By Rangan Dutta
A typical resident of the North-east is not much bothered about these happenings at Bombay or National Stock Exchange, although this is changing slowly.
The news pages dealing with stocks are usually not seen or read. Even highly placed people are not aware of the meaning of terms such as market capitalisation or derivatives.
The innocence about the capital market has caused us dearly; our savings deposited in banks resulting in an adverse Credit Deposit ratio.
This means availability of finance for others outside the North-east to borrow for projects, trade or speculation. And money earning a low rate of interest of 5-6 per cent on an average as of now gets eroded when adjusted against inflation which usually rules at a higher level in the NER. So while others gain, we watch and look for funds from the Central government for development.
A market driven economy must have an expanding capital market for domestic and foreign investors because to sustain its growth, it needs a steady flow of investment.
This in turn requires good performance of its economy and the corporate sector reflected in high profits, which will induce investment and retain the growth momentum. This has been taking place in India and most countries, including the USA, from the 1980s; before this period, capital markets played a smaller role than they do today. Several factors contributed to this development. Securitisation has turned almost every income-generating asset into a tradable instrument. "And technology has changed finance perhaps more than any other industry except computing" ~ observed London-based Economist Weekly. Next, the savings in the hands of citizens induced growth of mutual funds and the ubiquitous fund.
Despite this, the main reason why equities have offered better returns over a time frame is that they are riskier as "shares can go down as well as up" and because of this very risky business, the returns are high. If share prices only go up, the long-term returns from investing in them would inevitably fail to match their lower risk. To this, must be added the instinctive desire of men to gamble and the pleasure of unearned incomes. Since the outset of reforms in the 1990s, the Indian capital market has been influenced by these international developments.
Share trading is now anonymous, electronic and nationwide with about 10,000-12,000 trading computers spread all over the country.
There are no layers of intermediaries such as primary and secondary dealers and only investors and brokers. As trading has gone electronic, regional stock exchanges are now defunct and all settlements take place in a dematerialised form that ensures prompt payments and transactions. There are no entry barriers in intermediation at the National Stock Exchange; any firm that puts up roughly a crore of rupees of collateral can become a member of the NSE. Today, about a crore of Indians hold D-mat accounts and an equal number have invested in mutual funds.
Share trading intensities of the order of 5 lakh trades a day are seen usually at NSE which did go up to 1.4 million trades a day in 2001 and still higher before the May-June, 2006 crash.
The average daily transaction is about Rs 2,500 crore. Over 5,500 firms have been listed with the Bombay Stock Exchange though shares of 500 "blue chip" and good companies are usually traded. Market capitalisation that is, the quoted share price as of date of listed companies multiplied by the size of the share holdings is still a staggering amount of more than Rs 25 lakh crore, which is the combined wealth of the shareholders of the country. And let us not forget that the Sensex was 3206 in 2002-03, reaching a peak above 12,000 in May. Where do we in the NER stand in the capital market?
As virtual bystanders, shares of a few profit making tea companies and state-owned refineries of the North East are listed on the stock exchange. It is reported that the East Zone D-mat accounts are about 15 per cent of the country's total. The figure for the North-east must be a small fraction of this total. The Guwahati Stock Exchange has ceased to function like other regional stock exchanges. But we should not feel disheartened. Thanks to electronic and print media, there has been a steady spread of equity culture even in large district towns. During my recent visit to Bhagalpur in Bihar, by no means associated with a corporate ethos, I learnt that its residents earn on an average about Rs 5 crore annually by way of dividends alone and share ownership is spreading due to efforts of the local chamber of commerce, investment company and fund representatives. The multiplier effect of this resource inflow is visible in the town in its construction and service sector boom.
Equity culture brings about economic integration by participation in ventures outside the North-east, enhances the knowledge of business and economy and makes owners less and less risk averse which is at the core of a market economy. This is an area where initiative is needed from the North East Development Finance Corporation which could rope in NGOs and state directorates of institutional finance to expand share ownership and create wealth.
This will provide new job opportunities for the educated youth of the region as in western India.
(The author is a former IAS official of the Assam cadre and presently Scientific Consultant in the Office of the Principal Scientific Adviser to the Government of India)
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