'Govt working to overhaul financial market legislation'

Calling for innovative steps to deepen the capital markets, the Economic Survey today said the government is working on a series of regulatory overhauls to better safeguard the financial sector.

The pre-Budget annual report card on the state of the economy, which was tabled in Parliament today, said the capital markets performed well in 2010, with a record quantum of funds raised in the primary market and the highest-ever levels being reached in the secondary market also.

The Survey said that record foreign inflows helped support the market, while "prudent regulations and institutions protected the economy from the recent global financial shocks and its dynamism is now leading the current recovery."

"Looking to the future, the twin challenges are to continue this progress on gradual financial reform and to modernise regulations and institutions to ensure its continued safety and stability," it added.

The Survey also called for innovative solutions to deepen the domestic capital markets and the role of non-bank institutions, especially in corporate bond and debt markets.

"The government and RBI have already begun a series of essential regulatory overhauls aimed at updating the modern legislation underlying financial markets and improving macro- prudential safeguards and institutions," it said.

"We need to continue along this path," the Survey said.

"Broader and deeper financial markets will be crucial for mobilising higher savings and intermediating them efficiently to finance higher investment and growth," it added.

About the robust fundamentals of capital markets, the Survey said the market started moving toward strong growth during 2010-11 after putting the worst behind it.

The markets witnessed Rs 46,701 crore worth of funds being raised through IPOs, FPOs and rights issues till November, 2010, in the current fiscal, as against Rs 46,737 crore in the whole of 2009-10.

The average IPO size was Rs 827 crore, as against Rs 633 crore in the previous year.

Besides, assets being managed by mutual funds grew to Rs 6,65,282 crore as of November 30, 2010, from Rs 6,13,979 crore at the end of the previous fiscal.

In the secondary market, the benchmark Sensex and Nifty indices grew by 17 per cent and 17.9 per cent, respectively, in the current fiscal till December, 2010.

The Survey said the markets grew by 18 per cent in the 2010 calendar year, helped by robust foreign investment and a resurgent domestic corporate sector.

The Sensex and Nifty recorded record high closing levels on Diwali (November 5, 2010) and the markets grew higher for eight straight quarters till the end of the last quarter.

Listing out the major policy developments, the Survey said that Sebi was creating a separate stock exchange platform for SMEs and applications have already been received for setting up these platforms.

Besides, the government was working on setting up the Financial Sector Legislative Reforms Commission (FSLRC) for rewriting and cleaning up financial sector laws to bring them in tune with current requirements.

"It will evolve a common set of principles for governance of financial sector regulatory institutions" and would also look at examining the possibility of greater convergence of regulation.

The FSLRC would streamline the regulatory architechture of financial markets, the Survey said.

It also said the Financial Stability and Development Council (FSDC) was set up as an apex level body with the Finance Minister as its Chairman and heads of financial sector regulators as members.

Besides, the external commercial borrowing (ECB) policy was also revised for the benefit of various sectors.

A working group on foreign investment in the country also submitted its report and suggested rationalising the present arrangements relating to FIIs, NRIs and other foreign investments by foreign venture capital investors and foreign private equity funds.

India also joined the Financial Action Task Force (FATF), an inter-governmental body responsible for framing global standards on anti-money launderning and combating the financing of terrorism.

In addition, it became a member of the Eurasian Group on Anti-money Laundering and Combating the Financing of Terrorism (EAG), the Survey noted.