Financial market seeks incentives for NBFCs, AIFs in pre-Budget meeting

'Revisit the safe harbour clause under Section 9A of Income Tax act that encourages offshore funds to invest in India'

[This story has been updated]


A group of financial and capital markets players met Union Finance Minister Nirmala Sitharaman for pre-Budget consultation on Thursday and put forth a clutch of demands, including taking measures to bring down reliance of NBFCs on bank funding, and encouraging insurance and pension funds to participate in the alternate investment funds (AIF) industry to finance infrastructure.

Consistency in the tax policies was also one of the key demands.

Sitharaman is likely to present the Union Budget 2024-25 in the second half of July.

Raman Agarwal, Co-Chairman, Finance Industry Development Council suggested that Small Industries Development Bank of India (SIDBI) should allocate funds to fund non-banking financial companies (NBFCs).

“We have suggested that a process should be initiated to bring down reliance on bank funding for NBFCs. Moreover, NBFCs are facing anomalies in the recovery process which needs to be addressed,” he added.  

Representatives from the mutual fund industry and market participants also requested the FM to revisit the safe harbour clause under Section 9A of Income Tax act.

They flagged instances where offshore players raked-in huge profits on the back of algorithmic trading in options.

One such instance which came to light is the US-based hedge fund Jane Street which earned over $1 billion through its secret options strategy. The strategy used in India has been their most profitable one.

The representatives requested for stringent tax structures to address such outflows.

“When people like Jane Street come to trade in India, they do not add any value to us but make a lot of profit and take it away. They are more talented and have more capabilities, so invariably they make money. Ultimately it is the retail traders’ loss. A way to address this is if we can levy higher tax on them. Let them pay higher STT if their turnover is high,” said a market participant present in the meeting.

Meanwhile, another participant in the meeting, Nilesh Shah, managing director of Kotak Mahindra Asset Management Company said that he has requested the finance minister to launch a campaign to create financial inclusion for millions of Indians who are stuck in Ponzi schemes and speculations.

“We have enlisted more than four crore Indians to participate in the journey of Viksit Bharat and secure their financial freedom. We need to reach out to far more Indians now to secure their financial freedom,” he added.

Ashley Menezes, Chairman, Indian Venture and Alternate Capital Association (IVCA) in a statement said IVCA made suggestions to mainstream AIF investments and encourage large domestic capital pools of insurance and pension funds to participate in the AIF industry to finance infrastructure, start-ups, scale-ups & growth companies.

“IVCA also urged the government to operationalise the 2022 budget announcement of blended finance as well through a Fund of Funds approach managed by competent managers for directing capital to strategies which are in alignment with government priorities,” he added.

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IVCA also urged the government to operationalise the recommendations of the Expert Committee on private equity and venture capital (PE-VC), chaired by former Securities and Exchange Board of India chairman M Damodaran.

The committee had submitted a report outlining potential growth accelerators for the industry.

Emerging from the two-hour meeting with the finance minister, Arun Kohli, MD & Country Head, Morgan Stanley India Company, said industry has asked for consistency in the tax policies.

“Tax policies need to be stable and long-term oriented. India should continue with the fiscal discipline path,” he added.

Participants also gave their views on capital gains tax and securities transaction tax.

George Alexander Muthoot, MD of Muthoot Group, said that some of the players pitched for deepening the market and providing some tax incentives.

The meeting was also attended by finance ministry secretaries and senior officials.

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