Stem craches, save economy

Change Budget Prism

By Shivaji Sarkar

The stock market has wiped out Rs 8-10 lakh crores in a week since the Union Budget was presented on 1 February. The crash was imminent just awaiting a trigger which Finance Minister Jaitley’s Budget provided. Namely, the long-term capital gain tax (LTCG).
Undeniably, this was expected as the market was on a speculative hype and the bulls made the best out of it. Now it is the turn of the bears. Yes, there are stock agents who profit in both situations LTCG or not.
Pertinently, in November 2017, this column had indicated this imminent crash. In fact, since July 2017, the market has been volatile on many occasions and in November the fall was led by the GST Council’s decision to levy cess on cigarettes.
True, the trigger is often on innocuous issues. But it is like a coronary seizure which happens after a periodic cholesterol mismatch. The market is always dicey and follows a simple dictum: Whatever goes up has to come down, succinctly, prices have their limit to rise.
Hence, in a fall from a BSE sensex high of 36,383 on 1 Februrary to a low of 34,082 on 7 February, the market shed 2301 points. But this is not the end. As the RBI monetary policy indicating an inflation threat and consequent other problems too are likely to impact the stocks.
Importantly, there is one closely guarded secret which should bother investors. While the loss to them is being discussed, nobody is talking about the loss to mutual funds, where small investors park their money. It is well known that many mutual funds have invested heavily in stocks during the past many months. This means individual portfolios must have got hit.
This is not all. Many bank profiles have been affected which the market is keeping in wraps lest the mayhem that has happened and has wiped off about Rs 10 trillion according to market estimates does not open up many cans of worms. This calls for a close scrutiny of each mutual fund and bank assets.
It is being said that since the US market sneezed, following US President Donald Trump’s triumphant touting of stock market gains, the BSE is suffering from cough and cold. If that is correct, why was India hailing every point that moved up to over 36,000 during the past over seven months, when most world markets were in tizzy?
But then a crash in the mother market — the Dow plunging by 2200 in two days — has unnerved stock markets globally and led to a downturn.
Even otherwise, as the US economy is stated to be turning over and interest rates rising there, a flight of capital to America is natural. A hyped market ignores these realities.
Undoubtedly, fundamental problems have been overlooked notwithstanding the market always functioning on hype. Let us not forget 1992, when stocks surged and the credit was given to the ‘globalisation Budget’ presented by the then Finance Minister Manmohan Singh. Only a few days later, Indian markets came to know about the bank-financial institutions-stock dealer-corporate nexus, now called the Harshad Mehta scam which wiped out assets of the Unit Trust of India, LIC and several PSU banks. The total ran in to several trillions.
This resulted in the setting up of the regulator SEBI. The present crash also calls for a deep study along-with a need to learn whether an investor should be forced to move the equity market by drying out other sources of investment, be it the savings, gold or other assets. The world knows stocks are the riskiest as they benefit a few players and cause loss to millions.
One big reason why people don’t grow rich by investing in stocks is that most investors cannot invest that big — in crores, to reap a rich harvest through a poor man’s mutual funds in short-term. How long is the long-term? It could be 20 to 30 years. How many can really do that as stocks will always remain a difficult if not a crooked instrument?
Notably, global companies and not just Indian ones are known for concealing their income and losses. And debt is often not directly factored or shown as an income in balance sheets to keep investors in a dream world. As CAG reports have revealed that in terms of some of the supposedly well-known Indian companies making “large profits”.
Scandalously, understatements are routine. As Satyam or Enron show gross exaggeration is not uncommon and regulators have their limitations. Surely, they have many safety rules but are mainly fire fighters who swing into action after a mishap has occurred. Even as new regulations are made; companies work out methods to violate these too. Hence, the market can never be foolproof.
Needless to say, the Government has to look into this. Of late, savings has been disincentivised as a deliberate policy to promote mutual funds — an indirect stock investment tool — and other equity methods. The intention is not bad and is in sync with western markets. But we overlook how stocks have pauperized a large numbers of investors in the West whereby only success stories and profits are blown up while losses are swept under the carpet.
Significantly, India’s national savings schemes are gradually being made less attractive though these keep national assets intact and ensure happiness to investors. This policy initiated in 1992 needs to be changed. As it stands, India has grown through difficult times through household savings.
Remember, till 1992 and corporatisation of the Union Budget, scams were few. But it has become almost regular in one form or another through several scams, huge NPAs thereby siphoning of poor men’s savings, almost 82% of the loans given, as Prime Minister Modi said via recapitalization of bank funds with taxpayer’s money and many other ways. Consequently, even as revenues grow it slips through.
Clearly, as a nation, India has to act differently and put its age-old wisdom to its and the world’s benefit. Savings has to be recognized as safe and honest method to grow and has to be incentivised. A small step given to senior citizens of up to Rs 50,000 of interest accrual (it is not earning) in the Budget is a welcome step. This must be universalized and the limit enhanced to over Rs 1 lakh for now.
In sum, as the Budget goes through many modifications, the Government while promoting savings should also consider doing away with TDS on bank deposits. As TDS hurts savings and pauperizes the poor. The prism has to be changed for an overall long-term growth. —- INFA