The ferocious selling by foreign institutional investors (FIIs) in the equity markets since April 2015 has seen the rupee depreciating 2.8 per cent against the dollar, becoming the worst performing currency not only among Brics countries but also among other emerging markets. In 2014 it was one of the best-performing currencies.
The rupee has been under siege by FII selling in the equity markets following the confusion over who has to pay the minimum alternate tax (MAT). In May alone they sold $1.25 billion worth of stocks and bonds.
The heavy selling by FIIs was triggered when they suddenly received I-T notices in April asking them to pay Rs 40,000 crore as MAT dues. After the furore kicked up by FIIs and others the amount was reduced and it was clarified that FIIs coming via Mauritius, with which India has a tax treaty, are exempt from tax.
The rupee closed at 64.23 to the dollar on May 7 after consistent selling of stocks by the FIIs since April and recovered slightly to 63.95 on May 8 after the government announced the setting up of a committee to look into the issue of payment of MAT by FIIs.
Admittedly, no one likes paying taxes, least of all global players for whom emerging markets, particularly India, are money-spinners. But the Modi government needs to be more circumspect about announcing policies that cause uncertainty as the stock markets and currency markets hate it. Besides rolling back knee-jerk announcements hardly reflects well on the government.
