Open letter to the Finance Minister – Mr. P Chidambaram (the bubble maker)

Dear Sir,

Recently I read you comment “The rather steep rise in Sensex sometimes surprises me, sometimes worries me”. Well sir, I hope you realize that this bubble is of your own making and with such comments you can’t absolve yourself from being held responsible if there is a burst in near future.

Recently there were also media reports that you have asked bankers to review interest rates downwards as it is hurting demand and growth.

Sir, both the problem (steep rise in Sensex and rising interest rates) are result of a ‘market friendly’ tax policy you announced few years back. Since then stock market is moving in only one direction and you have received lot of credit for that but now need to look deeper.

By removing Long Term Capital Gain (LTCG) on equity market deals you have made investment in stocks as the only viable savings & investment options for tax payers who fall in higher tax bracket.

If an investor invests his savings in fixed deposit he has to pay income tax of around 33% while an investor who investor who invests in stock needs to pay nothing (apart from negligible around 0.4% STT) on capital gain made on stock. Hence small investors who are not very open to equity market risks are also forced in to invest in equity market as bank fixed deposits offer rate or return equal to inflation rate (9% less 33% tax = 6%).

Sir, in interest of protecting small taxpayers who would prefer to invest their savings in risk free fixed deposits I request you to have “level playing field” for both the investment options. You are requested to make interest on Fixed Deposits (FDs) tax free if period exceed 1 year same as the case with equity investments.

This will solve the following purpose:
It will make deposits cheaper for banks and hence lead to reduction in lending rates
There would be a healthy correction in the stock market to more realistic levels
Society / small & venerable investors would have a safe investment option which is not tax unfriendly

I hope you will look beyond your favorite kind (stock market) and stop this step-motherly treatment to other saving options.

Regards & Thanks,

Neeraj Gutgutia

M: 9867614375