Tax-and-spend budget has good long-term initiatives for the capital market

The Indian government budget for 2007-08 presented yesterday was a tax-and-spend Budget, and neither the taxation nor the spending was capital market-friendly, but the budget contained some policy initiatives for the capital market that would enhance its vibrancy and efficiency in the long term. I wrote a piece on this in the Financial Express today. You can also read this here

1. I welcome the proposal to allow institutional short selling and create a proper securities lending and borrowing mechanism for this purpose.
2. I think exchangeable bonds are a good idea, both as an additional financial instrument in the marketplace and as a mechanism for unwinding interlocked corporate holdings.
3. The elimination of tax arbitrage on mutual funds is probably a good thing in the long run for the industry.
4. The promise to move forward on making Mumbai a regional financial hub is welcome. This initiative announced in the 2005 Budget has gone through a tortuous process, with delays in committee formation and rumours of dissent within the committee itself. The FM’s announcement hopefully means that we will see some real action backed by a strategic vision.
5. I read the Budget speech as signalling a willingness to improve access of Indian investors to foreign securities both directly and through mutual funds. Today it is much easier for Indians to use the $50,000 limit to invest in foreign currency bank deposits than to invest in foreign stocks and bonds.

All of this means that we will have a cleaner, stronger and deeper capital market in the years to come. That is little consolation to those nursing stock market losses on budget day, but it is hugely important for the future of India.

Posted at 1:25 pm IST on Thu, 1 Mar 2007         permanent link

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