India's benchmark index crashes over 900 points -Indian Union Budget 2008

Mumbai, March 3 (IANS) After opening the day in the red Monday, the Indian equity markets plunged deeply despite Finance Minister P. Chidambaram saying there was no cause for worry.

Investors made heavy sales in major stocks like HDFC, Bharat Heavy Electricals, State Bank of India and Reliance Capital Ltd.

At 3.30 p.m., the 30-share sensitive index (Sensex) of the Bombay Stock Exchange (BSE), which had opened at 17,227.56 points, tumbled to a low of 16,651.85 points. It lost 926.87 points or 5.27 percent.

The BSE Midcap index, which opened at 7,622.76 points, went down by 289.68 points to a low of 7,379.96 or by 3.77 percent.

The BSE Smallcap index, which opened at 9,591.22 points, went down by 364.66 at 9,263.47 points or 3.79 percent.

On BSE, the market breadth was extremely negative with low trading volumes. A total of 374 shares advanced, 2,325 shares declined and 37 shares remained unchanged.

Earlier in the day, Chidambaram had said the fall in Indian stock markets reflected what was happening globally and there was not much cause for worry as India's growth stock was intact.

'The Asian markets have slipped today (Monday) because of the fears of a recession in the US. And what is happening in India only shows that we are not as decoupled as we may think we are,' he said.

'I don't think we need to worry too much about that. This is reflecting what is happening in the world market,' he added, after the sensitive index (Sensex) of the Bombay Stock Exchange (BSE) opened with a loss of 360 points.

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No leg-up for long-term investment, NPS' woes to continue -Indian Union Budget

Union Budget 2008-09 has not spelt out any concrete measure, which will boost long-term investment. The new pension system (NPS) continues to suffer from adverse tax treatment, compared to other savings instruments such as Public Provident Fund (PPF), Employees Provident Fund (EPF) and General Provident Fund (GPF). While EET (exempt-exempt-tax) structure is applicable to small savings instruments, for pension products, EET structure is applicable, which could prove to be a disincentive for investors to park their funds in long-term savings instruments, which include pension and life insurance products.

In addition, though the exemption level for personal income tax has been raised, the additional ceiling has not been channelised to boost savings.

This is, however, likely to give a push to consumption.

Finance minister P Chidambaram has also remained silent on whether reforms would be carried out in pension and insurance sector. Pension Fund Regulatory and Development Authority Bill is yet to see the light of the day. On the other hand, comprehensive amendment in the insurance sector is also pending. Reforms in these two crucial sectors have almost come to a halt due to still protest from the Left parties.

Speaking to FE, D Swarup, chairman of PFRDA pointed out, "We were hopeful that NPS contributions will be brought on par with PPF, EPF GPF in terms of tax treatment. This does not seem to have been done and NPS continues to be under the EET regime whereas the other saving products are exempt from tax at every stage." He added that this will be a disincentive for potential NPS participants after the PFRDA Bill is passed.

"The additional income in the hands of an individual on account of higher exemption limits could have been channelised towards savings if the ceiling under Section 80C of IT Act been enhanced too. We need the savings rate to go up even further to spur investments," he said.

However, CS Rao, chairman, Insurance Regulatory and Development Authority (IRDA) said that the increase in tax from 10% to 15% on short term capital gains may encourage people to go in for long term investment options. "This increase in tax structure is bound to give a push to long term investment," he told FE.

Rao further added that the health insurance segment would benefit from the tax benefits which have been provided to individuals who pay premium on behalf of their parents. The budget provides a deduction of Rs 15,000 under Section 80D to an individual who pays medical insurance premium for parents. "This is a boost to senior citizens and would be beneficial for the health insurance segment," Rao

pointed out.

In addition, insurance schemes for the unorganised sector have also been introduced this year, he said. The "Aam Admi Bima" yojana is aimed at providing insurance cover to the poorer section of the society.

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