“They call me the Insider—not for playing their game, but because I’ve stood just close enough to see how it’s really played. These days, I’m a recluse prowling the treacherous maze of stocks, cryptic regulatory rulings, and corporate betrayals, where fortunes shift in the flicker of a deal. Between what gets published and what gets buried, I chase the stories that pulse through the veins of India’s financial empire—some lived, many hushed, most inconvenient. “And nowhere is that maze darker—or more lucrative—than India’s derivatives bazaar.”
In the shadows, parallel markets learn to breathe, tax the visible trade hard enough, and the invisible one grows teeth.
On Sunday afternoon in New Delhi, as Finance Minister Nirmala Sitharaman concluded her budget speech, the message had already landed elsewhere. No applause. Just math. In cities like Dubai, that is enough.
India had yet again hiked Securities Transaction Tax (STT) on equity derivatives trading, framing it as a reform. Futures STT jumped 150%, from 0.02% to 0.05%. Options were flattened to a uniform 0.15%, higher across the board. The measures would take effect from April 1. Speculation, we were told, had grown excessive. On paper, it looked like discipline. But the real impact was rippling far beyond NSE terminals.
In trying to tame derivatives on Dalal Street, India may have unintentionally strengthened a market it cannot see, tax, or easily control—a parallel stock market run from offshore hubs, powered by Indian prices and Indian money, quietly supercharging the illegal, untaxed Dabba economy.
WHEN LEGAL TRADING STOPS MAKING SENSE
Let’s walk through the math that traders now confront. At a Nifty level of 25,000, a retail trader entering a futures position on the NSE today faces a stacked toll booth: higher STT, exchange fees, SEBI levies, stamp duty, brokerage, and 18% GST on brokerage and exchange fee. None of this is optional. None of it waits for profits.
Market estimates suggest that a round-trip Nifty futures trade now needs a 45-50 point move just to break even. Lose money, and STT still gets paid. Trade frequently, and the costs compound brutally.
Now flip the screen. In the dabba market—off-exchange contracts that mirror NSE prices but settle privately—the same Nifty trade carries zero STT, zero GST, zero regulatory charges. There, traders start making money on an 8-12 point move. That gap isn’t an efficiency difference. It’s an economic eviction notice. Here speculation is not being curbed as the FM said. It’s being priced out of the legal system.
A POLICY THAT REWARDS ILLEGALITY
Speculation never dies—it just relocates.
By sharply raising transaction costs in listed derivatives, the tax regime has created a perverse outcome: The more transparent the trade, the more punitive the tax.
STT—already non-creditable and payable regardless of profit or loss—has steadily increased over the years. Unlike income tax, it is collected upfront, even on losing trades. For high-frequency or short-duration traders, this transforms taxation from revenue-sharing into activity punishment.
History shows high transaction taxes don’t eliminate activity; they redirect it into shadows.
Take India’s 1970s gold market, for example. Sky-high import taxes created a perfect playground for smugglers—arbitraging cheap Gulf purchases into high Bombay sales with tax-free profits that made the risk worthwhile. It wasn’t about being “bad”; it was about incentives. As long as authorities kept rates elevated, they essentially funded the underworld.
This isn’t unique to gold. Cigarettes, alcohol, luxury goods—slap a high tax on them, and you’ve given smugglers a roadmap. The black market thrives on such arbitrage, creating parallel economies where cash is king and honest business is for suckers. Even today, “round-tripping” funds through tax havens like Mauritius or Singapore is a suit-and-tie version of the same game.
When compliance costs eclipse evasion costs, money migrates.
THE MARKET THAT EXISTS BECAUSE NSE EXISTS
Dabba trading doesn’t discover prices. It doesn’t need to. It free-rides on NSE’s price discovery while siphoning off risk, leverage, and volume.
And this is no longer the caricature of a neighbourhood bookie scribbling numbers. Over the past decade, enforcement cases and market intelligence have traced the evolution of dabba trading into something far more industrial: offshore operations with servers, pricing feeds, and settlement engines running out of Dubai, Hong Kong, and Southeast Asia.
Client acquisition remains Indian. The market itself does not.
Money moves through informal remittance channels, layered accounts, and increasingly digital rails that blur jurisdictional lines. Indian agencies can—and do—crack down on local facilitators. But the core trading spine sits offshore, insulated by borders and complexity.
Every policy move that raises onshore trading costs widens the arbitrage. Every STT hike strengthens the parallel pool.
NO COURTS, NO RULES, JUST MUSCLE AND FEAR
Here’s what rarely makes it into budget speeches. When trades sit outside exchanges, disputes don’t go to regulators or courts. They are settled privately. Enforcement is informal. Recovery relies on pressure, intimidation, and networks that have historically overlapped with organised crime. As volumes scale, so does the ecosystem—bookmakers, cash handlers, muscle, runners. What begins as a tax distortion quietly mutates into a law-and-order externality. These costs don’t show up in fiscal calculations. They surface later, elsewhere.
THE REVENUE MIRAGE
The government expects the STT hike to yield Rs 20,000-25,000 crore annually. But that arithmetic assumes volumes remain loyal to regulated exchanges.
History suggests otherwise. Transaction taxes peak quickly, then erode as activity migrates. Worse, regulatory visibility collapses. The state loses not just revenue, but oversight—of leverage, of concentration risk, of who is really holding what.
A shrinking official market alongside a swelling shadow market is the worst equilibrium a financial system can settle into.
SELECTIVE DISCIPLINE, CONFUSED SIGNALS
If speculation was the target, the policy choices raise uncomfortable questions.
Delivery-based equity investing saw no meaningful incentive. Long-term capital gains structures—powerful behavioural levers—were left untouched. Meanwhile, speculative participation in commodity derivatives, especially gold and silver, continues to surge without a corresponding hike in Commodity Transaction Tax (CTT).
So what exactly is being discouraged—and what is being nudged elsewhere?
THE RS 20,000-25,000 CRORE QUESTION
The government projects Rs 20,000-25,000 crore in extra annual revenue from these levies, assuming volumes hold. But if even a modest portion of traders—especially high-frequency players hammered hardest—shift offshore, that gain evaporates. Lost STT today becomes a permanently eroded tax base tomorrow, with zero visibility, zero investor protection, and zero systemic safeguards.
DARKEST TURN, PRICE OF CONTROL
Parallel markets don’t emerge because regulation is weak. They emerge when compliance becomes uneconomic. From prohibition-era booze to modern markets, the lesson is ironclad: Punish visibility, and you reward opacity. Tax the screen aggressively, and you end up funding the shadows.
In trying to tame derivatives on Dalal Street, India may have just handed billions—and control—to Dubai bookies and untouchable parallel empires. And once traders, liquidity, and habits migrate there, history offers little comfort. Bringing them back is a fight regulators rarely win. Remember Singapore Nifty or NDF currency market?
In the money maze, every wall built in the wrong place creates a darker passage elsewhere. This Budget may have just done exactly that.
India’s stock market is becoming so expensive to trade legally that a growing number of traders no longer need market tips—only a reason to leave the exchange. Traders don’t moralize. They calculate. 50 points to survive legally? Or 10 points to eat offshore? Math decides.
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Palak Shah is a senior business journalist and author.
