As stock markets fell on Monday there was the predictable response from governments. Take for example the Indian Finance Minister. He says "we are prepared to address any concern that may arise on account of the present situation". He should do no such thing. Stock markets should not drive government policy.
Have you noticed that the bleating and braying is all one sided. When markets are rising, nobody wants the government within one million miles of their trying to fill their pockets as fast as possible. When markets are falling , governments should come and "help them". Nonsense. Just as stock markets fell, you see the price of gold skyrocketing. I am yet to hear anybody express concern on where that market is heading.
For that matter, why be only concerned about stock markets ? Why not debt markets. Or, as above, gold markets. Or platinum markets. Or whatever.
Governments should simply adopt the right economic policy for the long term. Of course, they have to react to economic events, but that would be in the form of reacting to say a recession or overheating. Not to stock markets falling. Stock markets, in the short term, are largely in the hands of speculators. More than 95% of transactions are speculative in nature. They perform a useful economic function - that of providing liquidity. But they need no support and certainly not an ounce of the time of the Finance Minister. If they mint money gambling, good luck to them. If they lose their shirts, well tough luck.
India is not in a bad position in the current situation. Unlike China, its not so dependant on exports and therefore the impact of a possible global recession will be lesser. India's growth will continue to be strong. The falling oil prices is a huge boon ; this can be the solution to controlling inflation, the most serious problem facing the nation today. Speculative inflows may dry up, but investment is not a problem - the country remains one of the most attractive markets in the world. The demographic dividend continues - India has a young population and not a dwindling supply of productive individuals. The Finance Minister has many things on his plate. Controlling corruption. Eliminating wastes and handouts. Restraining the burgeoning national debt. Continuing with reform and remove the current malaise of masterly inactivity. He doesn't need to watch the Sensex. When the shrill, loud, breathless "journalist" from CNBC asks him about it, the correct response should be - Sensex ? What Sensex ?
