No move to tax foreign investors: Chidambaram

No move to tax foreign investors: Chidambaram

Wednesday, January 12, 2005 (Mumbai):

There is mayhem on Dalal Street as foreign funds have been withdrawing money from the Indian markets by the millions.

In the past one week the Sensex has lost 7 percent, and during the same period FIIs have withdrawn nearly Rs 175 crore.

And the statement made by RBI Governor YV Reddy today did not help matters.

Taxing matters

Reddy said that unchecked foreign fund inflows and outflows were an important cause for volatility in the Indian markets.

He also said India needed a mechanism to check the background of foreign institutional investors, and that there should be some kind of a limit set on how much money FIIs can put into the markets at one go.

But his most controversial statement was that it's time to think of taxing purchase of local shares by foreign investors.

Immediate clarification

Within minutes, Finance Minister P Chidambaram was out to clarify that the RBI Governor had been completely misinterpreted.

Chidambaram said the government wants more, not less, investment by foreign institutional investors.

Later, Reddy also issued a formal clarification, saying he had been misunderstood.

Market watchers, who had panicked when they heard about the RBI Governor's statement on taxing FIIs, have now been reassured.

They say while FII outflows might hit the markets, foreign funds do play a major role in keeping the markets robust.