Government will do everything to strengthen SEBI, says Manmohan Singh

Prime Minister Manmohan Singh, on Friday, asked the capital market regulator, Securities and Exchange Board of India (SEBI), to step up efforts to provide mid-cap and small-tier companies greater access to capital markets.

“The equity market in our country remains disproportionately focussed on large-cap firms. Many mid-cap and small-tier companies are crowded out by their larger counterparts while seeking public capital,” said Dr. Singh while addressing a gathering of market participants, industrialists, bankers and other business leaders at SEBI’s silver jubilee celebration here.

“For our growth story to be truly sustainable in the years to come, small and medium enterprises would need to become a key segment of the Indian economy. They must be facilitated and helped to grow and expand with greater ease,” Dr. Singh added.

Corporate debt

A weakness in Indian financial system related to the market for corporate debt, he observed. While the market for government debt was very large, the market for corporate debt had yet to develop as it should. “It is not large enough and not liquid enough.” To some extent, the reduction in the fiscal deficit was a pre-condition for this development since sovereign debt often crowded out private debt, he added. “Efforts are being made to reduce the fiscal deficit, and as we succeed, we can expect the corporate debt markets to expand,” he added. “But we need other initiatives also to help this process,” said Dr. Singh, adding, “I would urge SEBI to ensure that good quality debt issuances are encouraged and a larger number of corporates access the debt market for financing.”

“A key indicator of SEBI’s future effectiveness will be its ability to root out the hard-to-define but extremely pernicious disease of insider trading,” Dr. Singh asserted.

Dr. Sigh said that even though regulation of the securities market was a complex exercise, such regulation should be guided by the need to increase transparency and lead to higher investments being channelised into productive endeavours, which strengthened the Indian economy. He also promised that the government would do everything to strengthen SEBI “so that it can deliver even more effective enforcement.” He also urged the financial regulators to take measurers for mobilising savings into productive uses.

Financial savings

It was a matter of concern that financial savings as a percentage of gross domestic product had declined recently. In times of uncertainty, said Dr. Singh, “I recognise that doubts often arise regarding the likely real returns on financial assets. Individuals tend to prefer physical assets like gold or investment in real estate. This is to some extent due to the macro-economic difficulties we have experienced over the past two years. It is important to reverse this trend,” he pointed out. SEBI could also make a vital contribution to the revival of the economy and towards laying the foundations for more rapid growth by facilitating infrastructure related investment, he said.

“I would urge SEBI to take a lead in ensuring that infra debt funds (IDFs) are established, and that they face a supportive regulatory environment,” he said.

Dr. Singh said that it should be made easier for foreign investors such as sovereign wealth funds, university funds and pension funds to invest in India.

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