|
COVER STORY: THE STOCK SCAM; FALLOUT
What's Next For The Economy?
Must
a "dream" budget turn nightmarish within a month of its presentation?
For the third time since 1997, a combination of sliding stock markets,
political instability and global slowdown threatens to turn the hopes
of an economic take-off into despair days after the presentation of a
"good' budget.
It's easy to be pessimistic. The mayhem on the
markets, the legislative logjam created by the Tehelka expose and the
slowdown in the US and the Japanese economies can easily snip the chances
of an economic revival. The optimists see the stocks scam as an opportunity
to rid the capital markets of their shortcomings. Only, such opportunities
have been missed too many times in the past. As for global slowdown, India
is still a small player in the world economy. INDIA TODAY conducted a
dipstick survey of select economists to find out how deep the damage to
the economy could be.
Will The Scam Wreck Investor And Consumer Confidence?
 S.L.
Rao, Economist and former director-general, NCAER
Yes, the rampant rigging, often with the collusion of the regulator,
has made investments in stock markets unsafe. But the wealth erosion will
not affect consumer demand too much because unlike in the US, people in
India do not encash investments for spending.
Surjit Bhalla, President Oxus
Research
Yes, but not for long. People know that they have lost money not
because of bad decisions but because of systemic flaws. Besides, worldwide
stock markets have hit the bottom and can only recover now.
 Pradeep
Srivastava, Principal Economist, National Council for Applied Economic
Research
Yes, small investors, who had just started returning
to the market, will run scared again. The scam makes a mockery of capital-market
reforms and makes one wonder what the point of all those regulations was.
The erosion of wealth will hit consumer demand.
B.B. Bhattacharya, Professor,
Institute of Economic Growth
Yes, the failure of the stock market would definitely discourage
small investors. But the fallout of the wealth erosion will not be very
serious in India because most middle-class households hold stocks for
the long term and not for quick capital gains, unlike in the US.
 M.R.
Madhavan, Vice-President, Research,
Bank of America
No, because the Indian investor is primarily a fixed-income investor,
with less than 5 per cent of savings invested in equity. Unlike the US,
the wealth effect of a stock market crash on consumer spending is limited
and the current fall will not have a major impact.
Ashima Goyal, Professor, Indira
Gandhi Institute for Development Research
No, because only if flaws are discovered is it possible
to remove them. The stock markets continue to be in transition where the
old order struggles with the new. The current scam will encourage more
professionalism and improved regulation in the stock markets.
 U.
Sankar, Director, Madras School of Economics
Yes, investor confidence is hurt. But the impact could be temporary
if the Government seizes the opportunity to make stock markets more transparent
and information-based. The Securities and Exchanges Commission of the
US is a good model to follow in this regard.
|
METRO TODAY
Web
Exclusives