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FROM
THE EDITOR IN CHIEF
Not too long ago, Indian stock markets were
as sleepy as the economy. In 1975, there were about one million investors.
By the time Reliance Industries took the market into orbit in 1985, the
figure shot to seven million and stocks became a symbol of middle-class
aspiration. Last year, a survey by SEBI and NCAER estimated 19 million
individual investors in shares and debentures, besides an astounding 23
million unit holders in mutual funds. The bourse has become inextricably
linked with the economy. That is as it should be.
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However, public accountability hasn't kept pace.
Even after fly-by-night companies burst the bubble in 1987, after the
brazenness of Harshad Mehta's manipulation in 1992 and last month's exposure
of how a cabal of brokers took the markets for a ride-yet again. All this,
despite the G.V. Ramakrishna Committee's report after the 1992 disaster
on the urgent need for stock market reform, regulation, and penalties
including imprisonment for scamsters. The irony is that often the problem
in India isn't the law but the way it's enforced. Moreover, the fact that
the current crisis has tainted the office of the Bombay Stock Exchange
president, and threatens SEBI, speaks volumes about how rotten the system
still is. One of the few advantages India has over China, according to
foreign investors, is its well-developed legal system. It would be a pity
if this advantage is negated, thanks to a bunch of greedy brokers and
lax regulators.
We have tracked India's roller-coaster markets
from the boom years ("The New Money Spinner"; July 31, 1985),
to speculation ("Going Berserk"; March 31, 1992) to Mehta's
dubious role ("The Rise and Fall of Harshad Mehta"; May 31,
1992) to more recent upturns ("Vroom!"; January 17, 2000). There's
a natural cycle of boom and bust common to markets worldwide-mirroring
the state of the economy. But in India, it has largely been the effect
of manipulation. "Little has changed since 1992," says Associate
Editor V. Shankar Aiyar, a veteran capital market watcher and co-author
of this week's cover story that puts a human face to the bust. "The
promoter-broker-banker nexus still rules." They have cheated millions
of hapless shareholders and eroded their faith in the stock market. This
nexus needs to be broken if India is not to descend to the economic equivalent
of a banana republic.
(Aroon
Purie)
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