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India unveils more reforms

Sep 21 2012 14:31

New Dehli - India moved on Friday to encourage investors to put more money in the stock market and spur more domestic companies to borrow cheaply abroad, leading to fresh leaps on the Bombay Stock Exchange.

Finance Minister P. Chidambaram announced a tax incentive scheme for new investors earning below 1 million rupees ($19 000) a year who invest up to 50 000 rupees in the stock market.

"Gold is a dead asset," Chidambaram told reporters in New Delhi. "There are millions of people with surplus assets and I hope this will encourage them to come to the market."

Retail investor participation in the stock market is still relatively low in India with many people's savings going to gold, real estate and low-risk avenues like high-yielding bank deposits.

India, where gold is widely purchased for religious and ceremonial occasions as well as an investment, is the world's largest buyer of bullion.

The new equity investment scheme is designed to boost domestic capital markets and promote a greater "equity culture" in India, Chidambaram said, adding "we must wait and see" how much investment in stocks was generated by the move.

Under the scheme, investors will get a 50% deduction from their taxable income of the sum invested.

The minister's announcement came as the government has been pushing ahead with contentious reforms by opening up the retail, aviation and other sectors to greater foreign investment to spur a slowing economy.

Indian shares jumped nearly 3% on Friday to a near 15-month-high on optimism that the government will continue introducing economic reforms, including increasing the foreign investment cap in the massive insurance sector.

"The buoyancy is there due to a decisive signal from the government that reforms would continue," said Alok Churiwala, managing director of Mumbai's Churiwala Securities.

The benchmark 30-share Sensex Index was up 2.82 at 18 866.87 points, with retail and aviation stocks among the biggest gainers after the government signed into law a decision to allow wider foreign investment in the sectors.

In a bid to spur investment to modernise India's dilapidated roads, ports highways and other infrastructure, Chidambaram also said the government would cut a tax on foreign borrowing by local companies to 5 from 20%.

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