Efficient financial markets necessary for economic growth: Chidambaram
New Delhi, January 7, 2013
Union Finance Minister P Chidambaram today said the existence of efficient financial markets -- both banks and capital markets -- was of paramount importance for achieving economic growth.
At pre-Budget consultations with representatives of banking and financial institutions here, he said that, without a vibrant and viable financial market architecture, there could not be any sustainable economic growth.
He said that efficient intermediation by financial markets would lead to higher economic growth by increasing savings and their optimal allocation for productive uses.
Mr Chidambaram said that banks and other intermediaries, including non-banking financial companies (NBFCs), insurance and pension funds and mutual funds were mechanisms to channel savings to investment.
"They have the capacity to promote economic growth as they allocate savings to those investments which have potential to yield higher returns," he said.
The Finance Minister further said that major steps had been taken to reform India’s regulatory framework to adopt best international practices.
He said the results of the reforms initiated by the Government are encouraging and the country is now one of the most vibrant and transparent markets in the world.
About 22 participants representing different banking and financial Institutions participated in the meeting. They included Dr. K.C. Chakraborty, Deputy Governor, Reserve Bank of India, Mr Pratip Chauduri, Chiarman,State Bank of India, Mr M. Narendra, CMD, Indian Overseas Bank, Mr K.R. Kamath, CMD, Punjab National Bank, Mr Arun Kaul, CMD, UCO Bank, Mr M.V. Tanksale, CMD, Central Bank of India, Mr R.M. Malla, CMD, IDBI, Mr Prakash Bakshi, Chairman,NABARD, Mr D.K. Mehrotra, Chairman, LIC, Mr G. Srinivasan, New India Insurance, Mr T.C.A. Ranganathan, CMD, EXIM Bank, Mr S.K. Goel, IIFCL, Ms. Chanda Kochhar,CEO, ICICI Bank, Mr R.V. Verma, CMD, National Housing Bank, Mr Sunil Kaushal, Standard Chartered Bank, Mr Uday Kotak, Kotak Mahindra Bank Ltd, Mr Atul Kumar Rai, IFCI, Ms Shikha Sharma, CEO, Axis Bank, Mr Rana Kapoor, Yes Bank, Mr Raman Aggarwal, FIDC, Mr Deepak S. Parekh, IDFC and Mr D. Krishna, Urban Cooperative Banks.
According to an official press release, the participants made various suggestions, including extension of Agriculture Interest Subvention Scheme to Self Help Groups, interest amount for the purpose of TDS to be increased from Rs. 10,000 to Rs. 25,000 on fixed term deposits with banks, tax exemption of Rs. 20,000 under section 80CCF for investing in Infrastructure Tax Free Bonds be reintroduced, bringing more transparency in gold and real estate transactions at par with equity transactions, to bring housing sector within the definition of infrastructure and encouraging long term funds for investment in housing sector among others.
Other suggestions and proposals include to allow banks to issue tax free infrastructure bonds, treat Urban Cooperative Banks at par with those in rural areas, to exempt social security insurance schemes from service tax and tax concession on contribution to leave encashment as on group gratuity.
Beside above, some other suggestions were to include NBFCs and AFCs (Asset Financing Companies) for promoting financial inclusion and grant them tax parity with banks by extending service tax benefits which are available to banks and public financing institutions but not extended to NBFCs, giving exemption to NBFCs-AFCs from TDS under section 194A from the Income Tax Act and tax benefit for income deferral under section 43D and allowing depreciation at the rate of 30-50 per cent for construction equipments among others.
Some other proposals include monetizing of the real estate assets of the railways and central government Ministries/Departments, inclusion of different subsidies in direct benefit transfer scheme, exemption from PAN for TDS in case of small investors in rural areas and boost to asset reconstruction companies among others.
Mr Chidambaram later met leading economists for his annual pre-Budget consultations with them.
He said the slew of reform measures taken by the Government had had a positive impact on the market sentiments. He said there were mixed signals from market regarding the current economic situation in the country. He said that direct tax collections were satisfactory while indirect taxes including excise duty collections were falling short of expectations.
The Finance Minister said that the difficult phase was over and the ocus would now be on achieving higher growth during the year.
About 11 economists participated in meeting, including Dr. Surjit Bhalla, Oxus Research and Investments, Mr Nitin Desai, Dr. Omkar Goswami, CERG Advisory, Dr. Rajiv Kumar, Prof Pulin Nayak, Delhi School of Economics, Mr Bharat Ramaswamy, ISI Delhi, Mr Ajit Ranade, Aditya Birla Group, Dr. Shekhar Shah, NCAER, Prof. Rohini Somanathan, Delhi School of Economics, Dr. D.K. Srivastava, Madras School of Economics and Prof. Amar Yumnam, School of Social Sciences, Manipur.
The participants suggested setting up of an Asset Management Office especially to manage central Government urban land in various metro, two tier and three tier cities.
Another suggestion was to have higher tax rates for high income group, widening of tax base and effective enforcement of tax laws to penalise those who hide their income and pay less tax as well as those who despite high income do not pay any tax at all. Many participants favoured introduction of inheritance tax and certainty in tax laws and early resolution of tax disputes in a time bound manner.
Some participants suggested make reforms at regular intervals to keep the market sentiments high. Another proposal was to put BASEL III Reforms on hold for a year keeping in view the current economic situation. Another suggestion was to give incentives to boost small savings schemes as savings under these schemes have gone down by 5% over the years. Another suggestion was made to reduce the interest rate and agriculture credit be doubled.
Some participants recommended for quick action to bring inflation down to the level of 4%-5 % at the earliest, higher investment in health & education sector, higher capital expenditure on agriculture and for increasing storage capacity for food grains.
Some suggested that the budget should promote renewable energy and also help in bringing pollution level low to improve quality of life especially in metro and big cities. Another suggestion was made to increase fees for higher studies in universities and professional institutions and divert extra funds for primary and secondary education for poor and weaker section of society.