Economic Highlights
New Delhi, 12 February 2018
Change Budget Prism
STEM CRACHES, SAVE ECONOMY
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
(Copyright, India News &
Feature Alliance)
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