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RIB funds invested in non-infrastructure areas, govt's debt appetite 'insatiable', says Kelkar

Union Finance Secretary Vijay Kelkar today admitted that the Resurgent India Bonds floated by State Bank of India to finance infrastructure projects in the country, have not served their purpose as the five-year tenure of the instrument is too short a period to support infrastructure.

Kelkar was speaking at an interactive session organised by the Confederation of Indian Industry in Bombay today. He said that a large amount of RIBs has gone into investment in government securities and other statutory liquidity ratio instruments.

The finance secretary hinted at ushering in a soft interest rate regime. He opined that the government's borrowing programme limits the scope of the monetary policy and added that this ''insatiable'' appetite for debt by the government should be checked.

It may be pointed out that the government borrowings do affect the interest rates as it determines the level of liquidity in the system, he said.

Industry heads present at the meeting urged Kelkar to clarify the aspect of double taxation on stock options. The stock options given to employees by the company are taxable as a perquisite in the immediate financial year and later if the employee sells the stock, the gains are subjected to the capital gains tax.

The 1999-2000 Budget reduced the capital gains tax from 20 per cent to 10 per cent. Kelkar's stated that the government wants to promote the concept of stock options and would take measures to make it popular.

The delegates at the meeting urged the finance secretary to extend the exemption under Section 10 (23G) of the Income Tax Act to the entire investment in infrastructure bonds instead of the net spread earned by the investors.

Kotak Mahindra Finance vice-chairman Uday Kotak said that units of open-ended mutual fund schemes should be treated as listed securities.

To a specific query by Kotak on the position of the country to cope with the 40 per cent hike in global oil prices, Kelkar said that the country would have to boost exports to neutralise the oil price increase.

Kelkar said that the road fund to be set-up by the government would enable state governments to fund highways. ''A total of 70 per cent of this fund would go to state governments and railways. The railways would utilise this amount on unmanned crossings,'' he said, adding that the fund would be routed through the National Housing Authority of India.

He said that the downsizing process of the Central government initiated in the Budget should serve as a model to the state governments.

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