People's Democracy(Weekly Organ of the Communist Party of India (Marxist)
July 23, 2006
Market Theology In Peril
K V George
THE share markets in India and across the globe have been witnessing violent movements for over a month and there is nothing unusual about it. On May 12, 2006, Sensex climbed up to 12,671 points and today it stands dragged to below-10,000. The latest explanation for the drastic bearish grip is a global meltdown. Whenever the stock prices moved up, our finance minister used to boast about the "strong fundamentals" of the Indian economy. He claimed it was a barometer of the impressive economic performance. Almost all financial analysts, professionals and columnists followed suit. To be on the safer side, a few among them indicated a possible correction, shortly or otherwise. But often the outstanding remark from the finance minister is that there is no need for any concern over the ups and downs in stock price indices.
This stance is primarily ideological. Our finance minister has always professed his ardent faith in the market. Market, according to him, is almighty and knows the best. Market needs no intervention or correction. Market will correct itself and knows how to correct. Demand and supply will interact as of routine, which in its turn will determine prices. There is nothing new in this. It is a very old wine. This was what the classical, orthodox economists right from Adam Smith advocated. This is otherwise known as laissez faire economics. Strangely, whenever our finance minister presents his market philosophy as if he has something fresh to offer, many innocent citizens seemingly raise eyebrows.
INTERVENTIONS ARE THERE
Let it be so; that is not our concern at the moment. The finance minister of the country has every right to believe in market philosophy. Nobody can challenge it. But why then should he fly to the Dalal Street every time there is a collapse of the Sensex? On May 17, 2004, the stock prices sharply dropped by 564 points. This was the time when the UPA ministers had just sworn in. The wild swing was attributed to some 'immature' remarks by a few 'irresponsible' Left leaders. We do remember that the finance minister had then air dashed to Mumbai, though the reason is yet to be known. What was the exact package behind the confidence building exercise? This too is yet to come out.
But one thing is certain: There was intervention. When Mr P Chidambaram gave assurance to brokers and investors in his capacity as the finance minister of the country, it could not be anything but governmental intervention. In other words, the ruling UPA government intervened in the stock market to prevent the stock prices from falling further.
MISUSE OF BANK FUNDS
The same thing recently happened again. On May 22, 2006, there was again a bloodbath in the bourses and, within minutes, the finance minister was in Mumbai. This time he summoned the RBI chief and the CEOs of public sector banks, and directed them to bail out the brokers. Brokers were struggling hard to answer their margin calls. The finance minister wanted the banks to make available sufficient funds to the brokers. Further, the State Bank of India, the Unit Trust of India and the LIC were asked to buy shares in lump sum. Nearly Rs 500 crore were suddenly pumped in by these giant organisations. As a result, Sensex gained around 340 points. These measures no doubt stopped the Sensex from plunging fathoms deep.
Again, this was nothing but intervention. Nay, it was virtually patronage. The finance minister and the government consciously intervene in the share market to save the stock prices from collapsing, though this is against their own, much hyped philosophy of Market the Great. In other words, they are willing to shelve their own philosophy whenever it suits the moneybags --- the stockbrokers and corporates who are their pets, partners and election fund providers. Whenever it became necessary, the ruling UPA government (just like the earlier NDA one) intervened and utilised the funds of public sector financial institutions to salvage the corporates and the broker community. They say they don’t have fund for pro-people programmes, but it is always different if the well being of the crooks is at stake. Day in and day out, the finance minister talks about the need of autonomy for banks. When it suits his convenience, however, he easily forgets what the autonomy for banks means. He forgets the credit norms and scale of finance. Public money deposited in trust with the banks is liberally pumped in to buy some selected shares with a view to safeguarding the interests of the corporates and brokers.
To be sure, we have nothing against public intervention, per se, in the market. There are many people in this country who believe that the government has every right to intervene in the market and regulate prices for the sake of the common man.
EXPOSE THE HYPOCRISY
But what has been happening in the case of food grains market and pulses market? What are the prices of wheat and rice? It is somewhere around Rs 15 to Rs 20. What are the prices of green gram, black gram, Bengal gram and tor dhal? It is somewhere between Rs 50 and Rs 60. This price hike affects the life of millions of people. But nobody comes forward to intervene --- neither the finance minister nor the prime minister. If stock prices are a cause of concern for one crore people at the most, the escalating prices of food grains and pulses are affecting the life of at least 109 crores of population. Why, then, are our finance minister and the government, wedded to “inclusive growth” and "government with a human face," not interested in flying to the markets?
Here comes the class character of the rulers. For them, ideology and philosophy are mere tools of class domination. They preach ideology whenever it suits their convenience. They shed ideology if the class interests of the bourgeoisie and landlords are at stake. This is the height of their opportunism. They swear by laissez faire when it suits them. And they intervene in the market when the class interests of their patrons demand so. This is something to be recognised and exposed. All their tall talk about the Almighty Market and the market theology are nothing but hypocrisy.