The Hindu Business Line : Stock market turmoil spoils the UPA party

Last time it happened, also on a Monday, was on May 17, 2004, after the market plunged in reaction to the people voting out the BJP-led NDA government.

People unimpressed

The message in the fall of the NDA was that, regardless of the hype about India Shining and the stock market euphoria, without actual reform and redistribution of gains, the people are not impressed.

The problem was further compounded by breakdown of policy-making as the coalition partners did not see eye-to-eye on important pieces of economic legislation that would have ensured a level playing field between the public and private sectors with an empowered regulator promoting competition and healthy growth of diverse sectors.

If the mostly Rightist parties that constituted the NDA could not come to terms with their inherent contradictions to take economic decisions purely on their merit, the predicament of the UPA, subsisting on outside support from the Left parties, is quite understandable.

The market meltdown by a hefty 23 per cent in less than ten trading sessions cannot to be dismissed casually, especially when the loss to the stockholders is too great to be compensated even if the correction spell ends quickly and sanity returns to the bourses in the coming days.

Global imbalances

One can cite a raft of factors for the turmoil in the bourses — from the growing imbalances in the global economy with the world's richest country, the US, turning into the biggest borrower (subsidised by the savings of the emerging economies including India) and running up a current account deficit of close to 7 per cent of its GDP; the runaway rise in global crude prices that show no sign of a let-up; the crash in metal prices and the nudging up of global interest rates, with the instant effects of these factors on the domestic economy.

Fleet-footed investors may also have become wary of the way the domestic economy is being managed by the Government — for instance, the decision not to adjust upward the prices of natural gas and diesel presumably under pressure from the Left parties; the diversionary policy ploys such as raking up the reservation issue; and putting on the back-burner key economic reform of pension funds, raising the foreign direct investment ceiling on insurance and the labour policy.

The discussion on securities transaction tax (STT) and the long-term capital gains tax and the blurring of the distinction between investor and trader in stocks further muddied the market sentiment, frightening the retail investors unable to appreciate the subtle points for lack of proper information.

More than the external and extraneous factors, the role of the regulatory agencies assumes importance.

Market analysts say that policy-makers and economy managers must ensure that quality stocks come into the market.

Hopefully, the authorities will help to unleash the entrepreneurial potential through purposive economic management instead of frittering away energies otherwise.

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