SENSEX CRASH

CITU Faults FM For Submitting To US Fund Managers’ Blackmail

The CITU secretariat issued the following statement to the media on May 19, 2006

THE developments in the share markets, which witnessed a crash on May 17, 2006 call for an introspection on the part of the UPA government, particularly the finance ministry. Highs and lows that mark the speculative share market movements cannot be the sole barometer of the strength of our economy.

The finance minister blaming the crash on ‘uninformed reporting by a section of media’ borders on a panicky response to the blackmail by the US Fund Managers, who had made a forthright demand on the government of India that no tax liability should arise on their fees. The finance minister has submitted to this blackmail by choosing to classify the Foreign Institutional Investors (FIIs) as a whole as ‘investors’ and not ‘traders’, even for the limited purpose of subjecting to tax the management fees paid by them. In the process, the finance minister seeks to obliterate the demarcation between the FIIs and the Foreign Direct Investments (FDI). The plea of the FIIs having no permanent residence here (in India) is a dubious one. While the FIIs may not have a physical presence here, they are deriving huge gains through trading in Indian stock markets. It defies logic that they should not be subjected to tax, even to the limited extent that the CBDT circular and notices have attempted. The present situation is a clear manifestation of the vulnerability of Indian economy as a result of the current phase of liberalisation drive with its sole dependence on inflow of foreign finance capital and servility of the government towards the same.

The finance minister is well known for his keenness to devise ingenious methods to squeeze the tax payers in the country, particularly the salaried class, by subjecting the perks received by them to taxation, by proposing to alter the tax treatment on small savings, provident fund etc. to subject the terminal benefits under such schemes to tax. But, when it comes to speculative foreign funds, which are virtually dominating the Indian capital market, the finance minister is gleefully forthcoming to confer handsome benefits to them. The CITU strongly denounces this policy orientation unduly favouring the FIIs and demands of the government to make public the income tax treaty between India and the US and review its provisions, if needed, in national interests. (INN)