The stock market has held up surprisingly well against the waves of international turmoil. Its stolid performance will encourage official patriots to think that they have succeeded in decoupling the Indian economy from the world. The evidence for decoupling lies only in the fact that some Indian macroeconomic data — be it share prices, gross domestic product growth or balance of payments — do not show such violent perturbations as elsewhere. Elsewhere in this case is always chosen to be an area of high turbulence — these days, the United States of America. However, simple statistics, such as the share of foreign trade in GDP, the share of foreign institutional investors in market capitalization and the ratio of international capital flows to current account flows, show the considerable rise in India’s interdependence with the outside world. If India has proved stabler than the US, it is not because it is not connected.

There will be even more extreme patriots who will want to argue that the troubles originated in India, and that it is really the US that is being buffeted by the waves of India’s homemade tsunami. For after all, it was in May 2006 that the Indian stock market unravelled. Since economic data go up and down in cycles, the superpatriots will always find an Indian event that preceded a similar one abroad. India has a history of civilization going back 5,000 years, and people only have to dig a bit more to get shards from an earlier age. Foreigners cannot beat India in the game of who first.

The reason for India’s market’s greater resilience is to be found in something more mundane. Indians are waking up to the virtues of insurance; they have been taking out more and bigger policies. On some, the government has forced insurance; to others, it has given free insurance. As a result, the premiums collected by Life Insurance Corporation have risen. But every premium involves a liability many years in the future; during those years, LIC has to invest those premiums. And the investments have to yield enough to give the clients a decent return. The LIC would love it if the government paid enough on its bonds to assure such a return; but the interest the government pays does not often cover even inflation. The LIC is not allowed to invest abroad. So the only alternative it is left with is the stock market. There too it faces a problem: it is not allowed to buy more than a certain proportion of a company’s equity. And prudence requires that it should invest only in blue-chip companies. As a result, its holdings have touched the maximum limit in many such companies. It has asked the Insurance Regulatory and Development Authority to relax the extremely low limit of equity exposure. The decision does not require tremendous brain power — relaxation is the best option in the present circumstances, when the markets are so low.