Pace of reforms continues

COMMENT/ P Krishnamurthy, Vice-Chairman, JM Morgan stanley

The finance minister has presented a pro-reform budget with increased focus on social sector, while giving positive signals for investment (in agriculture and infrastructure) led growth and investor sentiment.

The biggest positive for domestic investors is in the removal of long-term capital gains tax on securities and reduction in short-term capital gains tax to 10 per cent.

However, it is probable that at the same time, the volumes in the secondary market may be impacted by the transaction tax of 0.15 per cent. There is need for clarification on the applicability of this tax on the government securities market.

Foreign investors who were waiting to get a clearer picture of government policies should react positively to the increase in overseas investment limits in telecom, insurance and civil aviation.

The raising of FII limits in the debt market to $ 1.75 billion from the earlier limit of $ 1 billion, and the simplification of registration procedures are the other positives.

The government's willingness to sell down its stake in the public market (up to 49 per cent) is also a clear indication of being flexible in disinvestment.

The government's decision to leave small-savings rate unchanged was also on expected lines. However, given the large misalignment of the small-savings rate from the market rates, I would say that it would be prudent for the government to sooner or later come up with a solution.