2 per cent. For Japan the percentage is even higher at 19.8 per cent.
However, experts say that even after addressing the tax concerns, the government may not be able to get the FIIs invest as much as it wants because of several pending issues including stamp duty and regulatory overlaps.
“FIIs are though aggressive in G-sec, they are not that keen in corporate bond market as it is not liquid. It is a big challenge. For instance there is the issue of stamp duty and several overlaps between Sebi and RBI as regard to who will be the guiding authority. These need to be addressed first,” Jagannadham Thunuguntla, equity head, SMC capital, said.
Higher stamp duty and the existing arbitrage due to inter-state variations increases the cost of issuing such papers.
As such, the finance ministry is working on host of other measures to jump-start activity in the corporate bond market for ultimately benefiting India Inc. Apart from asking banks to cut their exposure to top listed companies by 10 per cent of their current levels, it is also planning to allow full reinvestment of debt papers of FIIs.
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