Market mayhem: Left wants ban on PNs
The bloodbath in the stock market has drawn the Left into another confrontation with the UPA government, with the CPM on Friday backing the RBI’s recommendation to completely prohibit Participatory Notes.
By TNN |
NEW DELHI: The bloodbath in the stock market has drawn the Left into another confrontation with the UPA government, with the CPM on Friday backing the RBI’s recommendation to completely prohibit Participatory Notes.
The CPM, which made the demand at a time when the government was trying to assure foreign institutional investors (FIIs) that Participatory Notes were not banned, insisted that the discussion paper released by the SEBI on Thursday reflected the “tentative attitude” of the government in regulating financial entities, especially the FIIs. It said the SEBI proposals aimed merely at reducing the proportion of non-transparent instruments like Overseas Derivative Instruments (PNs) in the total Assets under Custody of the FIIs.
“The recommendation of the Tarapore Committee of phasing out PNs altogether has not been accepted. The fact that even such a half-hearted measure by the SEBI has led to a massive pullout of funds precipitating a huge fall in the market only reflects the defiance of the FIIs towards regulatory institutions in India,” a statement issued by the CPM politburo said.
The CPM said the finance ministry was ignoring the advice of the RBI to phase out Participatory Notes “through which unregistered entities are pushing in huge funds into the capital markets and engaging in speculative activities”. Seeking a policy that moves towards insulating the financial system from speculative finance capital, the CPM tried to drive home the point that financial markets across the world were facing turmoil following the sub-prime mortgage crisis in the US.
The CPM asked the government not to allow financial entities that are unwilling to meet the disclosure norms to participate in Indian capital markets. “The UPA government should realise that the surge in FII inflows into India, encouraged by rupee appreciation and interest rate hikes, can eventually have serious adverse consequences,” the CPM warned.
“The CPM has been asking the government to reverse the capital account liberalisation measures initiated by the erstwhile NDA Government and demanded that concrete steps be taken to reduce the vulnerability of the financial system to the flow of speculative capital, as was promised in the NCMP,” the statement read.
The CPM, which made the demand at a time when the government was trying to assure foreign institutional investors (FIIs) that Participatory Notes were not banned, insisted that the discussion paper released by the SEBI on Thursday reflected the “tentative attitude” of the government in regulating financial entities, especially the FIIs. It said the SEBI proposals aimed merely at reducing the proportion of non-transparent instruments like Overseas Derivative Instruments (PNs) in the total Assets under Custody of the FIIs.
“The recommendation of the Tarapore Committee of phasing out PNs altogether has not been accepted. The fact that even such a half-hearted measure by the SEBI has led to a massive pullout of funds precipitating a huge fall in the market only reflects the defiance of the FIIs towards regulatory institutions in India,” a statement issued by the CPM politburo said.
The CPM said the finance ministry was ignoring the advice of the RBI to phase out Participatory Notes “through which unregistered entities are pushing in huge funds into the capital markets and engaging in speculative activities”. Seeking a policy that moves towards insulating the financial system from speculative finance capital, the CPM tried to drive home the point that financial markets across the world were facing turmoil following the sub-prime mortgage crisis in the US.
The CPM asked the government not to allow financial entities that are unwilling to meet the disclosure norms to participate in Indian capital markets. “The UPA government should realise that the surge in FII inflows into India, encouraged by rupee appreciation and interest rate hikes, can eventually have serious adverse consequences,” the CPM warned.
“The CPM has been asking the government to reverse the capital account liberalisation measures initiated by the erstwhile NDA Government and demanded that concrete steps be taken to reduce the vulnerability of the financial system to the flow of speculative capital, as was promised in the NCMP,” the statement read.
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