Finance Minister Jaswant Singh is set to give the capital markets a shot in the arm by announcing in the Budget 2003-04 that futures trading will be taxed as a non-speculative activity.

The tax exemption on short-term capital gains of mutual funds is expected to continue even as the dividend tax and the surcharge on corporate tax are scrapped.

According to government sources, the minister is also expected to announce norms for the expansion of the debt market, by facilitating second-rung corporates to tap it.

Since the Budget will be presented soon after the joint parliamentary committee tables its report on the 2001 stocks scam, Singh is also likely to announce measures to clean up the bourses.

This includes amendment of the Securities Contract Regulation Act to separate the ownership and trading rights of brokers. The finance minister is also expected to reject the recommendation of the Kelkar task force to tax the short-term capital gains of mutual funds. This would have affected the profitability of open-ended schemes.

Singh is also likely to take on board the recommendations of a committee set up by the income-tax department, which has suggested that losses incurred in futures trading be allowed to be offset against gains from other businesses by considering futures trading as a hedging activity.

This will apply to futures trading in stocks as well as in currency. Commodity trading, however, is unlikely to get similar benefits.

While the Centre has announced online retail participation in gilts, Singh is likely to flag the completion of the real-time guarantee settlement scheme by the Reserve Bank of India within a year, as well as passage of the Government Securities Act.

Singh may also announce a timetable for extension of the repo market to non-government securities and move to further liberalise forex trading by allowing dollar-rupee swaps.

The sources pointed out that Prime Minister Atal Bihari Vajpayee had directed that the Budget should announce measures to give a fillip to the capital markets.

While the abolition of dividend tax will enthuse retail investors to return to equity, the removal of the corporate tax surcharge will encourage the corporate sector.

Run-up to the Budget 2003