By Anjan Roy
NEW DELHI: Pranab Mukherjee’s budget has sought to deepen and widen the reach of the financial sector by bringing about several changes for participation in markets. The equity market has been made more attractive to the retail small investor by giving 50% income tax deduction to new retail investor. This might attract small retail investors to put some of the money into equities.
On the other hand, the finance minister has allowed Qualified Foreign Investors to access Indian corporate bonds markets. He has also permitted two-way fungibility in Indian Depository Receipts subject to some limits. These moves are likely to attract more investors into the Indian capital market.
However, the question is given the overall stance of the budget and the finance minister’s refusal to push ahead with essential reforms, will investors be enthused to put their money. He has created the enabling situation, but will the investor sink in his funds. For that one has to inspire the investor’s confidence.
As for banks, the finance minister has provided another dose of capital infusion into the public sector banks. He is providing Rs. 15,488 crore for recapitalization of the public sector banks. Compared to the needs of recapitalization of the banks, this is surely not enough. Why not create conditions so that the banks can raise funds from the domestic capital markets on their own? The fear of government losing control should not bother, since the banks have very large capital bases. At any rate, the shareholding can be so widely distributed among resident Indians that their could be little control other than that of the government.
In this context, the concept of a holding company to raise funds for the banks is welcome proposal and it should be implemented fast enough.
The budget’s initiatives regarding the regional rural banks are also welcome. The RRBs had played critical role in extending credit in rural areas at low cost. Unfortunately, most of the RRBs had fallen sick and unviable. Their recapitalization and further strengthening, both in terms of financial resources as well as manpower, has been going on. Mr Mukherjee has given a push to carry on with this process.
The business correspondents have been extending banking facilities more intensively. The favourable treatment proposed for BCs should help more such nodal agencies to start functioning in the rural areas to cater to small time requirements of spread rural customers. (IPA)
