NEW DELHI: India moved yesterday to encourage investors to put more money in the stock market and spur companies to borrow cheaply abroad as it pressed ahead with its new reform drive.
The announcements, coming on top of a string of other liberalisation measures to open up India’s retail, aviation and broadcasting sectors to greater foreign investment, spurred stocks to a 14-month high.
Finance Minister P Chidambaram announced a tax incentive scheme for new investors earning below Rs1m ($19,000) a year who invest up to Rs50,000 in the stock market. “There are millions of people with surplus assets and I hope this will encourage them to come to the market,” Chidambaram told reporters here.
In a bid to boost investment to modernise India’s dilapidated roads, ports, highways and other infrastructure, Chidambaram also said he was slashing a tax on overseas borrowing by firms to persuade them to seek cheap loans abroad.
The central bank’s benchmark lending rate is at eight percent while the key US federal funds rate is near zero percent.
India’s leading 30-share Sensex Index finished up 2.2 percent at 18,752.83, its highest level since July 2011.
Investors were buoyed by optimism the government will move ahead with other reforms, despite the pullout from the Congress-led coalition government of a key partner yesterday in protest against the market-opening measures.
“The buoyancy is there due to a decisive signal from the government that reforms will continue,” said Alok Churiwala, managing director of Mumbai’s Churiwala Securities.
Retail and aviation stocks were among the biggest gainers after the government signed into law late on Thursday a decision to allow wider foreign investment in the sectors. Infrastructure companies jumped as well. India aims to spend around $1 trillion on overhauling its infrastructure in the coming five years and hopes that much of the investment for projects will come through through public-private partnerships.
The Indian currency also climbed, hitting a four-month-high of Rs53.38 against the dollar on hopes that foreign investor sentiment towards India would improve and lead to stronger overseas inflows.
The new equity investment scheme is designed to boost domestic capital markets and promote a greater “equity culture” in India, Chidambaram said, adding “we must wait and see” how much investment in stocks was generated by the plan.
Under the stock market scheme, investors will get a 50-percent deduction from their taxable income of the sum invested. Retail investor participation in the stock market is still relatively low in India with many people’s savings going to gold, real estate and low-risk avenues like high-yielding bank deposits.
AFP
