Union Finance Minister P. Chidambaram, on Saturday, called for high level of probity among financial institutions to build a robust capital market.
“It is important that all our institutions maintain the highest ethics and highest standards of probity. An ethics deficit can bring down the entire financial system, as we have seen in the past,” said Mr. Chidambaram while delivering his commemorative address at the 20th anniversary function of the National Stock Exchange (NSE) here.
The Finance Minister further said the domestic capital markets were facing many concerns, including low level of investor participation, lack of financial literacy and financial inclusion.
He observed that even though the household savings ratio is between 30 and 38 per cent of the GDP, very little of it gets channelised into financial investments. He said Indians still preferred to invest in gold and real estate, and there was an urgent need to address this issue.
“Investors, at 21 million, account for just 2 per cent of the population. The degree of risk aversion is extremely high. We need to make people shy away from gold and induce them to invest in financial products,” he added.
The Finance Minister also said that the rising volume of trade in rupee in the offshore non-deliverable forward (NDF) market was a major concern.
The rising volume of trade in Indian currency would affect the value of the rupee adversely in the domestic market he added.
Mr. Chidambaram said financial inclusion had been a high priority area for the government, and, therefore, the Centre had initiated several measures to expand the financial sector.
It had also launched an extensive investor education programme through various market regulators and other institutions to create awareness about different financial products and their benefits.
Mr. Chidambaram hoped that with the Pension Fund Regulatory and Development Authority (PFRDA) becoming a statutory body, there would be a spurt in the pension fund market.
He said “innovation should be the watch word of what we do in the capital market.”
Cosy ties between
banks and corporates
Expressing concern over the under-developed corporate bond market, Mr. Chidambaram said “banks and corporates have entered into a cosy relationship. The day, banks refuse funds, corporates will be forced to tap the market sources to raise money.”
Referring to the recommendations of the Financial Sector Legislative Reforms Commission (FSLRC), Mr. Chidambaram said passing legislation on the recommendations made in the report would take time, and, hence, the government had decided to implement non-legislative recommendations in the interim. “Making laws in India has become complex. Many of you would not understand the trauma we go through in getting a bill passed in Parliament,” said the Finance Minister while participating in a panel discussion on ‘Two decades of financial reforms’.
He said “while the government is committed to financial reforms, the executive has been constrained by multiple causes, including the paralysis of Parliament and increased judicial activism.”
Earlier speaking at the anniversary event, Securities and Exchange Board of India (SEBI) Chairman U. K. Sinha said the NSE, which was conceptualised by the government and implemented by the public sector financial institutions, had greatly expanded the equity culture in the country by breaking the geographic barriers.
