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Savings
Indians save. What has saved India is that Indians save. Even a poor saves in India. At its highest point, savings accounted for 36% of GDP and even at its lowest time domestic savings account for 30% of GDP. Even in times of adversity Indians save. But if you look at the places where they save, around 56% of household savings are kept in physical assets. It's a small proportion which finds its way into financial assets.
Inability to channelise household savings in equities is regrettable
After nearly 22 years of liberalisation, allowing large number of market participants, intermediaries, development of the capital markets and putting in place strong capable regulators and regulatory bodies, it's a matter of regret that savings are not being channelised into financial instruments. The RGESS is intended to fill a gap to woe the first time investor.
On RGESS
It is a limited and reasoned departure to encourage low and moderate income individuals to consider moderate and balanced equity investments of the margins to the long term objective of benefitting from the upside returns associated with the long term with equity markets. That is where the problem lies. People view the equity markets as largely speculative, they want instant returns and they are not willing to wait for long term period of time.
RGESS flows from the provisions which were made in the finance bill last year. I found that there are several words which have limited the scope of the section. And these limitations inevitably flowed in the schemes itself. And I know concerns are being raised that the scheme is too complex for a small investor to understand. It is being said that such sophisticated analysis is beyond the capacity of a small investor and complying with lot of them would be difficult. Some pointed out that provision of 50% of the contribution up to Rs 50,000 be permissible as deduction is not an adequate incentive.
As I said some of these limitations flow from the language of the section. But within the limitations imposed by the language, we have tried to be creative and allowed MFs. Initially it was only new retail investors we extended it to include the large number of de-mat account holders who may not have transacted in equities through a de-mat account and taken any derivatives trading till date.
Changes to be made to RGESS
But I have assured the regulator and others that we will take the opportunity in the next budget in the next finance bill to revisit that section and in the light of experience gained while designing the RGESS we will make changes to that section so that the scheme becomes attractive to retail investors. We will revisit the provision of the law to make RGESS even more attractive and easier for more and more people to invest.
On Regulations
I think we have too many regulations. Too many regulations not taking note of other regulations. In fact, even for a bank account holder it is very difficult to open a de-mat account. I think it is important that KYC norms for all intermediaries within a market regulator should converge and become one set of KYC norms. The next step is to converge the KYC norms of different regulators. We cannot have mutliple KYC norms for intermediaries and participants who are under one regulator. And worse, have different set of norms between regulator and regulator.
What puts off the investor?
All this puts off the investor. And when investor stays away what is the justification of so many regulators and so many market participants. The aim must be to attract investors. We must make a distinction between ex-ante enquiries and ex-post enquiries. If you ask too many questions before an investor can open an account or become a participant , you frighten him away. If I have a bank account why should not I open a de-mat account straight away with a stipulation that the de-mat account will be operational in two weeks from today. And ask him all the questions in that period of two weeks. But if you do pre-investigation before opening an account I have no doubt in my mind that 5 out of 10 potential investors are scared away and they will say why should I waste my time, lets go and buy gold coins. There are no KYC norms to buy gold coins.
Compete to attract money
You are competing with the same money, you are competing for the same investor and must make yourself as attractive to investors as the other investment opportunities. And I want you all, especially the regulators and heads of all these bodies to sit back and say why are we making life more complicated. Life must be made simple.
Economy
Economy is indeed challenged but I am confident that we will come out of the trough and we will climb back to high growth path.We will climb back to the growth rate between 6 and 7% next year and between 7 and 8% in the year after. Even in the current year we believe that growth will be close to 5.5% rather than CSO estimates of 5%.
