Ex-jt secy pitches for STT cut to increase FII limit

Ex-joint secretary of capital markets, Thomas Matthew has made a strong pitch for a cut in securities transaction tax (STT) to bring in higher FII limits. Matthew says a 70-80% reduction in STT could bring about an increase in FII limits in corporate bond markets. He added that some reduction of long term capital gains would be welcome.

Further, Matthew feels tax reduction has to be balanced with revenue requirements and it is important to interact with ratings agencies on a regular basis. India's efforts to re-affirm a sovereign rating has also been hailed by him.
Moreover, Matthew has recommended a quota for QFIs for divestment purposes. According to him, QFI flows have been more stable than the FIIs and it can get USD 40-50 billion to the country. The Rajiv Gandhi Equity Scheme too can mop up Rs 1.16 lakh crore, he added. Below is an edited transcript of the interview on CNBC-TV18. Q: Has the finance ministry formulated a plan for reviving FII investment?
A: I think STT needs to be lowered. India's STT is one of the highest in the world. If you make a comparison, you will find that the cost of transaction in India is almost 330% than the cost prevalent in other BRIC countries. It is 325% costlier when you compare it with the G7 economies. When you compare it to the emerging markets (EMs), it is 145% higher. All these facts make a very strong case for reduction in STT. Q: The Shome Committee has recommended an abolition of the capital gains tax and on listed securities for residents and non-residents. Will it work?
A: A certain amount of reduction, I think, is welcome, but it has to be balanced with the need for higher revenue. Q: Do you see a further scope of capital account convertibility especially in terms of hiking caps for FII investments in G-Secs and corporate bonds?
A: We increased G-SECs in the last two years by about 100%. The ECB for FY12 increased by 40% over the previous year. So in terms of inflows, I agree we could consider probably an increase in the corporate debt limit. G-Secs, however, requires deeper analysis. Q: What would be your outlook for the markets in the near-term, especially considering the QE3?
A: In the calendar year 2012, our markets have risen substantially. NSE recorded the second-highest growth in the world followed by the DAX, BSE and the Strait Times. So, after such a sharp rise, I do not think QE3 would have any significant impact.