Economic Survey calls for banking, market liberalisation

The Economic Survey for 2008-09 tabled Thursday has called for banking and financial market reforms, including increasing foreign investment in banks in a phased manner and lifting of ban on commodity futures.

It also called for expediting passage of the Banking Regulations (Amendment) Bill and allowing high net worth individuals to invest directly in capital markets rather than go through the controversial participatory notes route.

The passage of the Banking Regulations (Amendment) Bill will allow greater flexibility to banks in terms of managing liquidity requirements, liberalise investment regulations and allow the Reserve Bank of India greater powers such as right to supersede a bank's board of directors if it was in public interest.

The survey, in one of its recommendations, advocated allowing high net worth individuals to invest directly in capital markets through authorised Indian investment intermediaries.

This will allow the government to ban the participatory notes (P-notes) route, which has drawn criticism from many quarters as the identity of the P-note holder becomes difficult to ascertain.

The remaining ban on commodity futures contracts was sought to be removed to restore price discovery and price-risk management. Futures trading in rice, urad and tur has been suspended indefinitely, and that of sugar till Dec 31.

The survey also urged the government to liberalise spot and futures currency markets (exchange traded) in the country.

The survey suggested that all financial market regulations be brought under purview of the market regulator, Securities and Exchanges Board of India (SEBI).

Additionally, it has favoured liberalising of the investment norms of insurance and pension funds and tax incentives to develop the long-term debt markets.

In a move which could have far reaching impact on the Indian corporate debt market, the Economic Survey asked the government to allow repurchase of corporate bonds, thus providing an exit route for investors.

Last updated on Jul 2^nd, 2009 at 16:26 pm IST--IANS