18

Mar

Electoral Bonds Give Serious Jolt To Banking Sector, National Economy

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Today’s Edition

New Delhi, 18 March 2024

Prof Shivaji Sarkar

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Indian economy has become a victim of murky Bombay stock operations. The stock market crashed on Wednesday last . Before that two days earlier on Monday,  the chinks were noticed in the SBI shares in the wake of Supreme Court’s firm attitude on submission of details on electoral bonds (EB).

In  the past two months the market has recorded a huge loss of Rs 29 lakh crore. The small caps also took a hit of Rs 30,246 crore portraying   a worrisome picture.

The losses are the biggest since Covid 19. On March 11, the market lost  Rs 3.15 lakh crore, mostly hitting the SBI, followed by Rs 13.9 lakh crore losses across the board, including the Adani enterprise , on March 14. In two sessions the market lost Rs 17.05 lakh crore or almost 30 per cent equivalent of the total central budgetary amount .

It tanked over 900 points on Wednesday and on Monday lost 617.75 points. Together it is bigger loss than March 13, 2020 loss, when the fall was estimated at minus 14.2 per cent.

Not to forget that in the wake of Hindenburg disclosures, the stock market crashed by 1168 points or almost Rs 12 lakh crore on January 23, 2024, the biggest in recent times.  Most hits were taken by the Adani, Zee and IRCON. Just in about two months the market has jolted the country Rs 29 lakh crore wipe out. The 2024-25 budget is of Rs 47.65 lakh crore.

Complicating the issue, the retail traders as a new phenomenon are also suffering. Volumes in retail trades multiplied since 2019, when it overtook the US. Murkier operations are in sight. An index of small-cap stocks lost more than Rs 30,246 crore in market value in less than two weeks through March 13. In 2023, Indian investors traded 85 billion in small cap, according to SEBI, in which 90 percent of active traders lost. In 2021-22, investors lost $ 5.4 billion, or $ 1468 apiece, a big sum, for a country with per capita GDP of $2300. It happens through dream cyber kiosks that mushroomed of WhatsApp, Facebook, Telegram and Instagram. The online media carry advertisements by CEOs of top companies alluring to multiply Rs 500 investments. As per SEBI those are traps.

Are the electoral bonds the big shakers? Possibly. Investors are wary of disclosures of their identities at the election time. The way foreign portfolio investors withdrew from the market  indicates it.

SEBI Chairman Madhabi Puri Buch some days back had raised concern over ‘frothiness and bubbliness’. On Thursday, Uday Kotak of the Kotak group also said that  there is ‘frothiness’. The jargon does not say much except that the regulators are aware of murkiness and possibly unable to check it.

The SBI in its statement to the court says that of the 22, 207 EBs, 22,030 were purchased. The remaining were deposited in the PM’s relief fund. Two documents were filed with the EC, one mentioning names of political parties and the other detailing the bonds redeemed by them. The other set contains the details of EB purchasers. The total amount has not yet been disclosed. The EC announced that the list has been uploaded on its site.

It is interesting to note that the  Delhi High Court had declared the poll donations illegal just prior to 2014 elections. The court on March 29, 2014 observed that Congress and BJP broke laws by accepting cash from companies owned by London-listed Vedanta group (Vedanta Resources) between 2004 and 2012. Sterlite Industries India and Sesa Goa, two companies then registered in India but whose controlling shareholder was Vedanta, donated Rs 87.9 million in total to Congress between 2004 and 2012. Sesa Goa donated Rs 14.2 million to the BJP, according to the Association for Democratic Reforms (ADR) .

An agency report says that a Prudent Electoral Trust has raised $272 million since its creation in 2013, funnelled “roughly 71 percent of that to BJP. The trust donated $ 20.6 million to the Congress as well”. It mentions that eight business groups donated to the trust.

Nobody has denied receiving corporate funding. The controversy is limited to the factor whether their names and total funding to the parties be disclosed or not.

On February 15,the  Supreme Court, struck down the EB scheme or anonymous donations to political parties, unconstitutional, violating right to information under Article 19(1) A of the Constitution. The court also quashed the amendments made to the Income Tax Act and the Representation of People Act, which made the donations anonymous.

During the last 10 years, electoral trusts reportedly disbursed about Rs 2557.74 crore to various political parties. Donations are stated to have 360 percent growth.

The growth of donations was phenomenal from 2018 to 2022. Political parties received Rs 9191.41 crore through EBs. The ruling parties always receive higher funding.

The court held that the scheme cannot be justified by saying that it would help curb black money in politics. It said that transparency in political funding cannot be achieved granting absolute exemptions.

The court fears that such fundings could have quid pro quo. The strong court actions rattled the market. Such dealings create crisis of credibility and confidence.

The stock market is not an indication of economic growth. A small fall in the market capex, however, severely impacts the health of the banks. Since the Harshad Mehta scam in 1992, a number of Indian banks and FIs collapsed or merged and now the SBI, IndusInd and some other banks are in disarray. The market may recover but the banking process takes severe beating.

It also raises question about high electoral expenses. The court has this in mind as the petitioner ADR. Travel costs have increased. It is owed to artificially high pricing of petroleum, natural gas, coal and now even electricity. It is also linked to unnecessary toll on highways jacking up inflation to over 5.5 percent despite low international crude cost. Favours for construction contracts of projects are also questionable. Rising costs have cascading effect.

Regulators to the market need serious course correction. Losing such big money in two months is a serious jolt to the economy and banking sector. It will be interesting to watch how it impacts the coming  polls. (Words 1065)

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