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Indian stock markets staged a sharp recovery on Friday amid a buzz that the Prime Minister's Office was set to intervene in order to arrest the prolonged fall in the stock markets partly caused by the tax on the super-rich proposed in the Union Budget.
However, no such announcement was made until late evening. This begets the question as to how and when the government will act to reverse the damage caused by the exodus of foreign funds as only 3 parliamentary sessions are left before the close of the Budget session.
One way could be an ordinances route, which has been used extensively by NDA-2 for taking various big ticket decisions. The ordinance gives six months life to a proposal within which time either the plan has to be ratified by Parliament or ordinance is re-promulgated.
Experts belive that this route will give enough time to government to think all over its budget proposal to provide relief to a big segment of FPIs.
The most likely course of action to correct the new super-rich tax burden on FPIs is to provide one-time tax free transfer of shares to special purpose vehicles (SPVs). The other move could be a mechanism of self declaration by FPIs.
FPIs have off-loaded equities worth over Rs 2,500 crore from the Indian capital markets since July 1, which has partly caused the equity indice to shed heavily during the same period.