Markets bleed, rupee plummets
SLIP AND SLIDE Finance minister creates panel to look into tax disputes concerning foreign institutional investors
MUMBAI/NEW DELHI: The rupee slumped to a 20- month low Thursday and the equity markets took a beating yet again as Dalal Street reacted sharply to anxieties over retrospective taxation of foreign funds, slowing reforms, costlier crude and concerns over muted corporate earnings.
Late in the evening, the government moved in to calm investors’ anxiety, announcing the setting up of a panel to suggest ways to resolve a tax dispute with foreign investors.
Uncertainties over minimum alternate tax (MAT) — a tax on corporate income — on capital gains made by foreign portfolio investors (FPIs) have prompted overseas funds to pull out money from India.
“We have decided to refer this matter (of payment of MAT by FIIs) as well as few other tax issues, which are essentially legacy issues, to a committee headed by justice AP Shah, the chairman of the law commission,” finance minister Arun Jaitley said.
“The committee is requested to give its recommendation of the specific issues of MAT on FIIs expeditiously. The government will consider the recommendation of the committee and take an appropriate decision as early as possible,” he said while replying to a debate on the finance bill in the Rajya Sabha.
The market free-fall has put a question mark on the BJPled NDA government’s ability to push through key reforms, including the contentious land acquisition bill, besides its handling of an agrarian crisis precipitated by unseasonal rains.
“One wouldn’t want it to come to a point where investing in India becomes unviable,” Hugh Young, Asia managing director for Aberdeen Asset Management, told news agency Reuters.
The income-tax department has already sent notices in 68 cases to FIIs for payment of dues totaling `602.83 crore towards MAT.
Aberdeen is fighting the MAT claim in court.
The BSE Sensex closed at its lowest level in nearly six-andhalf-months, closing at 118.26 points or 0.44% down, its lowest level since October 21.
The broader Nifty index also ended with a loss of 39.7 points, or 0.49%, at 8,057.30 -- its weakest close since December 17.
Intra-day, the Nifty dipped below the crucial 8,000-level to touch a low of 7,997.l5.
“Over the last one month, there has been more negative news flow than positive. The MAT issue that has worried FIIs, results season has been below expectations, crude oil prices have rebound to an extent,” said Sanjeev Zarbade, vice president, private client group research, Kotak Securities told HT.
In the last 15 trading sessions, the 30-share BSE Sensex has tanked more than 2,000 points, or more than 7%, with nearly half of this fall (841 points) coming in the last two days alone.
On Thursday, it tanked more than 200 points during intra-day trade following up on the previous day’s 723 free-fall.
After a period of relative stability, the rupee fell more than 69 paise to close at 64.23 to a dollar mark, a level last seen during August 2013, days before the local currency had hit its alltime low of 68.85 to a dollar.
Crude oil prices, which fell sharply in 2014, boosting major oil importers like India, have now risen around 40% since January. Rising oil prices and its potential impact on inflation could bring more worries for the Modi government.