Addressing a seminar organised by Ficci on `the resurgence of capital markets', Sinha cited the specific recommendation made in the report of the Federation of Indian Chambers of Commerce & Industry (Ficci) task force on capital markets and said that he would need to consult the heads of financial institutions before suggesting a move in this regard.

In his inaugural speech, the finance minister maintained that the financial institutions should reshuffle their holdings, cease to hold controlling stakes in companies and turn into portfolio investment institutions. This, according to him, would provide better returns to the investors and could help mobilise savings into mutual funds.

Elaborating on the role of the regulator, Sinha admitted that a `ham-handed' approach will certainly create more problems than doing any good to themarket. "A balanced, sensible, delicate touch is needed in order to regulate the markets," said Sinha. "A lot of responsibility devolves on the players, here I mean corporate governance. The corporate sector has also acted with less integrity," he added.

The finance minister stated that both the government and corporates need to learn to adjust to the forces of the market. Sinha also expressed concern over the failure of the high rates of domestic savings not being channelised into the markets. He asked questions such as `why are the markets in this shape? Why are investors resorting to post office savings and not the markets?

In reply to his own questions, the finance minister highlighted a crucial aspect of the government and corporates which have not yet been able to recreate the confidence of small investors. This, according to Sinha, had led to a loss of depth and breadth of the market with business concentrated in select counters.

However, on this issue Sinha reiterated that the government hasdecided to disinvest Gail only in the local markets like Concor, which would help improve the primary as well as secondary market.

Sinha also made a strong case for privatisation, which according to him could prove instrumental in reducing the fiscal deficit of the nation. "Much of the sentiment will be decided by how we manage the fiscal deficit," said Sinha, while revealing figures on the rising fiscal deficit problem of India.

National Securities Depository Ltd (NSDL) chief CB Bhave made a strong call for elimination of stamp duty on transfer of debt instruments.

Bhave suggested that to ensure that the government did not lose revenue the duty on issuance of debt could be hiked by another 15-20 basis points and this would make the entire exercise revenue neutral and yet lead to a major surge in trading in debt instruments. He said that if this is done then in the next two years the country would reach high levels of dematerialisation in debt instruments.

Bhave said that by end-1999 the entiresettlement in the Indian capital market would be only in the dematerialised form.

Former State Bank of India chairman MS Verma said that the rates of return on low-risk instruments like gilts are on the higher side and this is the reason why domestic savings are not being channelised into the capital markets. "Risk reward ratio is always skewed. Risk is much higher," said Verma, while citing the example of low-risk instruments like gilts.