Originally Published 2004-05-20 11:14:38 Published on May 20, 2004
The ¿steep fall¿ and the ¿smart recovery¿ of stock prices with every bit of new information, misinformation and disinformation, on government-formation at the Centre has once again proved the volatility of market sentiments, often not grounded in political realities or economic fundamentals.
Stock markets, volatile and vulnerable
The 'steep fall' and the 'smart recovery' of stock prices with every bit of new information, misinformation and disinformation, on government-formation at the Centre has once again proved the volatility of market sentiments, often not grounded in political realities or economic fundamentals. While the past decade and more of economic reforms has shown that the Indian stock market has the inner-strength to bounce back after every fall, sooner rather than later, it also raises questions about the wisdom of using the Sensex as a yardstick to measure the nation's economic performance or political stability at a given time. After all, the Sensex had dropped, or swung violently, if not to this extent, even when a stable Vajpayee Government was at the helm.

There is no denying the greater linkages that have been established between the stock markets and individual prosperity. This has become all the more relevant in the context of the reforms-induced fall in bank rates in the country. In a nation where 'domestic savings' has provided a sense of financial security to individuals and families, apart from pooling in resources for economic planning, playing the market has become a way of life for the urban middle class, to help their limited incomes multiply in a shorter time. The temptation is too much to resist. But as P Chidambaram said as Union Finance Minister, those who collected all the gains in a boom market should also be prepared to take the losses when the stock prices fell. 

While all market crashes bring back to memory the 'Harshad Mehta scam', there is a difference. Apart from the fact that the 'Big Bull rampage' involved Government securities, and not stocks per se, the mad rush of the time also involved huge public investments in fly-by-night companies, which sank with all the money. Manmohan Singh as Finance Minister nearly dismissed it as a 'systemic failure', a phrase almost repeated by a BJP successor, who described the market scam of his time as a 'systematic failure'. Yet, it would be useful to find out where all those monies got parked ultimately, just as it would be purposeful to facilitate a meaningful repatriation of all the ill-gotten wealth of the nation's political class that is parked in 'foreign banks'.

The mid-nineties saw a lot of political instability at the Centre, but it also showed that the nation's economic agenda would remain unaltered. It had happened once earlier when the Janata Party came to power, but there were two specific differences this time round. One, the BJP while in the Opposition was not exactly enthused by the reforms process, and its Sangh Parivar affiliates in fact had the 'Swadeshi agenda', instead. Two, the Janata Parivar did not have an economic agenda much different from the socialist policies of the Congress predecessor in the Seventies. That way, the current phase sees the continuance of policies oriented towards market capitalism, as different from the subsidy-driven developmental agenda of the past.  

The 'market mayhem' attending on the government change-over this time has already had a dampening effect on the perceived Leftist over-drive to stall the reforms process on the track. While a mid-course review and correctives may be in order, the reforms process itself has become irreversible. The reverse is also the truth. With the result, any sentiments-influenced shake-up in the thought-process, leading to a blind continuance of the reforms regimen, and measuring its success exclusively by stock market behaviour is fraught with danger in more ways than one.  

For one thing, it could become a political weapon for Indian nationals and foreigners, both individuals and institutions, to dictate the nation's economic policies, big and small. Two, it could lead to a situation where 'stock market stability' as a symbol could influence blind allegiance to economic reforms without reference to 'bread and butter issues' that have been at the centre of successive electoral mandates in recent years. 

India had wondered for long, how politically-fractured nations like Italy and Japan have had stable economies. Over the past decade, we have learnt how. But any further travel along the path without reference to the concerns of the common man could lead to a consistent economic policy with a constant change of political ruler every five years, or whenever elections become due. There is need for caution and circumspection. In the absence of which we would have a stable economy, and even a stable polity, but with political parties and groups resigning to the fate of having to take turns at power every five years, or whenever elections became due. 

The alternative would be for these parties to do in haste what the nation would regret in leisure. The signs are already visible, for instance, in AIADMK-ruled Tamil Nadu, where the Lok Sabha poll results have triggered the restoration of cancelled subsidies for the common man as mindlessly as they were withdrawn in the first place. Such a confused approach could do no economy any good, though the message of this elections is for 'reforms with a human face'.
Given the 'failure' to evolve a two-party system as in the US, or coalition politics of the Italian or Japanese kind, especially after the reforms process became a reality in this country, the temptation would be to dismiss the existing and emerging ranks of regional parties in India as also the Left, as irrelevant and inconsequential as the Liberals are in the UK. But in the company of the political Left, the regional parties in the country have greater breadth and depth. They cannot re-tune their policies and programmes to meet the demands of the reforms regimen, without reference to their vote-bank. In turn, this reality can be ignored only at nation's peril, particularly when the Congress leader of the ruling coalition at the Centre continues to be confused as ever on the political front, and the BJP rival finds it difficult to re-adjust itself to the forgotten role in the Opposition, under an ageing leadership.

* Views expressed in this article are those of the author and do not necessarily reflect those of Observer Research Foundation.
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N. Sathiya Moorthy

N. Sathiya Moorthy

N. Sathiya Moorthy is a policy analyst and commentator based in Chennai.

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