News: 'India still remains a growth story'

(BS 20/05/2006) New Delhi - Finance Minister P Chidambaram categorically said that India continues to remain a growth story, and asked retail investors to take "informed judgements" while dealing in the stock market. Addressing a press meet in New Delhi this afternoon, Chidambaram said: " Economic fundementals have not changed over the last four days. Forex reserves have moved past $163 billion, and inflation continues to remain below 4%. The manufacturing sector is growing at 9%. The India story continues to be growth, and there is no change in that." Chidambaram said the government had no intention to reintroduce long-term capital gains tax for securities traded on the stock market.

The left parties had, on Friday, demanded the re-introduction of the tax on account of the Sensex falling over 800 points. One of the factors behind the fall were reports that the government was planning to issue guidelines to check tax evasion by foreign institutional investors (FIIs).

The left also demanded a review of the double taxation avoidance agreement (DTAA) with Mauritius. Responding to a query on this demand, the Finance Minister said: "The India-Mauritius treaty has been debated thread-bare. Due to a host of economic, political and diplomatic reasons, we are not proposing unilateral revision of the treaty. Every political party is entitled to their opinion," he said.

Chidambaram clarified that the decline in the benchmark indices was not in any way connected to the Central Board of Direct Taxes (CBDT) circular, which was an update of a 1989 circular incorporating court judgements of the intervening period. He said the decline in the stock markets have been due to the fall in metal prices, attractiveness of other markets and hardening of interest rates.

"The circular nowhere mentions FIIs, the circular nowhere mentions any tax rate. The circular simply refers to a 1989 circular, and this circular has been culled out of that, " he said, adding that FIIs were aware of their legal position.

"Around 70 FIIs have filed returns and declared themselves as traders, but they are not taxed because they have no permanent establishment in India. Some do declare investment income, but many of them benefit from DTAA," Chidambaram said.

He said FIIs have been net sellers while the mutual funds have been net buyers since May 15. "While FIIs sold stocks worth Rs 2,500 crore in the last four sessions, mutual funds bought stocks worth Rs 2,803 crore," he said.