Finance Minister P Chidambaram on Monday promised to have a 'relook' at the transaction tax rate of 0.15 per cent and sought industry's support to liberalise FDI regime, which has been opposed to by Left parties.
"We must admit that transaction tax is efficient, neat, non-regressionary, eliminates tax avoidance and everybody contributes to the Exchequer. But I am prepared to relook at the numbers," he told a FICCI post-budget meeting.
"We made a judgement that the complex capital gains tax regime was distorting the market and encouraging tax avoidance. The transaction tax would be beneficial in the long run," he said, a day ahead of his meeting with brokers, who were opposed to the new tax, particularly on bonds, which have low margins.
After consultation with brokers, some of whom were even in favour of it, Chidambaram said he had fixed three rates -- zero per cent for long-term capital gains tax, 10 per cent for short-term capital gains tax and 0.15 per cent transaction tax on purchase of listed securities.
"The numbers could be zero, 10 and 0.15 or zero, 15 and 0.10 per cent," he said, adding that he would seek support from everybody for the long-term benefit of the capital market.
Without referring to Left parties' opposition to hike the FDI limit in telecom, civil aviation and insurance, he said the budget has tried to send clear signals to the world that India was on the path of reforms by raising the FDI limits.
"I appeal to industry to support the measures. Please explain it in purely financial, business, accounting and company law terms and not in ideological terms," he said.
On telecom, Chidambaram said the government is trying to make the FDI regime more transparent by allowing 74 per cent foreign investment.
At present, FDI is allowed up to 49 per cent in telecom but the holding company of the promoter can take another 25 per cent, which takes the foreign holding to 74 per cent in a 'non-transparent manner,' he said.
"What is so far allowed in a non-transparent manner is now being proposed to be allowed in a transparent manner," he added.
Going into the genesis of FDI, he said four numbers matter -- zero, 26, 51 and 74 per cent. These bring about a significant change in the policy regime.
In the case of civil aviation and insurance, he said what has been done is to raise FDI limit from 40 to 49 per cent and from 26 to 49 per cent respectively, which do not alter the ownership pattern and the companies will still remain in Indian hands.
Since, FDI in airports has been pegged at 49 per cent, the Finance Minister said there was no reason to have a different limit for civil aviation.
In insurance, Chidambaram said the Budget announced a hike in FDI limit following demands from private insurers, who wanted to infuse more capital.
He made it clear the FDI regime did not in any way affect PSUs like LIC and GIC, as foreign investment is allowed only in private insurers.
Chidambaram said the electoral mandate the UPA government got was for continuing the reforms process and taking up measures in agriculture and rural economy that had not been addressed during the previous NDA government rule.
In a meeting with captains of industry, he said: "It is a complex electoral mandate. As the finance minister, it is my duty to interpret it and act accordingly. If I don't, I face rejection like the previous government did."
The mandate, he said, was for continuing with the reforms initiated in the last five years and to take up measures which were not addressed to by the previous government.
Investment in agriculture, basic needs of rural India and needs of social sectors like education and primary health care must be addressed to, he said.
Chidambaram said he had no 'apologies' for earmarking 50 per cent of the budgetary resources for agriculture sector since a large section of the population was dependent on it for livelihood.
Interpreting the mandate given to UPA government, he said there was a need to address agriculture and rural economy and "we have done exactly that."
He said agriculture, which formed the base of rural India, as well as social sectors like education and public healthcare had not received the attention they warranted in the past five years.
There was a huge gap between intentions and implementation, he added.
Noting that a vast population did not have access to drinking water, he said there was a need to restore every single water body and to double capacity in 7-8 years.