Taking stock of economy

THE first week of April brought back the painful memories of April 1992 when the Bombay Stock Exchange (BSE) sensex recorded a major fall as a result of the multi-crore securities scam. This time the BSE sneezed when Nasdaq caught cold following a federal judgement that Microsoft Corporation seriously violated US anti-trust laws. When Bill Gates was busy sharing the limelight with the US President, the court pulled up his company for doing ‘violence to the competitive process’ abusing its monopoly power in personal computer operating systems. That some learned judge in the US is seized of the competitive process should be good news to all those WTO member countries who are victims of US' selective trade protectionism. The Microsoft will in due course react and set its house in order but in the meanwhile the BSE was turned into a chaotic house.

The aggregate market capitalisation of the BSE dropped by an estimated 60 crore bringing the BSE sensex down by 7.1 per cent. Besides Nasdaq, another reason for the sharp market reaction was the reported issuance of notice by the Income Tax (IT) department to Mauritius-based foreign institution investors (FII) to pay up tax on capital gains made during 1996-97. Reacting to the market the Government hastened to assure FIIs that there was no move to revoke or modify the tax treaty with Mauritius. The tax demand of 8.67 crore on five FIIs was promptly withdrawn even while the Mauritian finance minister Vasant Bunwaree was giving a dressing down to Indian High Commissioner M.L. Tripathi on the virtues of upholding the

Indo-Mauritius Double Taxation Agreement. The nearly 48-hour high pitch drama raised a few significant points. In the first place it has confirmed that while stock markets generally reflect the heath of the economy, the fluctuations should not be taken as gospel truth on state of the economy. There could be nothing wrong if the CBDT genuinely felt that it has got on its net a few offenders. The question is not the "size of the demand which was a pittance". It is no secret that Mauritian economy depends heavily on the registration fees collected from post box companies who take advantage of the Island's tax laws. The whole episode should be an eye-opener considering the fact that how vulnerable our stock markets are to a handful of FIIs and their consultants, read operators.