Dedicated debt segments on stock exchanges will deepen the debt market
Rashesh Shah
Given the economic and political constraints, finance minister Chidambaram has done a commendable job in controlling the fiscal deficit and encouraging investments.
Not only has he met the target of keeping the fiscal deficit below 5.3% of the GDP, but has reiterated his resolve to bring it further down to 4.8% GDP next year. These are the first steps in the long road towards fiscal consolidation.
Measures like the additional surcharge on the super-rich as well as the commodities transaction tax were on expected lines. Given the need to raise resources, the additional surcharge on personal and corporate income taxes does not come as a surprise. The fact that the FM has announced this as only a temporary measure is a good sign. The reduction in STT on equity futures will aid in arresting the export of our markets.
The investment allowance of 15% for investments over R100 crore is a welcome move to encourage corporate investments, while the extension of the Rajiv Gandhi Equity Scheme from one year to three years will hopefully increase retail participation in capital markets.
For capital markets the finance minister has announced wide ranging measures, from re-looking at legislation, to instituting an expert?s council to advise the government in getting our financial regulation in sync with global best practices.
The clarification and simplification of norms governing the FII status is a much-needed step. But perhaps the most significant of these measures are those relating to debt markets. The proposal to set up dedicated debt segments on stock exchanges and liberalise the norms governing insurance and pension funds? investments into debt markets will eventually deepen and broaden the debt market. These will also help draw long-term funds for infrastructure projects.
The steps announced in the infrastructure space?especially raising of tax free bonds up to R50,000 crore are likely to encourage much-needed investments in the sector. The affordable housing segment will also gain from the budget through increased exemption on small ticket housing loans and setting up of a Urban Housing Fund by the National Housing Bank.
While the Budget does not have any specific steps to control the current account deficit (CAD), the announcement of inflation indexed bonds is an attempt to provide investment options to households and thereby curb the investment demand for gold.
One worry is that the additional public spending would result in higher aggregate demand and lead to inflation. How the government tackles this using supply side measures remains to be seen.
The author is chairman and CEO, Edelweiss Group