Budget 2013 may make equity more attractive as an asset class

Concerned over household savings being diverted into idle assets, the government may unveil measures to make other asset classes such as equity more attractive in the budget to be presented next week.

There are discussions that the government may even broaden the scope of newly launched Rajiv Gandhi Equity Savings Scheme (RGESS) in order to attract more investors, especially the young population into it.

“Revival of equity as an asset class is prime on the government’s mind and measures will be taken towards that,” an official privy to the development said.  Currently the RGESS is meant for new investors. Finance Minister P Chidambaram has already talked about making  Know Your Customer (KYC) norms simpler for RGESS to lure new retail investors into the equity market.

The scheme is currently restricted only to first time equity investors with taxable income less than Rs 10 lakh; the provision is seen by experts as negative. Secondly, the scheme is also not applicable to those who have invested even once in the capital market in the past.

There is also a one year lock-in period in the scheme and an overall lock-in of three years, which experts say, it is not very liquid.  The government may bring some changes in existing provisions to make it more attractive to investors, the official said.  On the positive side, the maximum investment allowed is Rs 50,000 and the investor gets a tax rebate of 50 per cent on the amount invested.

Besides, the government is also planning to relax rule for foreign investors to invest in Indian stocks and bonds.

This has also raised expectations of market participants that there will be concerted attempts to encourage equity market. Experts say that measures to make equity more attractive will also discourage huge flow of savings into unproductive asset classes like gold.