Spirit Willing...

But while the finance minister's spirit may be willing, the flesh in the shape of the announced measures seems to be surprisingly weak. It is difficult to envisage any investor putting his money in the stock markets solely because the exemption limit under Section 80L of the Income Tax Act has been raised from Rs 13,000 to Rs 15,000 and while the exemption on capital gains is welcome, the fact remains that most investors in the stock markets have incurred very large capital losses in the recent past. Also in the right direction is the relaxation in stock lending limits, although it doesn't go far enough. It is a mystery why individual banks are not allowed to make their own decisions on their limits for advances against shares and the margins to be retained. Just as it makes little sense to have a uniform limit for all advances against shares, irrespective of the standing of the borrower, a uniform margin against all kinds of shares is similarly devoid of sense. The market continues to expect some concessions on the minimum alternate tax.

 

On the other hand, the finance minister's promising to persuade UTI and LIC to prop up the markets is fraught with problems. While other intervention will result in the markets moving upwards, there exists the danger that these institutions may well end up receiving stocks dumped by others. Rather than go in for such desperate measures, the government would do well to expedite structural reforms in the market, such as the depository, in order to attract investors back to the market.