The Telegraph
Since 1st March, 1999
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- The obsession with stock markets is anti-growth, and thus anti-people

The gentleman is inconsolable. He is, he says, a “small” investor, and has lost as much as Rs 120,000 in the post-election mayhem in the stock exchanges. For this great ill-fortune, he places the blame squarely on the left, whose offensive against privatization and disinvestment, he does not have the least doubt, was the cause of the market calamity.

Consider though the dilemma confronting the left. They fought the elections on the plank of opposing privatization and disinvestment which, in their judgment, have been the principal cause for the loss of jobs and growing immiserization of hundreds and thousands of countrymen belonging to the middle and working classes in the recent period. They fought the Lok Sabha polls on the basis of their anti- “reforms” manifesto, and have achieved stunning success: close to four-fifths of the candidates they put up have got elected to the Lok Sabha. This rate of success is the highest amongst all political parties; for both the Congress and the Bharatiya Janata Party, the rate is as low as one-third, or even less. If, as the gentleman alleges, their obstinate reiteration of the theme of anti-privatization has been responsible for the downslide in the share markets, should the left go back on their commitments, betraying the mandate they have received from their supporters' But will that not make a mockery of the democratic process'

Democracy is supposed to be a political system where the views of the people are reflected through periodic elections, and those elected are expected to honour the views endorsed by the people. The choice could not therefore be starker for the left: either they honour their pledge to those who voted for them and demand a surcease to the dismantling of the public sector, or they show deference to the susceptibilities of gentlemen such as our poor “small” investor, for whom soaring share prices are the be-all and end-all of existence. The left, how mean, decided to maintain their democratic integrity; our poor “small” investor is aghast.

Is there at least not some ground for probing the credentials of those who describe themselves as “small” investors' Taken at his word, the gentleman referred to in the opening sentence of this column lost Rs 120,000 due to share market upheavals immediately following the declaration of the poll outcome. Assume that he incurred all this loss on May 17 last — the Black Monday — when the market took the deepest plunge; at one time, almost 800 points were shed off from the Sensex. In percentage terms, this decline of 800 points meant an erosion of share values to the extent of something like 15 per cent. Be generous; and make the further assumption that, because of the goings-on during that day, the shares held by our gentleman actually lost as much as 20 per cent of their value. Does this not however imply that the aggregate value of the shares he held was in the neighbourhood of Rs 600,000' Besides, it would be altogether incredible that a gentleman who could afford to lock up funds of the order of Rs 600,000 in the stock exchanges, would not own other assets too, such as some bank money and one or two house properties. It would be gross travesty of the dictionary meaning of terms and expressions if a gentleman of this background is to be given the sobriquet of “small” investor. In any event, in a country where roughly a third of the population is perpetually hungry, where child mortality and female nutrition rates, as well as the standard of literacy, are about the worst in the United Nations listing, and so-called economic reforms have aggravated the living conditions of the poorer sections of the community, to assign greater priority to the share market woes of our self-centred gentleman would be immoral — and indecent — by all criteria.

That apart, whatever his plight, the gentleman should not curse the left. Rather, he should begin by cursing himself. The left did not goad him into investing in the share market; he propelled himself toward that direction, perhaps influenced by allures held out before him by brokers and similar other species. Moreover, the left could not have worked the kind of havoc that was wrought on our bourses on Black Monday. They have no instruments at their disposal which could allow them to dictate terms at Dalal Street or India Exchange Place. That kind of clout is possessed by only the big operators who dominate the financial sector, the biggest of such operators are the foreign institutional investors, who have by now taken charge of all our stock exchanges. These major players are in a position to buy shares in bulk when prices rise and sell the same share later in the day; alternatively, they sell shares in bulk when prices are falling and buy back the shares later in the day. They are the architects of both bull runs and bear squeezes. Our “small” investors merely follow their lead.

What happened on Black Monday bore the imprint of a major bear operation launched by the big operators, including the FIIs. They were out to frighten the daylights out of the political establishment: concede too much to the left, and we will befoul the share market, which will affect the country’s economic stability. The unfolding events of the days had the hallmark of a massive act of blackmail, accompanied by a threat to repeat the blackmail every now and then. If only the government would gather the courage to institute an enquiry into the detailed proceedings of that day, much of the truth will be out.

Back to Julius Caesar. The fault does not lie in the stars — nor in the shenanigans of the left — but in the behaviour of the “small” investors themselves. You will come to my parlour: said the spider to the fly! The fly obliged. “Small” investors in their droves moved to the stock exchanges along with their savings. They had the option to keep these savings in term deposit with the banks. Such deposits were fully assured, but the return was low. By bringing down the rate of interests the banks are permitted to offer, the government has seen to it that the ordinary citizen discarded the savings habit and flocked to the share market. This was supposed to be in consonance with the grammar of economic reforms. Low interest rates, it was argued, will encourage entrepreneurs to borrow more and invest more in productive activities. What has come about is precisely the reverse; low interest rates have stifled savings and given a boost to the speculative forces active in the bourses. What fool will keep money in the banks to earn a measly five or six per cent return when investing in shares might yield, overnight or in the course of the day, as much as one hundred per cent return, or even more' Contrary to capitalist wisdom, for poor countries awfully lagging behind in basic investments in agriculture, industry and infrastructure, obsession over the state of health of the share markets is anti-growth — and therefore anti-people. Money spent in speculation is money that cannot be invested in growth; it is high time to call the bluff of the big market operatives, including FIIs.

But such harsh truth does not go down well with the society’s creamy layer. If only, during the past five or ten years, the lucky dogs at the top themselves chose to shine a little less and cared to bring a teeny-weeny cheer to the daily living of the nation’s overwhelmingly poor, the electoral verdict would presumably have been somewhat different and their bête noire, the left, would have stayed in the wilderness.

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