Every time reporters from financial wire services approached P. Chidambaram for a comment or two, an irritated Finance Minister would snub them saying he was not expected to react at every movement of the Sensex. But last time, when a bunch of reporters approached him, he gave them the same reply without realising the ?buoyant? Indian market, had come under some tectonic pressure and the tremors were bound to shake him in North Block. After he tried putting up a brave face on May 19 even as the melt-down had wiped lakhs of crore of rupees worth of wealth in the market, tremors on the Sensex scale shook him so much on May 22 that the Finance Minister went live on channel after channel. He was trying desperately to send home this message that there was nothing wrong with the Indian economy as the UPA Government completed two years in office.
All the figures that he wanted to reel out about the GDP growth, were too well-known to the foreign institutional investors (FIIs) who were exited from the market leaving the small retail investors in a state of shock. Retailers were in a state of shock on May 22 because the Sensex had fallen by over 18 to 20 per cent in a matter of days triggering the fears of payment problems. As the Sensex dived by over 1100 points in just about half an hour on that ?black Monday??, a worried Finance Minister went into a huddle with his officials on hotline with the Governor of the Reserve Bank of India, Y.V. Reddy. He also asked the SEBI chief M Damodaran, to blare out a message that the systemic issues were in place and requested the RBI Governor to instruct the commercial banks to bail out the brokers.
The crash was exacerbated on the inability of some traders. Even if the government-owned mutual funds like LIC and UTI would deny it, they were under constant pressure from the Finance Minister to lend support to the cracking market even if it meant throwing their own financial and business judgements to the winds. So, the FM did a great job! Faced with an onslaught of the FIIs, he roped in the domestic State-owned mutual funds and the commercial banks to ensure that there was no further collapse. He went on drumming the point that the controversial CBDT circular had nothing to do with the FIIs leaving the shores.
Knowing fully well his personal stakes, Chidambaram took charge of a precarious situation and managed to bring some sanity in the market-place. So what, if he had put his mutual funds like LIC and UTI at great financial risk and asked the banks to throw the prudential norms to winds. At no cost, Chidambaram could afford a payment default. His crisis management team went on giving the message there was enough liquidity in the market. Banks were obviously used to avert the crisis. If only the government could put similar pressure on the banks to lend so liberally to the fund-starved agriculture sector, India would succeed, at least partly, to avoid the shame of suicides by farmers whose number has crossed over one lakh, as was revealed in Parliament.
The Finance Minister not only pressurised the government-owned mutual funds and bullied his banks to extend their overdraft limits to brokers but also tried to talk the markets up by assuming the role of the country's?Chief Investment Officer??. He advised retail investors to stay invested without getting panicky. ?Mutual funds are buying; high networth individuals are buying why then retail investors are selling??, he asked in his television interviews. He named everyone but not the FIIs, the main players in the market. Let'sbe fair to them; nowhere in the world FIIs operate on national sentiments. They are here to make their money and has not signed any MoU with the government that they would not leave the country. If there is a global investment call for them to shift their portfolio they would be ruthless in doing so. Instead of asking retail investors not to panic; the FM should ensure that our regulators should keep advising and apprising them of the risks that are inherent in the market. Leave rest to the investors; they take informed decisions because even if he tries; markets would do what they are expected to. There is a risk and let FM not try to mislead the investors.
