The committee on financial sector reforms headed by Raghuram Rajan has come out with the recommendation that provident funds and insurance companies should be allowed to invest abroad. The committees''s draft report has also demanded the introduction of true auctions in securities, reduction in the auction and trading period, unified disclosure norms for multiple securities, use of call options for opening and closing price on exchanges and removal of regulatory restrictions against algorithmic trading.
Additionally, the panel recommended the creation of investment avenues, especially in foreign government securities, to relieve the pressure on inflows. The government and the Reserve Bank of India can always regulate these outflows depending on foreign exchange flows, it pointed out. In recent times, policymakers have been grappling with the rupee appreciation on account of large dollar inflows into the Indian markets.
The committee has said the central bank should refrain from intervening in the foreign exchange market to modulate the exchange rates. A large number of foreign investors in the government bond market will result in more liquidity and allow the domestic banks and institutions to focus on other areas. While arguing that fiscal discipline is essential to financial sector liberalization, the panel has stressed on capital account convertibility and discontinuation of the securities transaction tax.
The government and regulators should refrain from imposing a ban on trading. On budget eve last year, futures trading in commodities such as wheat was halted, citing inflation.
India has a strong equity market in place. But the environment needs to be made more conducive to private equity, venture capital and hedge funds. Mutual funds and pension funds (when they emerge) should play a more active role in governance. The corporate bond market is moribund and will have to be revived. Indian companies and investors need better access to international financial services and the Indian financial firms need to enhance their production of international financial services, the committee observed.
The committee said a number of financial sector reform initiatives could be pushed through within the existing legal framework and listed a dozen such initiatives. With debt markets gaining in importance, particularly due to the large infrastructure financing needs, the committee emphasized on linking the bonds, currency and derivatives (BCD) markets to improve efficiency and finally connecting them with the equity markets.
Additionally, the panel recommended the creation of investment avenues, especially in foreign government securities, to relieve the pressure on inflows. The government and the Reserve Bank of India can always regulate these outflows depending on foreign exchange flows, it pointed out. In recent times, policymakers have been grappling with the rupee appreciation on account of large dollar inflows into the Indian markets.
The committee has said the central bank should refrain from intervening in the foreign exchange market to modulate the exchange rates. A large number of foreign investors in the government bond market will result in more liquidity and allow the domestic banks and institutions to focus on other areas. While arguing that fiscal discipline is essential to financial sector liberalization, the panel has stressed on capital account convertibility and discontinuation of the securities transaction tax.
The government and regulators should refrain from imposing a ban on trading. On budget eve last year, futures trading in commodities such as wheat was halted, citing inflation.
India has a strong equity market in place. But the environment needs to be made more conducive to private equity, venture capital and hedge funds. Mutual funds and pension funds (when they emerge) should play a more active role in governance. The corporate bond market is moribund and will have to be revived. Indian companies and investors need better access to international financial services and the Indian financial firms need to enhance their production of international financial services, the committee observed.
The committee said a number of financial sector reform initiatives could be pushed through within the existing legal framework and listed a dozen such initiatives. With debt markets gaining in importance, particularly due to the large infrastructure financing needs, the committee emphasized on linking the bonds, currency and derivatives (BCD) markets to improve efficiency and finally connecting them with the equity markets.
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