The Union Finance Minister has the daunting task of reviving a moribund primary market whose capacity to raise fresh issues has plummeted in the last three years by over 80 per cent to less than Rs 5,000 crore in 1997-98. For the primary market to revive, the basic perquisite is to improve the quality of the paper offered to the public. As the free market approach has failed miserably, it is necessary to evolve some norms for fixation of premium, if not bring back the old valuation guidelines issues under the erstwhile Capital Issues (Control) Act, 1947 and also to re-introduce the policy of vetting of prospectus by the Securities and Exchange Board of India. Furthers, safety nets in respect of small investors holding upto say 200 shares, to be operative for at least one year needs to be prescribed.A major portion of shares of public sector undertakings involved in disinvestment should be offered to small investors only 15-20 per cent below the ruling market price in the case of listed companies or theexpected post-listing prices in the case of unlisted companies. An instant turnaround in the sentiment can be brought about by a few fiscal concessions like: Revival of erstwhile Section 80 CC of the Income-Tax Act, 1961 (which granted 50 per cent exemption from taxable income of the amount invested in equity shares of eligible new issues and units of mutual funds upto Rs 20,000) with the modifications that the exemption limit be raised to 100 per cent of the investment, the amount itself be increased to Rs 50,000 and the list of eligible securities be widened to include infrastructure projects by existing companies; Restoration of the free limit of Rs 15,000 in computation of capital gains arising out of sale of shares which was withdrawn by the Finance Act, 1992. Grant of total exemption of capital gains tax in respect of investment of sale proceeds of long term capital assets into shares or units of mutual funds within a period of six months up to say Rs 1 lakh. Taxinglong-term capital gains of Indian investors, whether resident or non-resident, at 10 per cent as applicable to foreign institutional investors instead of 20 per cent. Exempting initially securities allotted under stock option schemes at discounts to market price from any tax and subjecting them to tax later at the time of the sale of shares by the employees. Re-introduction of Section 80 M of the Income-Tax Act to encourage investment in mutual funds by corporates and Completely exempting the dividend from mutual funds from income-tax so as to put it on par with dividend from companies.Stock exchanges must be directed to raise the base minimum capital of all listed companies to Rs 5 crore with widespread public shareholding failing which they should be delisted with proper exit facilities for public shareholders. Further, companies whose securities are sparsely traded should be directed to appoint market-makers who have to give continuously two-way quotes with reasonable spreads.Market-makers need to be supplied with shares by promoters and finance by banks preferably on a concessional basis.It is necessary to popularise the depository cult so that the problem of bad deliveries get minimised. Central legislation needs to be effected to exempt transfer of debentures/bonds from payment of stamp duty which today is a state levy so that the facilities of dematerialisation can be extended to these investments.The author is former executive director of Bombay Stock Exchange.
