44. I am proposing a number of measures to strengthen our capital markets:

The Securities and Exchange Board of India (SEBI) has approved the introduction of trading in stock index futures as a way of providing greater opportunities for hedging and inducing more liquidity into the market. The government will bring forward the necessary amendment to the Securities Contracts (Regulation) Act to enable derivative instruments to be treated as securities.

Foreign institutional investor (FII) debt funds are today allowed to invest only in listed debt securities. I propose to allow them to invest in unlisted domestic debt securities also; the risk of default would be borne by the FIIs.

To encourage modernisation of broker services, a one time permission was given last year to stock brokers to corporatise their businesses without attracting capital gains tax. I propose to extend this exemption by one year.

To encourage more primary public issues, I am proposing certain changes to expand the income tax deductibility of expenses incurred on public issues.

After some of the turbulent events in the stock markets in recent years, a special effort must be made to restore the confidence of small investors. I am asking SEBI to devote special attention to strengthening the institutional arrangements for protecting small investors from defaults and financial failures of brokers and other market intermediaries.