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Saturday, Oct 20, 2007
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CPI(M) demands ban on Participatory Notes

Special Correspondent

“To reduce the vulnerability of financial system to flow of speculative capital”

NEW DELHI: The Communist Party of India (Marxist) on Friday demanded a ban on Participatory Notes (PNs) as recommended by the Reserve Bank of India (RBI). Concerned about the volatility in the stock markets of the country, the CPI(M) polit bureau in a statement sought to remind the government of the commitment made in the National Common Minimum Programme (NCMP) to “reduce the vulnerability of the financial system to the flow of speculative capital.”

Of the view that Indian policy must move towards insulating the financial system from speculative finance capital, the statement places on record the fact that the CPI(M) has repeatedly urged the United Progressive Alliance government to reverse the capital account liberalisation measures initiated by the erstwhile National Democratic Alliance government.

Further, the polit bureau said the Finance Ministry was ignoring the RBI advice which has recommended the phasing out of PNs “through which unregistered entities are pushing in huge funds into the capital markets and engaging in speculative activities.”

Referring to the discussion paper released by the Securities and Exchange Board of India (SEBI) on October 17, the polit bureau said it reflected the tentative attitude of the government in regulating financial entities, especially Foreign Institutional Investors (FIIs).

“The SEBI proposals merely aim at reducing the proportion of non-transparent instruments like Overseas Derivative Instruments 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 massive pull-out of funds precipitating a huge fall in the market only reflects the defiance of the FIIs towards regulatory institutions in India,” the polit bureau statement said.

According to the CPI(M), financial entities that are unwilling to meet the disclosure norms should not be allowed to participate in the Indian capital markets. Also, it has said that 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 polit bureau statement takes note of the turmoil in the financial markets across the world following the sub-prime mortgage crisis in the United States “which has already spilled over to other advanced economies” and said Indian policy should insulate the financial system from speculative finance capital.

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