Click to play videoNew Delhi: The CPIM has expressed vehement opposition to the recommendations relating to greater liberalisation of inflows and outflows of capital as suggested by the Tarapore Committee of the Reserve Bank of India.
The Left says that easier currency norms will allow reckless borrowing and increase speculation in the capital markets.
"Not just speculation but we think that this entire thing will lead to a massive outflow of resources from India. And the outflow of capital from India at this point of time will be disastrous for the India’s economic future," said CPIM Leader Sitaram Yechury on Tuesday.
Diluting capital controls will lead to greater flows of speculative finance |
 It will increase the risks of a currency crisis |
| Recommendations will facilitate increased capital outflow from India |
| May 2006 stock market crash exposed volatile nature of such capital inflows. |
The norms will increase portfolio investment in India and this won't help the Indian economy.
The Left says if these steps are implemented there could be a financial crisis because capital can be taken out of India much more easily.
Here’s how:
Say an investor puts in a dollar equivalent of Rs 50 into the capital markets, and after this money appreciates to say Rs 100, he can just reconvert the money, which is $ 2 now, and take it out of the country.
CPIM says dilution of such capital controls would only lead to greater flows of speculative finance capital into the Indian economy.
However, the party agreed with a few recommendations such as such as banning fresh issues and phasing out of participatory notes, doing away with tax exemptions enjoyed by the NRIs and review of the Double Taxation Avoidance Agreements.
"There are some aspects of the Tarapor committee that we think will help in the process of economic consolidation of India at the moment," said Yechury.
Participatory notes are instruments used by investors not registered in India or Mauritius to trade in the Indian markets. They buy and sell shares anonymously through brokerages with Mauritius-based FII (Foreign Institutional Investors) accounts that in turn repatriate the dividends and capital gains back to them.
But the Government isn't buying the Left's logic. A senior member of the Government's economic establishment who did not wish to be named said that he feels the Government should not change its stand on participatory notes.
He pointed out that blaming the East Asian crisis wholly on capital account convertibility was a bit of an exaggeration
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