Rewind. Please protect domestic investors too

Prime Minister Narendra Modi, in New York for the UN General Assembly, is meeting investors and making a strong pitch for them to invest in India.

India needs direct investment for manufacturing jobs and the best available technologies that will affect existing industries.

Also, the Finance Ministry has announced that it would amend its tax law retrospectively to ensure that foreign companies without a place of business in India are not subjected to MAT (Minimum Alternative Tax).

The Indian bureaucracy is a master at igniting fire when there is no need, and then backing off in the face of the ensuing brouhaha.

While it is good that these companies would be exempted from MAT, as per law, why did the tax department make the claim in the first place? Besides protecting foreign investors, the Government must also protect domestic investors.

It is lack of perceived protection that is preventing individual investors from investing more in financial assets, and making them lean towards physical assets such as gold and property.

Less than 3 per cent of the population invests in equity, even though India has, in the Bombay Stock, the oldest stock exchange in Asia, over 135 years. This is a poor reflection of the ability of our system to attract savings into equity investment. The Government has made dividend and long-term capital gains (over one year holding) free of tax; this is an incentive that is not available for any other asset class.

So, if in spite of such incentives investors are not attracted to equity investment, it is mainly because of a perceived lack of protection.

The Government has done nothing to penalise the scamsters of Sarada, a collective investment scheme, and NSEL, an exchange left unauthorised and in default. Blithely stating that the law will take its own course is a dereliction of duty, for it is an unequal contest.

The victims have, after being duped, fewer funds to fight protracted legal battles, whereas the scamster, using their money, can afford the best lawyers and delay their day of reckoning.

If the Government seriously wants to encourage investment in financial assets, it has to take a proactive role in penalising scamsters.

In the case of PACL, SEBI has levied a fine of ₹7,269 crore, three times the profit it made from a collective investment scheme.

Why not take equally stern action against others? Work with the judiciary and restrict adjournments to two per side per trial, as is the global norm.

When the Prime Minister is touring the world in search of best practices, why not adopt them in the judicial arena, for justice delayed is justice denied.

Why is this important? India’s savings rate is 30 per cent of GDP or over $550 billion.

Even if 10 per cent of this went into equity investment it would be far more than what foreign investors bring in every year. Is it not more sensible to make an effort to assuage the concerns of domestic investors?

Last week the Sensex lost 355 points to close at 25,863. The RBI will announce its credit policy this week and the market expects a 25 basis point rate cut. The market would rally only if the actual cut turns out to be higher.

The writer is India Head, Euromoney Conferences

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