New Delhi, Oct 19 (UNI) Expressing serious concern over the volatility in the stock markets, the CPI (M) today asked the Manmohan Singh government to prohibit participatory notes (PNs) and reverse the capital account liberalisation measures.
Concrete steps were needed to reduce the vulnerability of the financial system to the flow of speculative capital, as was promised in the NCMP, the CPI(M) Polit Bureau said in a statement.
The party said the Reserve Bank of India (RBI) had also recommended the phasing out of the PNs through which unregistered entities were pushing in huge funds into the capital markets and engaging in speculative activities. The Finance Ministry had been ignoring such advice.
The discussion paper released by the SEBI on October 17 reflected the tentative attitude of the Government in regulating financial entities, especially the FIIs.
The SEBI proposals were merely aimed 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 had not been accepted. The fact that even such a half-hearted measure by the SEBI had 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 the country.
Financial entities that were unwilling to meet the disclosure norms should not be allowed to participate in the Indian capital markets.
The UPA Government should realize that the surge in FII inflows into India, encouraged by rupee appreciation and interest rate hikes, can eventually have serious adverse consequences.
The financial markets across the world were already witnessing turmoil following the sub-prime mortgage crisis in the US, which had already spilled over to other advanced economies. Indian policy must move towards insulating the financial system from speculative finance capital, the party added.
''The CPI (M) is of the firm opinion that PNs should be prohibited, as has been recommended by the RBI.'' UNI