It did not happen when India went overtly nuclear in 1999. It did not happen when India massed forces on the border with Pakistan in response to terrorist attacks in Srinagar and New Delhi. It happened when the loony left exposed its ignorance of modern economics in the form of a monumentally stupid statement which seemed to confirm the markets worst fears. This was the deepest stock market plunge in 129 years! Line up Ketan Parekh, Harshad Mehta and all assorted scamsters of the 199os and all together they still cannot hold a candle to Comrade Bardhan’s achievement.
Yesterday, Shekhar Gupta asked international investors to come to appreciate the fine nuances of the geriatric gentry. Unfortunately, markets are global and they operate round-the-clock. India is just one of several economies competing for investment. If India is not able to signal that its house is in order, the ‘electronic herd’ will move its funds to competing economies in seconds. It is our geriatric gentry which has to wake up to the 21st century; else the 21st century will leave India behind.
The extent of the fall was unprecedented and its speed unnerving. It was the biggest meltdown in the recent history of the capital market. Not even after the Scams of 1992 or 2000 had stock prices fallen as broadly or dramatically as on Monday. Stock exchanges had to be shut down twice, first after the 10 per cent fall and again after a 15 per cent decline. So rapidly did prices fall that the sum total of trading time before the second circuit breaker was applied was barely 30 minutes.
Foreign institutional investors, which brought over $7 billion into the Indian market last year, will play an important role in setting the direction of the market and they are clearly worried. Their concerns include the government’s willingness to pursue structural reforms and public sector disinvestment; a suddenly weak rupee also makes their investments more vulnerable [Indian Express]
The $50 billion plunge proves the weakness of another argument: that peace with Pakistan is a prerequisite for India’s economic growth and prosperity. I have previously argued that this is just another myth because contemporary evidence suggests otherwise. Both China and Taiwan continue to grow in spite of regular tensions and the South Korean economy took off in spite of the Dear Leader’s forces being just miles away from Seoul, its capital city. India registered stellar economic growth during the entire time the army was eyeballing Pakistan. The only determinant was how well these countries adopted economic policies that made them an attractive place for investors to seek returns.
Inadvertantly, the geriatric gentry’s actions have prove that contrary to popular belief, India’s economic destiny is not held hostage by General Musharraf but by its own elected representatives.
Update: Better late than never, the Congress has asked its coalition partners to shut up on matters relating to the economy.