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Low interest tax regime, revival of capital markets are priority issues, FM tells FIs

Finance Minister Yashwant Sinha on Wednesday asked financial institutions to restore the confidence of the small investors in the capital market.

Sinha met representatives of financial institutions in his sixth pre-budget meeting, and expressed concern over the low level of resource mobilisation from the primary market. He, therefore, invited the representatives of financial institutions to identify problems and indicate the measures to be taken to revive the capital market.

The finance minister also underlined the need to strengthen the financial system to meet the challenges likely to come up in the coming year.

Sinha referred to the reduction in the interest rate on small savings and added that this step was a signal for moving towards a low interest rate regime in the country. The finance minister noted with satisfaction the uptrend in sanctions and disbursements by all-India financial institutions. He solicited their suggestions for moving towards a low interest rate regime in the medium-term.

The major suggestions and observations made by the representatives of financial institutions were on the following lines:

Tax problems arising from ambiguity (gross or net income etc) as in the case of Section 10 (23G) need to be removed. The scope of Section 10 (23G) needs to be extended to cover transmission companies, apart from interest, dividends and capital gains; other elements of financial package like fees and commission on guarantee must be covered under this section.

Housing sector needs to be promoted to benefit from the decline in the value of land; steps must be taken to remove the bias against house-owner under the existing tax regime.

To encourage all-India financial institutions to raise bonds, the benefits of infrastructure bonds should be extended to them so as to facilitate switch to lower interest rate regime.

Representatives of financial institutions said capitalisation is necessary to increase net worth of FIs to enable them to lend to mega projects in the infrastructure sectors like power and telecom. Liberalisation of financial sector should be matched by regulation to ensure investor protection.

Fiscal measures alone are inadequate, deterrent action needed against fraudulent companies to enhance investors' confidence.

Entry barriers should not be made too stringent, so as to promote the primary market. Access must be increased to post-issue information by the SEBI and stock exchanges through Internet/Websites.

Small investors must be excluded from the IPOs (initial public offering) and they must be provided opportunity to invest in the mutual funds through fiscal incentives, they obseved.

Speculators must be discouraged and investors encouraged to mobilise funds for industry. Benefits of carry forward under Section 72 must be extended in case of merger of loss-making companies into profit-making companies, benefits also be extended to demerged companies.

Tax incentives for investment in mutual funds must be provided on the lines of the USA model.

Anomalies with regard to tax benefits to NBFCs vis-a-vis other FIs must be removed. Tax deduction under Section 88 be enhanced to Rs 60,000.

Small savings interest rates must be linked to the bank rate and deep discount bonds must be introduced. An offshore financial centre in Bombay must be created to attract foreign savings and a limit must be set to subscription to PFs.

Short sales in stock market must be regulated and a National Metal Exchange must be created to deal with gold futures.

PAN requirement must be done away with. Banks must be given tax incentive in backwards areas and divestment in PSUs be made open to public. India should have an undervalued exchange rate for promoting growth of exports and GDP.

Among those who attended the meeting were Deepak Parikh, K V Kamath, M P Radhakrishnan, G P Gupta, P S Subramanyam, Dr R H Patil, Jaswant Lal, C Parekh and Surendra Patnaik.

UNI

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