Electoral Bonds Shear Rs 29 Tr
By Shivaji Sarkar
The Indian economy may or may not have matured, it has specialised in its murky Bombay stock operations. It did not crash alone on Wednesday. Two days earlier, on Monday, too the chinks were noticed in the State Bank of India shares in the wake of the Supreme Court’s firmness on submission of details on electoral bonds (EB). In two months, the market has dumped a huge loss of Rs 29 lakh crore. The small caps also took a hit of Rs 30,246 crore portraying far from a glowing picture.
The losses are the biggest since Covid-19. On March 11, the market lost, Rs 3.15 lakh crore mostly hitting the SBI, followed by Rs 13.9 lakh crore losses across the board, including the Adani group, on March 14. In two sessions the market lost Rs 17.05 lakh crore or almost 30 per cent equivalent of the total central budgetary amount. It tanks over 900 points on Wednesday and on Monday it loses 617.75 points. Together it is a bigger loss than March 13, 2020, when the fall was estimated at minus 14.2 per cent.
Not to forget that in the wake of the Hindenberg disclosures, the stock market crashed by 1168 points or almost Rs 12 lakh crore on January 23, 2024, the biggest in recent times. Most hits were taken by the groups of Adani, Zee and IRCON. In just about two months, the market has jolted the country with a Rs 29 lakh crore wipe out. The 2024-25 budget is of Rs 47.65 lakh crore.
Complicating the issue, the retail traders as a new phenomenon are also suffering. Volumes in retail trades multiplied since 2019, when it overtook the US. Murkier operations are in sight. An index of small-cap stocks lost more than Rs 30,246 crore in market value in less than two weeks through March 13. In 2023, Indian investors traded 85 billion in small cap, according to SEBI, in which 90 per cent of active traders lost.
In 2021-22, investors lost $ 5.4 billion, or $ 1468 apiece, a big sum, for a country with per capita GDP of $2300. This happens through dream cyber kiosks that mushroomed of Whatsapp, Facebook, Telegram and Instagram. The online media carry advertisements by CEOs of top companies alluring to multiply Rs 500 investments. As per SEBI these are mere traps.
Are the electoral bonds the big shakers? Perhaps. Investors are wary of disclosures of their identities at election time. The way foreign portfolio investors withdrew from the market faintly indicates this. There have been many MoUs with houses in West Asia and other countries.
Some days back, SEBI Chairman Madhabi Puri Buch had raised concern over ‘frothiness and bubbliness’. On Thursday, Uday Kotak of the Kotak group also says there is ‘frothiness’. The jargon does not say much except that the regulators’ awareness of murkiness and their inability to check it.
In its statement to the court the SBI says that of the 22, 207 electoral bonds, 22,030 were purchased. The remaining were deposited in the Prime Minister’s relief fund. Two documents were filed with the Election Commission of India, one mentioning names of political parties and the other detailing the bonds redeemed by them. The other set contains the details of electoral bonds purchasers. The total amount has not yet been disclosed though the EC announced that the list has been uploaded on its website.
It is interesting to note that the Delhi High Court had declared the election donations illegal just prior to the 2014 elections. On 29 March 2014, the court observed that both the Congress and BJP broke laws by accepting cash from companies owned by London-listed Vedanta group (Vedanta Resources) between 2004 and 2012. Sterlite Industries India and Sesa Goa, two companies then registered in India but whose controlling shareholder was Vedanta, donated Rs 87.9 million in total to the Congress between 2004 and 2012. Sesa Goa donated Rs 14.2 million to the BJP, according to the Association for Democratic Reforms (ADR) and presented it in the court.
An agency report says that a Prudent Electoral Trust has raised $272 million since its creation in 2013, funnelled “roughly 71 per cent of that to BJP. The trust donated $20.6 million to the Congress as well”. It mentions that eight business groups donated to the trust. Nobody has denied receiving corporate funding. The controversy is limited to the factor whether their names and total funding to the parties be disclosed or not.
On February 15, the Supreme Court struck down the Electoral Bond scheme or anonymous donations to political parties, as unconstitutional, violating right to information under Article 19(1) A of the Constitution. The court also quashed the amendments made to the Income Tax Act and the Representation of People Act, which made the donations anonymous.
During the last 10 years, electoral trusts reportedly disbursed about Rs 2557.74 to various political parties. Donations are stated to have 360 per cent growth. The growth of donations was phenomenal from 2018 to 2022. Political parties received Rs 9191.41 crore through electoral bonds, with the ruling parties always receiving higher funding.
The court held that the scheme cannot be justified by saying that it would help curb black money in politics. Instead, it said that transparency in political funding cannot be achieved granting absolute exemptions and feared that such fundings could have a quid pro quo. The top court’s actions rattled the market as such dealings create crisis of credibility and confidence.
The stock market is not an indication of economic growth. A small fall in the market capex, however, severely impacts the health of the banks. Since the Harshad Mehta scam in 1992, a number of Indian banks and FIs collapsed or merged and now the SBI, Indusind and some other banks are in disarray. The market may recover, but the banking process takes a severe beating.
This also raises questions about high electoral expenses. The court did have this in mind like the petitioner, ADR. Besides, travel costs have increased, which is owed to the artificially high pricing of petroleum, natural gas, coal and now even electricity. It is also linked to unnecessary toll on highways jacking up inflation to over 5.5 per cent despite low international crude cost. Favours for construction contracts of projects are also questionable, not to forget that rising costs have a cascading effect.
Market regulators need severe course correction. Losing such huge amount of money in just two months is a serious jolt to the economy and the banking sector. And it may not be the last of such national trauma. Undoubtedly, it would be interesting to watch how it impacts the elections. — INFA