Indian Finance Minister Palaniappan Chidambaram said on Monday he would revisit a proposed transaction tax on purchase of securities that has rattled capital markets.
"Yes we will revisit the numbers, and we are revisiting the numbers," Chidambaram told the upper house of parliament amid demands from brokers to scrap the new tax unveiled in the federal budget for 2004/05. But he did not give details.
Shares in the Bombay stock exchange were up one percent and crossed the 5,000 point mark after Chidambaram's remark.
Trade in Indian bonds and stocks had dropped sharply in reaction to the controversial budget proposal to introduce the transaction tax on exchange-based purchases of securities.
Traders say the proposed tax was too high for the bond market where buy and sell spreads are often just 0.05 percent or less.
The transaction tax proposal does away with a long-term capital gains tax and is mainly intended to drive away arbitragers and short-term traders in Indian markets, government officials said.
Analysts say the tax could lead to higher borrowing costs for the government, which mostly funds its fiscal gap - estimated at 4.4 percent of the gross domestic product for 2004/05 - through local currency bonds.
Chidambaram was due to reply to a debate on the budget in the lower house of parliament on Monday and was expected to clarify the transaction tax issue.