The finance ministry is considering a proposal to abolish the stamp duty on electronic issuances of bonds and debts by corporate houses.
Capital market regulator Securities and Exchange Board of India had, last week, proposed the abolition of stamp duty for such debt issues in the forthcoming Union Budget.
Sebi wrote to the ministry of finance recommending that e-issuances should be exempted from stamp duty as an incentive, according to sources.
Sebi wants to introduce electronic issuances for the bond market and has already held preliminary discussions with the stock exchanges, merchant bankers and other market participants. "The proposal for e-issuances is in the consultative process," said a source.
Although the trading in the corporate debt market has picked up substantially, it is mainly undertaken through the private placement route.
Before an active market for such debt instruments could be developed, the problem of stamp duty payment needs to be resolved.
Stamp duty is a major obstacle in domestic corporate issuances compared to the ease of e-issuances in the international debt markets. Moreover, the stamp duty in India varies across states and this complicates its administration.
A recent Goldman Sachs report on India's Debt Capital Market estimates that the country's overall debt market (including public sector debt) could grow nearly four-fold in the next decade, from about $400 billion or 45 per cent of GDP in 2006 to about $1.5 trillion or 55 per cent of GDP by 2016. Within this, the non-government segment could grow nearly six-fold, from $100 billion on Tuesday to $575 billion in 2016.
Financial experts opine that debt financing is a key to funding an estimated $500 billion of infrastructure demand over the next five years and could provide a catalyst for the growth of DCM.