The Finance Minister’s 2012 Union Budget may have received flak for its overtly populist stance but among other things, it makes a radical commitment towards deepening the capital market reforms in the country. This progressive gesture deserves unconditional applause from all quarters.
The Rajiv Gandhi Equity Savings Scheme announced in the Budget will now allow income tax deduction of 50% to first-time investors in shares. The maximum permissible limit for tax rebate is Rs 50,000 and the benefit is restricted to those with annual income of less than Rs 10 lakh. More important, the scheme is being designed to help small investors with the flexibility to book profits and shuffle portfolios despite the lock-in period of three years. This is a commendable effort to help investors beat inflation and volatility in the same breath.
This scheme, for the first time ever, has actually paved the way for nationwide participation in India’s growth story that’s chiefly driven by the country’s capital markets. For long, much of India’s population – irrespective of rural areas or urban pockets - has fruitlessly kept away from the bourses. According to a study report, only 8% of India's households invest in equities, directly or indirectly, as opposed to 42% in the US and 14% in China. For a country of our size and scope, you can imagine how many heads the deprived 92 % could represent.
The reasons for the exclusion could be manifold but the consequence is the same – A big chunk of valuable capital is denied the positive ‘churn’ it deserves. The FM has sought the attention of this overlooked segment of our populace towards a robust avenue for reaping long term revenues. This is a welcome step and I am sure more and more of the target segment will respond positively.
Having said that, the Indian capital markets must wake up to a few realities to turn positive intent into productive action. Today, technology has thankfully eliminated many a market malpractice like
But when to comes to malpractices like insider trading and market manipulation, technology can at best minimize such risks but surely can’t eliminate them. How does than one ensure the common investor’s interest in the market scheme of things? Worse, how many of India’s population have access to technology to help them with safe and secure capital market investments?
Clearly, there’s an urgent need to examine the supply side realities before we expand the demand side situation. If we open the doors to the retail population, we should facilitate their ‘walk in’. Among other things, there’s an urgent need to simplify the process of stock market access both ways, i.e.…for the retail population to tap markets on one hand and for companies in reaching out to more investors in far-flung towns on the other. An integral part of this initiative would be to conduct investor awareness campaigns educating small investors on the myths and realities linked with stock market investments.
It would take a proactive effort of the National and Regional Stock Exchanges to invest in quality infrastructure across the length and breadth of India. The market regulatory bodies should make a deeper probe to examine the reach, effectiveness, bandwidth and intent of the current stock exchanges in enabling the retail investor access, the capital markets. The probe should obviously go beyond tweaking the code of conduct for the internal constituents of a stock exchange alone; it should consider the interests of the external stakeholders as much. Prudent regulation and good governance alone will help stock markets provide the deliverables of any competitive market - better products to final consumers and enhanced service benchmarked against global standards.
The recent SEBI nod to the listing of stock exchanges akin to any other listed entity is a positive step in line with progressive global trends. These listings would go a long way to help the key financial market intermediaries and stakeholders to raise funds and thrive on a competitive landscape, which, in the final analysis, would only enhance the operational framework and investor service.
In this context, fostering healthy competition among stock markets seems a good way to foster a sense of purpose among the financial market stakeholders. More the choice for investors in terms of the platforms carrying financial products, the better the prospects for the financial markets. Naturally, the platform that suffers in quality will be cursed with low volumes and will eventually lag behind and vice versa.
Of course, SEBI and the government would need to check the intent, genuineness and performance of each player before allowing competition a free run but the community benefit of such an open environment seems irrefutable. And given the robustness of our regulatory framework to ensure financial security of our markets even in the midst of a global economic crisis reflects its inherent competence in managing a competitive landscape for the country’s stock markets.
The budget has shown us a new shared vision for the stock markets. Converting it into a mission would need our stock exchange bodies and their regulators to walk that extra mile.