Finance Minister Clarifies STT Hike Aimed at Curbing High-Risk Speculation
Finance Minister Nirmala Sitharaman has provided detailed justification for the increase in securities transaction tax (STT) announced in the Union Budget 2026-27, stating it is specifically designed to discourage high-risk speculation by retail traders in the futures and options (F&O) market. She emphasized that this nominal increase will not affect other types of transactions and is a targeted measure to protect small investors from significant losses.
Addressing Retail Investor Losses in Derivatives Market
"We receive numerous messages from individuals highlighting the substantial losses faced by those without significant surplus funds. Therefore, this marginal STT hike is purely intended to deter excessive speculation. The government cannot remain a passive observer while people endure such massive financial setbacks," Sitharaman explained during a post-budget press conference.
The proposal to raise STT on certain F&O segments triggered immediate market reactions, with the benchmark BSE Sensex declining by 1.9%, equivalent to 1,547 points. Revenue Secretary Arvind Shrivastava supported the move, noting that transaction volumes in futures and options indicate substantial activity falls under heavy speculation, which disproportionately harms small, retail, and unsophisticated investors.
"This adjustment aims to manage systemic risks within the derivatives market. Even after implementation, STT rates will remain modest relative to transaction volumes. The market regulator can further explore additional measures to enhance market regulation," Shrivastava added.
Sebi Study Reveals Staggering Retail Losses
A Securities and Exchange Board of India (Sebi) study from July last year estimated that retail traders incurred net losses totaling Rs 1.05 trillion in the F&O segment during FY25. Alarmingly, approximately 91% of retail traders suffered losses throughout that fiscal year. Sebi has already initiated steps to curb speculative activities, and the STT increase represents another layer of protective intervention.
Gradual Fiscal Deficit Reduction for Sustainable Economic Growth
When questioned about the government's measured approach to fiscal consolidation, Sitharaman defended the strategy, stating that abrupt changes often negatively impact various economic segments. The government has set the fiscal deficit target for 2026-27 at 4.3% of GDP, down from 4.4% in the current financial year.
"We must proceed gradually while maintaining the deficit within a defined band that instills confidence and demonstrates our commitment to prudent fiscal management. This steady approach ensures the economy progresses at a consistent pace. The target is both responsible and realistic," the Finance Minister elaborated.
Debt-to-GDP Ratio on Downward Trajectory
Sitharaman announced that India's debt-to-GDP ratio is projected to decrease to 55.6% in FY27 from 56.1% this year. Economic Affairs Secretary Anuradha Thakur clarified the government's fiscal framework: "Under the new fiscal anchor, the glide path will continue, with the fiscal deficit serving as the operational target to achieve the desired debt-to-GDP ratio. We are not abandoning the fiscal deficit; it remains crucial. However, the primary monitorable target will be the debt-to-GDP ratio, with both metrics working in tandem."
Disinvestment Strategy and Banking Sector Reforms
The Finance Minister confirmed the government's intention to advance all disinvestment proposals approved by the Cabinet. The Centre has established an ambitious disinvestment target of Rs 80,000 crore for FY27, which is 2.4 times higher than this year's revised estimate of Rs 33,800 crore.
Arunish Chawla, Secretary of the Department of Investment and Public Asset Management (DIPAM), outlined a composite strategy integrating disinvestment and closure processes. "Half of the 50 in-principle approvals obtained for both disinvestment and closure have already been executed. The remaining approvals are progressing according to schedule," Chawla stated.
Banking Sector Roadmap for 2047
Regarding the restructuring of Power Finance Corporation (PFC) and Rural Electrification Corporation (REC), Sitharaman indicated that specific streamlining details will be disclosed shortly. She also highlighted that a high-level committee on banking will develop a comprehensive roadmap for the sector up to 2047.
"The committee's terms of reference will be formulated to encompass the entire banking sector, enabling strategic planning for banking evolution by 2047," Sitharaman explained. Financial Services Secretary M Nagaraju added that the committee will examine numerous aspects of banking requirements, including credit needs and other critical factors.
This multi-faceted budget approach reflects the government's balanced focus on protecting retail investors from speculative risks while pursuing gradual fiscal consolidation and strategic sectoral reforms to foster sustainable economic growth.
