In an interview, Nirmal Jain, the chairman of India Infoline, says securities transaction tax is a major dampener for intra-day traders, financiers and hedgers who provide liquidity to the market.
Q: Given the current challenges, what, in your opinion, would make a good budget? What measures or proposals would you like to see?
A: In the present circumstances, the budget has to focus on:
(a) reviving the investment cycle
(b) addressing the current account deficit
(c) reducing the fiscal deficit
(d) reviving growth momentum
(e) providing a feel-good factor
The budget should have sops for new capital expenditure, reduce subsidies, incentivise exports, contain non-essential imports, etc. Besides, the budget should have some pragmatic measures to remove hurdles from power and other infrastructure projects and show some concrete progress on introducing GST (goods and services tax).
Q: Given the constraints the government faces in raising revenue, do you see a case to increase income tax rates on the rich?
A: Yes, on the rich and super-rich. The finance minister has to be cautious and avoid the temptation of radical change as that can give rise to a parallel economy. Fortunately, in the last two decades, the parallel economy has declined and nobody wants that process to reverse.
Q: Please identify the cut-off in income beyond which you would classify a person as rich.
A: I would say that the cut-off income may be something like Rs 36 lakh per annum and tax increase can be five per cent p.a. for this super-rich class. There is also a case to levy inheritance tax, which the FM can start in a small way. The inheritance tax or estate duty is prevalent in many countries and can, over time, be a significant contributor to revenue.
Q: If the budget does not meet expectations, do you fear that business sentiment would once again dip?
A: Yes, business sentiment is very fragile and can be shattered again.
Q: Specific to your sector, what could the current budget do to improve conditions?
A: Broking volumes have been falling. I think if somebody looks at data it's very clear that the securities transaction tax (STT) has to be removed completely, even if that means some increase in short-term or long-term capital gains tax. In this market, investors will come only where there is liquidity, which is provided by intra-day traders, financiers and hedgers. For them, STT is a major dampener. It will be a pity if, instead, the same is extended to commodities. Also schemes to attract new investors to equities should not be as complicated as the Rajiv Gandhi equity scheme. There can be simple boosters not only to equity but also to mutual funds, insurance and pension investments.
Q: Which budget, in the recent past, do you recall as having been a good one?
A: It is difficult to pinpoint any one budget as such. Maybe the 2010 budget was good as it put more money into the hands of consumers with lower taxes and significant increases in tax slabs. At that point in time, that was the need of the hour to boost consumption.