‘Capital markets must raise funds for infra’

Modi conducts rituals from a hovercraft for a mega Shivaji memorial off the Mumbai coast.

RAIGAD: Prime Minister Narendra Modi strongly hinted on Saturday at the prospect of higher taxes on income from stock markets saying people making profits from the markets must contribute to nation-building through taxes.At present, gains from the stock market enjoy easier taxes compared to incomes from many other sources, including bonds and fixed deposits. Coming from the PM a little over a month before the Budget, financial sector players feel tax on long-term capital gains may be imposed.The remark assumes added significance since finance minister Arun Jaitley and his deputy, Arjun Meghwal, were present at the opening of a new campus of the National Institute of Securities Market.Prime Minister Narendra Modi said, “Those who profit from financial markets must make a fair contribution to nation-building through taxes. For various reasons, the contribution of tax from those who make money on the markets has been low. To some extent, it may be due to illegal activities and fraud. To stop this, Sebi has to be extremely vigilant. The low contribution may also be due to the structure of our tax laws. Low or zero tax rate is given to certain types of financial income. I call upon you to think about the contribution of market participants to the exchequer. We should consider methods for increasing it in a fair, efficient and transparent way.”Addressing concerns over demonetisation , he said the government would not shy away from taking difficult decisions if they were in the country’s interest; nor would it take decisions to score short-term political points.The PM took a dig at the rich and the privileged and said that stock markets should benefit a larger section of the population, not just a select few. “The markets must provide benefits to the largest section of our society — namely our farmers. The true measure of success is the impact on villages, not the impact on Dalal Street or Lutyens’ Delhi. By that yardstick, we have a long way to go,” he said.The government has been under attack from opposition parties, spearheaded by Congress vice-president Rahul Gandhi, for what they claim is the faulty implementation of the note ban that has ended up in punishing the poor rather than the corrupt.Modi called upon the ministries concerned and Sebi, which now regulates the commodities derivatives market as well, to look for ways so that the benefits from the formal, electronic commodities market trading mechanism could percolate down to farmers. “Our commodity markets must become useful to our farmers, not just be avenues for speculation. People say that derivatives can be used by farmers for reducing their risks. But in practice, hardly any farmer in India uses derivatives,” he said. “Until and unless we make the commodity markets directly useful to farmers, they are just a costly ornament in our economy, not a useful tool.”The PM said that e-NAM, the electronic National Agricultural Market, is already in place and now Sebi “should work for closer linkage between spot markets like e-NAM and derivatives markets to benefit farmers”.He also urged the stock market to facilitate fund-raising for the country’s infrastructure projects, which are currently mostly government-financed. “For infrastructure projects to be viable, it is very important that the borrowing should be of long duration. It is said that we do not have a liquid long-term bond market. Various reasons are given for this. But surely this is a problem which the financial brains in this room can solve, if you really put your minds to it. My call to you is to find ways to enable the capital markets to provide long-term capital for infrastructure… Bond markets must become a source of long-term infrastructure finance,” Modi said.He expressed disappointment at the absence of a municipal bond market in the country. In most developed markets around the world, municipal bonds, popularly called ‘munis’, form a large part of the bond market turnover. Modi asked Sebi and the department of economic affairs (of the finance ministry) to ensure that at least 10 cities in India issue municipal bonds within a year.