Initiating a broad financial markets reform process, finance minister Arun Jaitley urged financial sector regulators to take steps for a deep and liquid corporate bond market and deepen the currency derivatives market by getting rid of unnecessary restrictions.
The finance minister extended 5% withholding tax to all bonds issued by Indian companies abroad for all sectors, and extended the validity of this scheme to June 2017.
In a bid to attract foreign capital, Jaitely liberalised the procedure for issuance of ADRs/GDRs (American depository receipts and global depository receipts).
GDRs or certificates issued by an international bank, which can be subject to worldwide circulation on capital markets, facilitates the trading of shares, especially those from emerging markets.
“Liberalisation of the ADR/GDR regime to allow issuance of depository receipts on all securities other than equity shares should ease overseas fund-raising by Indian corporates and enhance investment avenues for foreign investors,” said Sameer Gupta, tax leader for financial services, Ernst & Young.
Mumbai-based credit rating agency, India Ratings & Research, says in a note that depending on attracting foreign capital “to boost corporate profitability, as well as credit profiles in the short-term, is of paramount importance. The budget’s proposal to extend withholding tax at the rate of 5% on all bonds issued by Indian corporates, as well as liberalising the procedure for ADR/GDR issuances, supports the endeavour to attract foreign capital”.
The finance minister allowed the international settlement of Indian debt securities and proposed a complete revamp of the Indian depository receipt (IDR). Jaitley also proposed introduction of a much more liberal and ambitious Bharat depository receipt (BhDR).