India launches reforms to boost stock market
New Delhi, September 22, 2012
India moved to encourage investors to put extra money in the stock market and spur more domestic companies to borrow cheaply abroad, leading to fresh leaps on the Bombay Stock Exchange yesterday.
Finance Minister P Chidambaram announced a tax incentive scheme for new investors earning below one million rupees ($19,000) a year who invest up to 50,000 rupees in the stock market.
"Gold is a dead asset," Chidambaram said. "There are millions of people with surplus assets and I hope this will encourage them to come to the market."
Retail investor participation in the stock market is still relatively low in India with many people's savings invested in gold, real estate and low-risk avenues like high-yielding bank deposits.
The new equity investment scheme is designed to boost domestic capital markets and promote a greater "equity culture" in India, Chidambaram said, adding "we must wait and see" how much investment in stocks was generated by the move.
Under the scheme, investors will get a 50 per cent deduction from their taxable income of the sum invested.
The minister's announcement came as the government has been pushing ahead with contentious reforms by opening up the retail, aviation and other sectors to greater foreign investment to spur a slowing economy.
The benchmark 30-share Sensex index was up 2.82pc at 18,866.87 points, with retail and aviation stocks among the biggest gainers after the government signed into law a decision to allow wider foreign investment in the sectors.
"The buoyancy is there due to a decisive signal from the government that reforms would continue," said Churiwala Securities managing director Alok Churiwala.
The Indian currency also climbed, hitting a four-month-high against the dollar of 53.59 rupees on hopes that foreign investor sentiment towards India would improve and lead to stronger overseas inflows.
In a bid to spur investment to modernise India's dilapidated roads, ports, highways and other infrastructure, Chidambaram also said the government would cut a tax on foreign borrowing by local companies to five from 20pc.
Such borrowing would no longer require case-by-case approval for companies seeking cheap loans abroad, he added. "This is to encourage more borrowings at very low costs abroad - this is really for infrastructure," Chidambaram said.
The central bank's benchmark lending rate at which it loans to commercial banks stands at 8pc while the key US federal funds rate is near zero.
India aims to spend around $1 trillion on overhauling its infrastructure in the coming five years and hopes that much of the investment for projects will come through public-private partnerships.-Reuters