Left for replay of long term capital gains tax

New Delhi, May 19: Warning the UPA government that the Stock Exchange bubble burst would have a grave impact on the stability of the country's financial system, the Left parties today called for re-introduction of the long term capital gains tax and review of the tax agreement with Mauritius besides protecting small investors.

They also cautioned the Manmohan Singh government against going ahead with Capital Account Convertibility on the plea that the asset price boom taking place in the country for the last two years had revealed the volatile nature of the stock market.

Speaking at a press conference, CPI(M) stalwart and Rajya Sabha member Sitaram Yechury pointed out that the bull-run of the sensex had been driven primarily by the FIIs, who had taken advantage of liberal taxation to make enormous speculative profits.

''It is a matter of great concern that media reports regarding a circular by the CBDT, continuing instructions to assessing officers to help them distinguish between traders and investors, caused such panic and led to a massive pullout of funds by the FIIs,'' the veteran leader said.

The CPI(M) leader said the pullout of funds also showed that the macroeconomics consequences of the bubble burst could be severe.

''In the context of the continuing rise in international oil prices, currency depreciation following capital outflow, is bound to cause inflationary pressures on the economy and hit the common man hard," Mr Yechury added.

Earlier the leaders of the CPI, while talking to UNI, recalling the fate of the Asian Tigers in 1990s in similar situation, said the fall also confirmed the worst fears of the vulnerability of market to activities of foreign institutional investors (FIIs).

''The Left have been consistently warning that the bull-run in the Sensex was no indication of the economic health of the country,'' CPI General Secretary A B Bardhan said.

Mr Bardhan pointed out that in the past also manipulators and speculators had used the mechanism to fleece small investors in the era of liberalisation when the stock market had been integrated with world's speculative economy.

CPI National Secretary Shamim Faizi said any fall and inflationary effect on other economies had always adversely affected India's economic sector.

''In the past, due to our national assets, particularly our PSUs, we escaped repercussions of currency crisis in several Asian countries. But now with the rise in inflation in the dollar economy, our stock market has started tremors,'' Mr Faizi, editor of CPI mouthpiece 'New Age', said.

He said the fall of as much as 826 points in the sensex was the direct result of the crisis in economies elsewhere.

Pleading that the Manmohan Singh government must have a re-think on the experience of 15 years of economic reforms in the country, he said economic new liberalism is not the solution to this problem.

CPI(M) leader Nilotpal Basu said if reports were to be believed the FIIs were trying to influence the taxation policy of India, which is a ''warning signal for us''.

''A similar fall in the value of rupee substantiate the opposition to the government's proposed move for full convertibility of the rupee,'' Mr Basu added.

UNI

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