As the government tries to use the Chinese economic slowdown as an opportunity for the Indian economy, an expert panel has mooted measures to make the domestic financial sector as well as the Indian currency more internationally competitive and has identified capital controls, mistakes in regulation and taxation as key roadblocks to the goal.
Outlining short-term, medium-term and long-term for currency, equity and commodity derivatives market, the report of the standing council of experts on the Indian financial sector has suggested that all the three should be eventually moved to a residence based taxation regime.
It has also stressed on removing regulatory uncertainty regarding the Singapore and Mauritius tax treaties for foreign participants in the regulatory market as an immediate goal.
“There has been a sharp rise in overseas financial activities on Indian assets. The two most visible of these are the derivatives on the rupee and the market index, Nifty. An active market for these has developed offshore,” said the report, adding that India should consider following in the footsteps of China to make the rupee have a more significant presence in global markets.
“Consider a time-bound plan for the internationalisation of the Indian rupee, in line with the plans of the Chinese government for the internationalisation of the renminbi,” it further suggested for the long term.
In the short term, the council has also recommended rationalising KYC and compliance requirements for non-resident participants in currency, equity and commodity derivatives as well as clarifying the regulatory position on participatory notes. It has also suggested removing the securities transaction tax but without the adverse impact of the capital gains tax.
The council, led by the secretary, department of economic affairs, was set up in June 2013 to review the competitiveness of the Indian financial sector.
As part of medium term goals, it has suggested implementing the goods and services tax as well as setting up an expert committee to rationalise the position and margin limits of currency, equity and commodity derivatives market.