A dominant theme in the election debate is about how the Indian economy has been devastated by the muddle-headed policies of the UPA 2 government. The GDP growth rate has declined to below 5% while manufacturing growth has turned negative.
Annual inflation is over 8%, with several food items like cereals, milk products, vegetables, fruits, meat and fish witnessing near or over 10% inflation.
Yet, in the backdrop of this gloom surrounding the economy, the Sensex breaking all past records to cross the 22,500-mark last week offers a surreal spectacle. One of the reasons being cited for the stock market rally is the improvement in the current account deficit, which has been more than halved this year compared to last year.
However, this improvement is partly because of the curb in gold imports imposed last year and partly because of the industrial slowdown itself, which has led to lower imports of capital goods. Such modest and uncertain improvement cannot account for a record-breaking surge in the stock market.
The more plausible explanation lies in the expectation of a ‘business-friendly’ regime led by Narendra Modi being installed in Delhi after the Lok Sabha polls. What started with foreign brokerages like Goldman Sachs and Nomura predicting a Modi victory has snowballed into a gigantic speculative bubble fed by the opinion polls showing high ratings for the BJP, being churned out by the corporate-controlled media.
As is always the case with the Indian stock market, the current bubble is also being driven by the foreign institutional investors, who have pumped in net investments of over Rs 20,000 crore in March 2014 alone. This has happened at a time when such ‘hot money’ has flown out of other ‘emerging economies’ like China, Russia and Brazil.
It is also interesting to see the stocks of big corporate groups gaining significantly out of the market bubble. For example, if you had invested `1 lakh in the equities of a certain Gujarat-based conglomerate a year ago, it is now worth over Rs 1,40,000.
That hardly makes many Indians richer, given the fact that only around 1% of India’s population actually invest in the stock market and only around 3% of Indian households’ financial savings are held directly or indirectly (through mutual funds) in equities, as against 56% held in bank deposits and another 30% in life insurance, pension and provident funds. But it does ensure a windfall for that Gujarat-based conglomerate.
The Modi hype was initiated during the ‘Vibrant Gujarat’ summit in January 2013, with big business leaders hailing him as a ‘king among kings’. What we are witnessing now in the shape of the Modi-bubble on the eve of the Lok Sabha elections is the end-game of this naked interplay of big corporate interests, financial power and ruling class politics.
This is ironic indeed because the dwindling fortunes of the Congress are due to, inter alia, the litany of corruption scandals involving the plunder of natural resources — from spectrum and coal to iron ore and natural gas — by the big corporate class.
The Radia tapes had brought the nexus between the netas, babus and big business out in the open. While the Congress netas are about to bite the dust today, the big corporates have found their way out of the jam in the ‘business-friendly’ Modi. For India’s big businesses and their acolytes — the 1% who invest and make money in the stock market — it’s heads I win and tails you lose.
What we need to collectively introspect is whether this regime of neoliberal crony capitalism is at all in keeping with India’s constitutional scheme. The agendas and objectives of the dominant political parties on the one hand and the interests of big capital on the other have become indistinguishable; the Modi-bubble being the latest example. If such bubbles do not burst today, political democracy in India will itself be in peril.
Prasenjit Bose is a left-wing economist and activist
The views expressed by the author are personal