Who will safeguard the financial savings of the people?

A trillion Dollars were added to the GDP in the last 5 years as per official GDP data. A quarter trillion Dollars of stock market wealth has just evaporated into thin air in less than a month after the presentation of the Union Budget. Which feat deserves more applause? Post Budget, during last one month, Dalal Street resembled a super casino in Las Vegas. Bears, who made blind bets on its doom, minted money. The mad scramble of investors to get out of Jeejeebhoy Towers resembled the panic rush of customers to run away from the Walmart store at El Paso under attack.

The despair has now aggravated into panic. Stock market experts are advising investors to maintain sufficient cash levels, akin to people stocking up on essentials during a natural calamity. Indian stock markets are preparing to face the worst case scenario - the combined brunt of a prolonged economic slow down turning into a recession, many 'own goals' of government and the adverse global environment characterised by trade wars, geo-political tensions and lack of statesmanship. NIFTY has already lost 1,000 points during the last 15 odd trading sessions. Pundits are predicting a low of 10,300 for NIFTY in the near future. One can only pray that the benchmark indices NIFTY and SENSEX do not re-test their lows recorded after Demonetisation.

The super-rich tax, by interpretation, also applies to FPIs (Foreign Portfolio Investors) registered as trusts in India. Many of such FPIs earn more than Rs 2 crore in a year and hence fall under the category of super rich. The additional tax mop up from this super-rich cess on FPIs is expected to yield just Rs 400 crore for the government.

Lack of any clarification from the government to exempt FPIs from this unintended super-rich cess, has led to a 'Fast and Furious' dumping of Indian stocks by them. A huge $3 billion has flown out from Indian stock markets in July. The Union Budget was humming with optics of attracting more foreign capital. But this innocuous interpretation of super-rich cess applying to FPIs also turned out to be a self-goal, disenchanting foreign capital

The NDA government's decision to introduce LTCG tax (Long Term Capital Gains tax) in the Union Budget of 2018 has negatively affected the investors' sentiment and trade volumes have declined considerably since then. The loss in collection of STT (Securities Transaction Tax) due to lower volumes could be higher than the LTCG Tax collected. Due to grand-fathering of the LTCG tax provision, only appreciation in stock prices over and above the closing prices as on January 31, 2018 will be considered for the purpose of calculation of LTCG tax. Except for a handful of stocks like Asian Paints, HUL, etc, none of the major stocks have crossed their closing prices of January 31, 2018. The government might not have collected much LTCG taxes. A pro-investment government should roll back any tax which is 'penny-wise’ and ‘pound-foolish'.

After Demonetisation, greater financialisation of savings has taken place, moving Indian public from physical savings like gold, cash and real estate towards financial savings like mutual funds, equities and bonds. The shift has been rather too rapid, without adequately preparing the people for the risk-return trade-off.

Professor Tarun Ramadorai, a Financial Economics professor at Imperial College, London, who also headed the Reserve Bank of India’s committee on household finance, has aptly put it. Using a cricket analogy, he said, "When you go in to face a fast bowler, you don’t walk in wearing a t-shirt and shorts. You wear pads, you wear a helmet that enables you to participate in the sport in the way you ought to.”

Public savings parked in mutual funds and stock markets are melting down like an ice cream. The moot question is who will take the responsibility of safeguarding the financial savings of the public.

(The writer is a retired finance professional and a freelance writer)