Economist and former chief consultant with the Union Ministry of Finance, Ashok V Desai, on Wednesday blamed the capital market regulator SEBI for limiting the scope of smaller companies raising equity finance, indirectly contributing to the NPA crisis.

According to Desai, smaller companies in India have little access to equity finance, which makes them disproportionately dependent on bank loans, leading to defaults.

He was talking to media persons on the sidelines of the annual general meeting of the Bengal Chamber of Commerce and Industry, in Kolkata.

Asked if MSME lending is India’s next big NPA threat, the economist said, “We have a lot of bad loans because we have too much of loans. Any business needs equity as risk capital to offset risks of non-payment of loans. In India, the enterprises have far too less risk capital.”

He squarely blamed SEBI for the fiasco for creating “one big National Stock Exchange (NSE)”, where only the big enterprises enjoying the support of government(s) or financial institutions can raise capital. A strong local or regional stock exchanges could have ensured greater access to funds by the MSME sector.

“SEBI has killed the capital market…. It has done terrible damage to our economy. We need a thriving, active capital market in which all kinds of enterprises – large and small – are able to raise funds,” said Desai, who was one of the architects for the creation of SEBI in 1992.

GST, demonetisation

The economist also criticised the government for wilting under political pressure and resorting to multiple tax rates under GST. He insisted that there should be a single rate in GST; apart from exempted items. All categories should be taxed uniformly.

“In my view, present Finance Minister or the present government is extremely sensitive to political pressures. So we have got so many rates. I feel the way this government is doing GST is just not worth it,” Desai said.

Initiatives like demonetisation, he pointed out, will fail to yield desired results unless in-built corruption in the system is taken care of. For instance, a substantial amount of black money goes into real estate which in turn could lead to lower than actual pricing in an area. But regulating such prices (if there is a discrepancy) in the sector is difficult because of ingrained corruption within the system.

Strategic oil fund

Earlier, West Bengal Finance Minister, Amit Mitra, called for setting up a fuel price stabilisation fund that could be used during the spike in crude prices.

Mitra criticised the centre for not building enough strategic reserves when crude was ruling as low as $33 a barrel and called for creation of such reserves as a parallel cushion against price volatility. This is the strategy that the US has been following to build buffer stocks so as to tide over any crisis, he said.

Desai, however, felt it was difficult for governments to anticipate crude price movements and keep buying.

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