Dreaming big: A budget for viksit investors

livemint.com:

For years now, the Union budget has focused on making India a developed nation—viksit Bharat. However, it's time to add yet another angle to this exercise: a concerted effort to help build a class of viksit investors. To achieve this, the budget needs to adopt a carrot-and-stick approach.

Let’s start with the good stuff—the carrot.

First and foremost, it is crucial to recognize that investors don't just own demat shares; they are providing “risk" capital to companies and thereby own a small piece of those companies. If India wants to sustain and accelerate its growth, it's essential that long-term risk capital is available in abundance to fund the growth and the emergence of new companies.

While a significant portion of this capital can come from abroad, efforts must be made to ensure that domestic investors too get a chance to contribute to and potentially profit from the world-class companies that will emerge in the future.

To transform the Indian punter into a viksit investor, an “extra long-term" criterion should be introduced for the taxation of capital gains—say, five years. Gains realized on the sale of shares held for over five years should be taxed minimally, if at all. Think of the loss of tax revenue as a PLI for generating long-term risk capital in the economy.

You see, nothing works like a monetary benefit.

But, we can agree, loss aversion is a far stronger motivator than greed. To reinforce good practices and nudge people harder to become viksit investors, the stick approach needs to complement the carrot approach.

On that count, here are two more suggestions:

First, short-term capital gains tax should be taxed at a penal rate. Presently, it’s 15%; perhaps it should be taxed at the marginal rate of tax.