- By Amit Lalan
Union Budget 2019 India: NDA-led government crucial structural reforms in its previous term have helped streamline processes in the capital markets. These included uniform access norms for foreign investors, the creation of universal exchanges through the integration of stock and commodity trading on a single exchange and interoperability of clearing corporations. With a stable government, under the leadership of Narendra Modi, in place for the second term, stock markets are yet again hoping for major policy initiatives in form of relaxed tax regime and measures to revive liquidity into the financial sector.
Withdraw LTCG on equity: Former Finance Minister Arun Jaitley, in Union Budget 2018-19 had restored long term capital gains (LTCG) levy of 10 percent on all gains of over Rs. 1 lakh from equity investments. We believe, this could dampen the spirit of market participants to invest in stock markets, who are in any case reeling under the burden of Securities Transaction Tax. It could further, restrain investments into mutual funds which had seen tremendous growth post-demonetization. Rolling back LTCG would help boost market sentiment, mobilize household savings into equities and equity savings schemes and mutual funds as well as attract more foreign investors.
Abolish stamp duty/STT on securities transaction: Traders are liable to pay STT each time they transact in securities such as shares, bonds, debentures or equity-based mutual funds which are listed on a stock exchange. Additionally, the government had also imposed a collection of stamp duty on such transactions. Along with STT, the stamp duty doubles the cost of trading in securities for market participants. While we feel, that collection of stamp duty at unified rate will help streamline payment processes and reduce cost burden, doing away with STT as well as stamp duty all together will help pull in more investors and provide liquidity into the markets.
Deepen the bond markets: Setting up a cap for large companies to raise funds from debt would help would bring in much-needed credibility to the market. Measures such as encouraging investments in low grades would also give impetus to smaller companies to list on debt segments. Additionally, the government can consider further relaxation in investment limits for FPIs.
Infuse liquidity into NBFC sectors: The government needs to proactively address the liquidity crisis facing NBFC for the overall health of the financial markets. Fund-raising for NBFC is increasingly becoming difficult. Opening and strengthening alternative investment avenues like debt segments for the sector would be helpful. NBFCs are majorly funded by banks and their access to public deposits is under tight RBI scrutiny. Relaxing regulatory controls can give NBFC more access to credit.
Implement hike in income tax exemption limits: The government in the interim budget earlier this year had proposed raising income tax exemption limit to Rs 5 lakh. This would put more money in the hands of Indian households, who can then channelize these funds into stock markets. At the same time, the government should raise the tax exemption limit for ELSS as returns from these schemes could be financially beneficial for investors in the long run.
Riding on the Modi wave 2.0, the markets have been bullish and are set to maintain momentum going forward. Measures to deepen the capital markets would help India attain its position as one of the strongest economies globally.
The author is Director at Upstox. The views expressed are the author s own.