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Addressing the stock broker community during the launch of MCX-SX, India’s third national stock exchange, he emphasised the need to being in more retail investors into financial instruments and said he would make Rajiv Gandhi Equity Savings Scheme (RGESS) more attractive in the forthcoming Budget. The minister also said the financial regulators should simplify the Know Your Client (KYC) requirements and make them uniform.
The finance minister also asked banks to improve their operational efficiency to bring down interest rates and hand hold companies that are facing financial stress. Banks should give impetus to the consumer loans business, especially home and educational loans and put pressure on builders to cut prices as a step to push demand, Chidambaram said, during an interaction with senior executives of the State Bank of India.
Chidambaram said it would be difficult to retain the current employment levels if the economy did not return to 7 per cent growth. “For India, 8 per cent growth rate is imperative. 7 per cent is imperative to retain existing level of employment. And 8 per cent growth rate is imperative to absorb the new people in the job market,” the finance minister said.
He made his displeasure about the CSO estimate loud and clear by saying that the calculations used by CSO were not accurate. “I know that all of us are concerned about the low growth reported by the CSO. Many in the government believe that the data, based on the which CSO reported growth rate of 5 per cent a year is dated data,” he said.
”CSO has extrapolated the data for the period April-November into the year. That would be normally correct when the trend-line continues in the same directions. But when the trend line changes, extrapolation is not the method that the statistician should flow to project the future.”
Chidambaram said the economy was beginning to see an upturn, albeit at a very slow pace. “It is not a V-shape upturn. It is a very long and shallow U. In the second half of this fiscal there are indications of green shoots in the economy. Going forward, we believe the economy will return of close to 5.5 per cent,” he said.
Chidambaram, who formally launched RGESS in a separate function organized by the BSE today, said different sets of regulations to invest in financial products were putting off investors.
“I think we have too many regulations. I think it is important that KYC norms for all intermediaries within a market regulator should converge and become one set of KYC norms. 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,” said Chidambaram.
The finance minister said it was very difficult for a bank account holder to open a demat account. He said the lack of KYC norms was encouraging investors to buy gold coins. “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,” he said.
On RGESS, Chidambaram said he would bring about changes in the rules to make the scheme more attractive to retail investors “Concerns are being raised that the scheme is too complex for a small investor to understand. Some pointed out that provision of 50 per cent of the contribution up to Rs 50,000 be permissible as deduction is not an adequate incentive,” he said.
Chidambaram asked regulators to make attempts to prevent a crisis rather than act after one breaks out.
“The crisis of 2008 can be attributed to the fact that the innovators remained one step ahead of the regulators. In the US they say regulators were sleeping on their job. I would therefore urge that the regulators always remain one step ahead of the innovators. The innovators employs two nerds the regulator must employ three nerds to remain one step ahead of them,” he said.
Chidambaram, who will present the Union Budget later this month, also raised concerns over high non-delivery based trades and export of trading to the overseas market.
“Perhaps it is in the nature of the stock exchange that the majority of the trades are non-delivery based but we must find out how significant number of trades end in delivery,” he said. “In the case of options (trading), we find that the market is shifted overseas. “
“These are the things which are engaging government attention. We should find ways and means to bring the option market back to India or at least substantial portion back to India,” he said.
