Finance Minister P Chidambaram has indicated to the Left that he would require its support for a possible increase in the turnover tax.

Sources in the Left parties said that at their pre-Budget meeting the finance minister agreed in principle on the need to increase the tax, but did not commit to what level.

Chidambaram had originally proposed a 0.15 per cent turnover tax on all securities. He, however, reduced the tax and made it applicable only for delivery-based transactions following protests from market players.

At present, day-traders and arbitrageurs have to pay 0.015 per cent turnover tax, while the rate in the futures and options segment is 0.01 per cent. There is no tax on the bond and debt market transactions.

• Run-up to the Budget 2005-06

Tuesday's meeting saw the Left presenting a 12-point note to the government detailing its Budget wish-list. The finance minister, however, did not commit to reintroduction of the capital gains tax as the Left demanded.

The finance minister was, however, not in favour of doing away with corporate tax exemptions as proposed in the Left's wish-list.

Chidambaram is also said to have hinted to the Left he might be considering an amendment to the Fiscal Responsibility Financial Management Act.

Sources said he agreed with the Left that the Act "limited" his freedom in using the idle money in the economy for expenditure in the social sector.

The finance minister agreed with the Left that defence expenditure would be cut, the surest indication that the defence budget will be drastically pruned this year.

He is also said to have told the Left the government would take immediate measures to recover non-performing assets, as the Left demanded. He said the suggestion to tax capital outflows was "not practical" and only one country in the world, Malaysia, had such a measure.

On the issue of FDI in the banking sector and the consolidation of banks, the Left parties have decided to give another note to the government.

The note presented today also mentions that the "government should not unilaterally proceed with mergers in the nationalised banks and should discuss such issues with trade unions as stated in the CMP."

The note also makes it stand against FDI in the private banks clear and talks about the need to strengthen the public distribution system.