There are a lot of expectations across sectors from the NDA's first budget. What are your expectations for the capital markets?
Basically capital markets have two parts. Transaction part and capital formation part, which is basically market capitalisation. Whatever is good for India is good for BSE and the capital markets. The government needs a maneuverability to implement its plans contained in the manifesto. For that they need to control the fiscal deficit, revenue deficit and the current account deficit. These three deficits are the key points. Fourth part of the overall scheme is the inflation. If they are able to control these four, then we will have some room to create more out of box thinking and implement the stalled infrastructure projects.
Also on the transaction part, the Securities Transaction Tax (STT) is a drag. There is a need to rationalise the STT.
What kind of rationalisation in the STT are you looking forward to?
There has to be minimum transaction tax on the investment transactions. And maximum tax should be imposed on the speculative transaction like options, futures etc. The current structure is exactly the opposite. It charges very little for the speculative transactions and charges very high for the delivery based transactions. So that needs to be rationalised. The corporate bond market also needs to be kicked off as India needs to invest $1 trillion in the infrastructure.
But given the fiscal situation of the economy, do you think the government is in a position to provide a leeway?
STT collection is in the range of Rs 6,000-7,000 crore a year, and in the peak period, the collection goes up to Rs 10,000 crore. But we are not saying that the government should suffer any loss on its revenue. What we are saying is that you restructure it in such a way that you do not have any revenue loss as I said earlier. The STT may not be removable given the current fiscal situation, but if they rationalise it, they will not lose on the revenue, but it will also support the capital formation process.
What steps the government should take to encourage people divert more savings to the equity market?
Tax structure changes itself will promote more investments into the equity markets. Additionally, schemes such as Rajiv Gandhi Equity Saving Scheme are very restricted. A new scheme can be created on the same lines, which could be broad based allowing more and more people to invest in the capital markets. Also, minor tax rebates for investing in the stock markets certainly go a long way in creating that culture. Additionally, we need to tap the provident fund (PF) money. Today, the EPFs don't invest in the stock market. The government needs to think on how to create an enabling framework that will give confidence and provide good returns on minimal risks to the PF managers.
What could that structure actually be?
You know a small percentage of the chunk can be invested in the markets. Pension funds of California pension funds and UK funds are investing in the Indian markets. So minor percentage can start off investing in India, and then it can be seen how it pans out in the future.