Banks, PFs should evolve new instruments to boost capital market: FICCI

By Our Special Correspondent

CHENNAI, JAN. 20. The Federation of Indian Chambers of Commerce and Industry (FICCI) today called for introduction of new instruments from banks, provident funds and pensions to boost capital market investments.

Speaking to reporters here, Mr. Chirayu R. Amin, President, FICCI, said banks were allowed to invest 5 per cent of the domestic advances, which amounted to Rs. 25,000 crores, in the capital market. This would give a definite boost to the market. But in reality, the banks did not invest even Rs. 1,500 crores. It was mainly due to a mental block among banks and the lack of research. It called for ``urgent attention''.

New instruments should offer hedging facilities for the investors. It would help the industry to regain control over the capital market, which seemed to have been lost to FIIs.

Mr. Amin said corporate tax should be stabilised at 30 per cent and surcharge abolished, tax on dividends and MAT should be abolished and interests be lowered. He also highlighted the need for widening the tax base. In India, 30 per cent income-tax rate was applied to incomes exceeding Rs. 1.50 lakhs whereas in China, it was applied to incomes over Rs. 30 lakhs. The ceiling, hence, should be raised to Rs. 5 lakhs.

Mr. Amin said the country needed to accelerate reforms. About 60 to 70 per cent of the reforms were to be implemented by the States. Areas like power, labour, licensing and infrastructure were not reformed, ``the Indian industry will have a tough time''.

Responding to a question, he said labour reforms would help generate more employment. Mr. R. S. Lotha, Vice President, FICCI, said it would help employ more people, which was the country's main capital, than bring in automation.

Mr. Amin said about 85 per cent of the Indian companies did not have any plans for new investments. And there was a total lack of interest in the primary capital market.

About non-performing assets (NPA) of nationalised banks, Mr. Amin, Mr. Amit Mitra, Secretary General, and Mr. R. V. Kanoria, Vice President, said the industry's share in the principal borrowing was only Rs. 7,000 crores. Out of the Rs. 60,000 NPA, Rs. 25,000 was accounted for by the PSEs.

About Southeast Asian price advantage, which also resulted in a deluge of cheap imports of consumer products, the FICCI representatives said after the East Asian meltdown, the countries in the region had a tremendous edge over India. The currencies depreciated by about 150 per cent while the rupee appreciated. In these countries, power and labour were available in plenty and at competitive prices, they said. The reform process should adjust itself to competitiveness.

The executive members of FICCI met in the city today.

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