Ahead of the budget, regulator Sebi today said equity markets are well regulated and it has made certain suggestions for deepening of capital markets.
Sebi Chairman U K Sinha, who was among the financial sector regulators present at the FSDC meeting, offered suggestions for the forthcoming budget for 2017-18.
Sinha, however, did not elaborate on the suggestions he made.
"Number of issues and areas were discussed... The market is being well regulated, I don't see any specific risk at this stage," he told reporters here.
PFRDA Chairman Hemant Contractor said that he made a case for making taxation of National Pension Scheme EEE (Exempt, Exempt, Exempt), as against the present EET (Exempt, Exempt, Tax), to bring them at par with EPFO and PPF where the maturity amount is not taxed.
The retirement saving scheme NPS, run by PFRDA, falls under EET category, wherein investment gets deduction in the taxable income and also income/interest/gains are not taxed. However, maturity proceeds are taxable.
In the last Budget, Finance Minister Arun Jaitley had made withdrawals from NPS on maturity tax free up to 40 per cent of the total corpus, while the balance corpus of 60 per cent continue to be taxable.
Under the 'Triple E' category investment, all three accrued interest and withdrawal are exempted from tax. This, according to PFRDA, would help in increasing the customer base.
"Our emphasis was more on increasing pension coverage. The EEE benefit for NPS was the major demand. We have digitised a lot of our facilities," Contractor said.
Often it has been highlighted by the experts that the
regulator needs to visualise the forthcoming crisis or at least detect it at the earliest so that the remedial measures can be put in place immediately.
"Our task is to remain very alert and attempt to forecast likely developments. Still, we cannot anticipate everything," Sinha said.
SEBI was also often criticised in the past for being slow with its investigations and in completing its enforcement actions.
Sinha last year therefore set a target of one year for completing all enforcement actions.
Besides, the regulator improved its success rate at the Securities Appellate Tribunal, where SEBI's orders can be challenged, to well above 90 per cent.
On how narrowly SEBI should regulate the capital markets, Sinha said, "We have to retain a micro approach on regulations to eschew repeated incidents of a similar nature.
"At India's stage of development, SEBI would be taking too many chances by focusing only on broad corporate governance principles. Stakeholders in India are not yet ready to self-comply with principles.
"A principle-based approach works well in markets where institutional investors play a dominant role. Given India's unsophisticated investor base, we have a bias towards introducing specific rules and regulations. Over time, as the market matures, we hope to move incrementally towards a broad principle-based approach."
He also said that it was very important for SEBI to restore and retain the investors' trust in the market, otherwise the investment would start eroding.
Sinha said SEBI faced a unique challenge in striking a balance between regulating and developing the capital markets.
"Effective regulation is necessary for long-term development of capital markets. Taking action against those that manipulate the system will improve investor confidence over time. This will help deepen financial markets.
"However, our duals goals can be contradictory at times. We do not have the luxury of focusing exclusively on the protection of investor interests. If regulations are too severe, they can stifle the industry's growth. We also need to ensure that the regulatory environment is not too punitive for corporates, and that the supply of investment products remains intact.
"This is an important priority. SEBI's task is to strike a very delicate balance between being very tough and theoretical on the one side and ensuring that it is not disruptive.
"Anyone with reasonable intelligence can decide what needs to be done and prescribe that, but if measures are undertaken in the wrong way, they can be so disruptive that they will defeat the purpose they set out to achieve. We can be unpleasant to the extent that it creates confidence," the Harvard study quoted him as saying.
