The Capital Market

Explaining the reforms pertaining to the capital market envisaged in the Budget, the Finance Minister spoke as under:

91. In recent months, the capital market has attracted a great deal of attention. The measures taken in the last year-and-a-half have deepened, broadened and strengthened the market. It is necessary to take more measures. Hence, I propose to:

Increase the limit on FII investment in Government securities from $ 1.75 billion to $ 2 billion and the limit on FII investment in corporate debt from $ 0.5 billion to $ 1.5 billion;
To raise the ceiling on aggregate investment by mutual funds in overseas instruments from $ I billion to $ 2 billion and to remove the requirement of 10 percent reciprocal share holding;
To allow a limited number of qualified Indian mutual funds to invest, cumulatively up to $ I billion, in overseas exchange traded funds; and
To set up an investor protection fund under the aegis of SEBI, funded by fines and penalties recovered by SEBI. This
will bolster confidence among retail investors who should be the key drivers of the capital market.

Consultations have been held in this behalf with RBI and SEBI, who will issue the guidelines in due course.

92. RBI had introduced the anonymous electronic order matching trading module called NDS-OM on its Negotiated Dealing System. In the first phase, RBI-regulated entities, banks and primary dealers were allowed to trade on the system. The system has now been extended to all insurance entities. In view of the encouraging response of market participants and to further deepen the Government securities market, it is proposed to extend access to qualified mutual funds, provident funds and pension funds.

93.In my Budget speech last year, I had appointed a high-level expert committee on corporate bonds. The committee has submitted its report and Government has accepted the recommendations. We shall now take steps to create a single, unified exchange-traded market for corporate bonds.