Sebi chief invokes IMF data to say all’s well

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Amid lingering debate over the impact of demonetization, Securities Exchange Board of India chairman U K Sinha has come out in support of the government by playing down possibility of any long-term impact of withdrawal of currency notes in November.

“If at all there is an impact, that impact is going to be short-lived,” he said.

The Sebi chief said about $11 billion of foreign portfolio money exited in the October-December quarter due to a combination of reasons including the US Fed rate hike, comments of US President-elect Donald Trump on steps to boost US economy apart from the demonetization announcement.

In making a case for the short-term impact of demonetisation, Sinha quoted International Monetary Fund estimates which sees Indian growth bouncing back in 2017, and going up further in 2018.

“The fact remains that IMF has reduced its forecast for India. But if you see that very closely, you would find an interesting bit. While for 2016, they have brought it down from 7.5% to 6.5%. But for 2017, it is 7.2% while for 2018, they are saying 7.4%. So, it’s going up. So, herein lies the answer,” he said addressing members of Bharat Chamber of Commerce.

Sinha said the jury is still out on the impact of demonetization on the capital market, which saw significant withdrawal by the foreign portfolio investors as two other major developments, Trump winning US Presidential elections and US Fed raising rates happened simultaneously.

“On the day the decision (on demonetization) was taken, another very important development happened in US, results of the US Presidential elections came out. Money has gone out not only from India but from many parts of the world to US. So, it’s too early to analyse and come to a finding that FII money went out due to cancellation of legal tender. Besides the election, we also had the first rate hike by the US Fed.”

Sebi, he said, has been taking several steps to stop misuse of the capital markets through steps like curbing foreign investment through participatory notes and hauling up those who have been avoiding payment of capital gain taxes.

Over 50% of foreign portfolio investment into India came from the participatory notes route in the last one-two years but that has now come down to just 8%, he said.

“There was a feeling among various quarters that the FPI route is being misused by some people of India origin through the mechanism of participatory notes or overseas derivative instruments. We have been successful in curbing such misuse in this fiscal,” Sinha said.