By IANS
New Delhi : The Communist Party of India-Marxist (CPI-M) Friday demanded a complete ban on participatory notes (PNs) in the capital market, saying that through it unregistered entities were pushing in huge funds leading to unprecedented fluctuations.
“The CPI-M is of the firm opinion that PNs should be prohibited, as has been recommended by the RBI (Reserve Bank of India),” a statement issued by the party politburo said.
Following dramatic fluctuations in the stock market, the Securities and Exchange Board of India (Sebi) has proposed to control anonymous foreign investments done through Participatory Notes.
Urging the government to reverse the capital account liberalisation measures initiated by the previous National Democratic Alliance government to reduce the vulnerability of the financial system, the CPI-M pointed out that the RBI also had recommended the phasing out of PNs.
“The finance ministry has been ignoring such advice,” a party politburo statement said.
“Financial entities that are unwilling to meet the disclosure norms should not be allowed to participate in the Indian capital markets,” it said, warning that the surge in Foreign Institutional Investors (FIIs) inflows into India, encouraged by rupee appreciation and interest rate hikes, could eventually have serious adverse consequences.
Pointing out that the financial markets across the world were witnessing turmoil following the sub-prime mortgage crisis in the US, it said: “Indian policy must move towards insulating the financial system from speculative finance capital. The CPI-M is of the firm opinion that PNs should be prohibited, as has been recommended by the RBI.”
The party, however, said the Sebi’s reaction reflected the “tentative attitude” of the government in regulating financial entities especially, the (FIIs).
“The Sebi proposals merely aim at reducing the proportion of non-transparent instruments like Overseas Derivative Instruments (PNs) in the total assets under custody of the FIIs.”
“The fact that even such a half-hearted measure by the Sebi has led to massive pull-out of funds precipitating a huge fall in the market only reflects the defiance of the FIIs towards regulatory institutions in India,” it said.
Finance Minister P. Chidambaram had explained to FIIs that the government did not propose a complete ban on PNs.