Focus on finance

Budget measures will strengthen financial markets

The Union Budget declares intentions of improving processes in financial markets by using a combination of technology and enabling regulators to create more effective feedback mechanisms to review regulations. There is also to be a focus on skilling professionals in financial markets and measures are being taken to make Gujarat International Finance Tec-City (GIFT) a more attractive destination. Such measures could lead to greater financial inclusion and higher participation, including overseas participation in the markets. This would enable household savings to be deployed more efficiently for faster economic growth.

Apart from equity markets, such measures should help to foster activity in bond markets. Indeed, in most major economies, bond-market volumes far exceed those of equity. The Budget advocates reforms in property-tax governance and ring-fencing user charges on urban infrastructure to enable the issue of municipal bonds. The details of these measures will be critical, and also the degree of freedom accorded to municipalities to raise funds. A national financial information registry will be set up to serve as a central repository of financial and ancillary information. This will also facilitate the efficient flow of credit. A new legislative framework will be created to govern this public infrastructure in consultation with the Reserve Bank of India (RBI). Again, this would certainly help bond-market activity since it would enable a more transparent flow of information to potential investors in debt.

In addition, financial-sector regulators will be asked to carry out comprehensive reviews of existing regulations to see what can be tweaked to increase ease of investing and to reduce the cost of compliance. They are to consider suggestions from the public and regulated entities. Time limits will also be set to process applications made under various regulations. While consultation papers are frequently released by the Securities and Exchange Board of India (Sebi), improving the feedback mechanism in a proactive fashion could be an effective reform. Among the measures being taken to enhance business activities in GIFT International Financial Services Centre include delegating powers under the Special Economic Zones (SEZ) Act to the International Financial Services Centres Authority (IFSCA) and making amendments to the IFSCA Act for statutory provisions for arbitration, ancillary services, and the avoiding of dual regulation under the SEZ Act. A single-window system will also be introduced for registration and approval from authorities such as the IFSCA, the Goods and Services Tax Network, the RBI, and Sebi. Acquisition financing by the IFSC units of foreign banks will be permitted and a subsidiary of Exim Bank will be established for trade refinancing. GIFT will recognise offshore derivative instruments as valid. All these changes are designed to attract more overseas investment.

Besides, Sebi will be empowered to develop, regulate, maintain, and enforce norms and standards for education in the National Institute of Securities Markets and also to recognise awarding degrees, diplomas, and certificates. This is in order to build skills and capacities among professionals in the securities market. It is a time-consuming process for investors to reclaim unclaimed shares and unpaid dividends. Measures are also being taken to ease and accelerate this process with an integrated IT portal to be established at the Investor Education and Protection Fund Authority. The Budget’s intentions in this regard are laudable. However, the details of how all these ideas are to be accomplished will be critical to the success.