Santosh Kumar Mohapatra
CoVID-19 has triggered both colossal health risks to the public as well as economic danger. The shock to the global economy from CoVID-19 has been both fast and more severe than the 2008 global financial crisis (GFC) and even the great depression of 1929. The Indian economy is also staring at a recession, exacerbated by the nationwide lockdown for 21 days to foil the spread of infection. But the real villain behind the economic malaise is not CoVID-19 but Foreign Institutional Investors (FIIs). CoVID-19 has affected real lives and not stock markets.
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On March 9, global stock markets posted their steepest falls since the 2008 meltdown. The Indian stock market posted the biggest single-day fall till then March 12; it set new record low again March 23 to end 13 per cent lower. The total wealth lost – reflected by market capitalisation – is so enormous that it has mutilated our economy.
The total market capitalisation (M-cap) of Bombay Stock Exchange (BSE) reached record high of `158.61 lakh crore February 19. But it fell to `101.86 lakh crore March 20, before rising marginally to `108.5 lakh crore March 25. On March 20, selloff wiped out `14.22 lakh crore alone, in March (till March 25) `50.2 lakh crore was obliterated.
Economists attribute the rise and collapse of the stock market particularly to macro indicators, global situation and such. The recent stock market crash is attributed to CoVID-19. But this is quite wrong. CoVID-19 has an impact but it is minimal. There is no specific reason for stock market crash except greed and deceit of finance capital. Foreign portfolio investors invest in Indian capital markets. Foreign Institutional Investors (FIIs) are considered both triggers and catalysts, and their buying or selling trend triggers market direction.
FIIs are incredibly large global funds. Some of the world’s largest FIIs manage trillions of dollars and their Assets Under Management (AUM) is more than market capitalisation of the entire Indian market.
FIIs usually don’t lose when the stock market is tumbling. Retail investors suffer most from stock market falls. FIIs gain by offloading shares when value of share is high and investing when same is low. They deliberately engineer crash in stock market to thrash elected government to push for regulations that suit them.
Around the world, governments are therefore competing to appease FIIs through various concessions such as reducing corporate tax, dividend tax, wealth tax, capital gains tax, and lending interest rate to reduce cost of borrowing. The controversial corporate tax cut amounting `1.45 lakh crore and reduction of repo and reverse repo rates March 27 are glaring examples of how the government is falling prey to FIIs.
The strict adherence to fiscal deficit and restriction of using monetisation of deficit by printing currency cripple an elected government. That, in turn, constrains welfare expenditure of states and impoverishes masses. The sharp decline in stock market index is described as market correction in Wall Street terminology to camouflage the surreptitious designs of FIIs.
If coronavirus has wreaked havoc on global markets, then domestic investors would have reduced their investment, too. In March (as on March 26), FIIs purchased shares worth `1,34,882.67 crore and sold shares worth `1,93,646.6 crore with net selling of `58,763.15 crore. It means FIIs withdrew this much in March, proving themselves to be fair-weather friends. In the same period, Domestic Institutional Investors (DIIs) invested `1,38,993.01 crore and withdrew `92,228.11 crore, proving to be net buyer of `46,764.9 crore. Experts attribute this rise to the $2.2 trillion economic rescue package of the US and the `1.7 lakh crore relief package of India. But FIIs continued to be net sellers in the period.
The owner of any FII must also be a human being. So, when survival of humanity itself is at stake, instead of acting in the interests of the global economy, they are triggering carnage. World leaders should tame such investors. Stock markets must be controlled. Tax havens must be closed, as finance capital takes shelter there after offloading their shares. If governments around the world stop appeasing finance capital, they are bound to retain their investments in countries as they cannot sustain profits in tax havens for long.
The writer is an Odisha-based economist. Views are personal. e-Mail: skmohapatra67@gmail.com.
