Y.V. Reddy advocates Tobin Tax

Dr Y.V. Reddy, former Governor of RBI, advocated the need for a ‘Tobin Tax’ (a tax on short term speculation in currencies) for India while delivering the S.Guhan Memorial Lecture 2009, in Chennai on Thursday. Pointing out that the idea was considered retrograde and unpractical till recently — both in India and globally, he drew attention to its acceptance by eminent persons such as Mr Paul Volcker, former US Fed Chief, and Lord Turner, current chief of UK’s FSA. He said that the idea could be examined for the forex markets in India and a suitably modified securities transaction tax could be extended to P-note transactions, though they are traded abroad. In a wide-ranging address that looked at a host of issues relating to India’s financial sector, Dr Reddy also called for a “detailed analysis and supervisory review of the incipient tendency towards irresponsible or usurious lending through micro-finance institutions that are profit seeking”. He also drew attention to the “emerging hollowness in traditional lending pattern among banks”. He said that banks are reducing their advances for working capital and funding for agriculture, small business and small and medium industry, because of their lending and investment in other sectors such as mutual funds, private equity, venture capital, and other infrastructure activities besides equity investments. He said that a banking license was given primarily to conduct traditional retail banking activities that are vital to facilitate growth at our stage of development. – www.thehindubusinessline.com

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