Why let foreign players use derivatives for speculation?

Recently, Indians were asked to reduce energy usage through measures like work-from-home, carpooling, etc. Of course, this was consequent to the West Asia war and its disruption of crude oil and petroleum product supplies.

- DEVINA MEHRA

But in addition, we were asked to cut back on foreign travel and gold purchases, among other expenses. This went beyond the present conflict to pressure on the Indian rupee’s exchange rate. Earlier this year, some measures were taken to restrict the type of foreign-currency transactions that could be undertaken by Indian banks and corporations. The message seems to be that we should reduce outflows of foreign currency to help keep the rupee’s exchange rate at a reasonable level.

I have even seen some ill-thought-out recommendations, like disallowing foreign investors and corporations from taking away money through initial public offering (IPO) listings and offers-for-sale on Indian capital markets. However, any restrictions on capital repatriation will further make foreigners head for the exit. Any such move would have negative second-order effects.

Another set of policy measures, though in a completely different area, aims to curb excess speculation in derivatives on Indian stock exchanges. This year’s budget hiked the securities transaction tax (STT). The Securities and Exchange Board of India (Sebi) has been cautioning that almost all individuals in the derivatives market are losing money. Sebi has been raising entry barriers for traders in this part of the market.