Home / Politics / Policy /  Narendra Modi says demonetisation short-term pain, hints at more reforms

Mumbai: Prime Minister Narendra Modi made it clear on Saturday that his government will not shy away from taking difficult decisions like demonetisation in the long-term interest of the country.

“Let me make one thing very clear. This government will continue to follow sound and prudent economic policies to ensure India has a bright future in the long term. We will not take decisions for short-term political point scoring. We will not shy away from taking difficult decisions if those decisions are in the interest of the country. Demonetisation is an example. It is a short-term pain but will bring long term gain," Modi said here on Saturday.

The prime minister was speaking after inaugurating the National Institute for Securities Market (NISM), SEBI’s academic facility, at Patalganga in Raigad district near Mumbai. Union finance minister Arun Jaitley, Maharashtra chief minister Devendra Fadnavis, and Sebi chief U.K. Sinha were also present.

Modi said even critics of his government acknowledged the speed of economic transformation when they said that “demonetisation was like applying brakes to a speeding car". Modi was in Maharashtra on Saturday to lay the foundation stone for a number of big ticket infrastructure projects.

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Stressing that the securities and commodity markets in India still have a long way to go, Modi said he would consider these markets only when they meet three challenges—providing capital for productive purposes, ensuring direct benefits to the farmers, and making contribution to the development of the country through taxes. “The primary aim of the financial markets is to raise capital," he said.

Modi asked financial markets to raise long term infrastructure capital to fund infrastructure projects. Expressing “disappointment" over the lack of municipal bond market in India even after the government had launched an ambitious scheme like the Smart City project, Modi asked Sebi and the Department of Economic Affairs if they could ensure that “at least ten Indian cities issue municipal bonds within a year".

“For infrastructure projects to become viable, it is important that borrowing should be of long duration. We do not have a liquid long term bond market and I am sure financial minds in this room will find a solution to that. At present infrastructure projects are funded only by government or banks. We must move away from this. Bond market must become source of long term finance for infrastructure projects," Modi said.

Modi also called upon the financial markets to provide benefit to the farmers. “The market must provide benefits to the largest section of our society namely the farmers. The true measure of success is the impact in villages, not the impact in Dalal Street or Lutyen’s Delhi. By that yardstick we have a long way to go. Our stock markets need to raise money through innovative ways to fund projects in agriculture.

“Commodity markets must become useful for our farmers, not just avenues for speculation. People say that derivatives can be used by farmers for reducing the risks. But in practice hardly any farmer in India uses derivatives. Unless and until we make commodity markets directly useful to farmers, they are just a costly ornament in our economy and jot a useful tool," Modi said. Referring to the government scheme of electronic national agriculture market (ENAM), Modi urged Sebi to establish closer linkages between spot markets and ENAM.

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The prime minister said the contribution of those who made money “off the markets" to the country through taxes has been low due various reasons. “Those who profit from financial market must make a fair contribution to nation building through taxes. For various reasons the contribution of tax from those who make money off the markets has been low. To some extent it may be due to illegal activities and fraud. To stop this SEBI has to be extremely vigilant. To some extent the low contribution of taxes may also be due to the structure of our tax laws. I call upon you to think about the contribution of market participations to the exchequer. We should consider methods for increasing it in a fair, efficient, and transparent way," Modi said.

He conceded that there was a feeling earlier that some investors were getting “unfair deal by using certain tax treaties". “But those tax treaties have been amended by this government. Now it is time to rethink and come up with a good design which is simple and transparent but also fair and progressive," Modi said.

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