Vijay Kumar Gaba

A new study by the World Inequality Lab highlighted one of the most obvious facts, i.e., the income and wealth inequalities in India have been rising and are now worse than the colonial period. The study highlights that “Inequality declined post-independence till the early 1980s, after which it began rising and has skyrocketed since the early 2000s. Trends of top income and wealth shares track each other over the entire period of the study. Between 2014-15 and 2022-23, the rise of top-end inequality has been particularly pronounced in terms of wealth concentration. By 2022-23, the top 1% income and wealth shares (22.6% and 40.1%) are at their highest historical levels and India’s top 1% income share is among the very highest in the world, higher than even South Africa, Brazil and the US.”

The study suggests that “A restructuring of the tax code to account for both income and wealth, and broad-based public investments in health, education and nutrition are needed to enable the average Indian, and not just the elites, to meaningfully benefit from the ongoing wave of globalization. Besides serving as a tool to fight inequality, a “super tax” of 2% on the net wealth of the 167 wealthiest families in 2022-23 would yield 0.5% of national income in revenues and create valuable fiscal space to facilitate such investments.”

 

This is probably not a good time to publish such reports which highlight any deficiencies in India's governance model. The opposition parties use these reports as a tool to attack the government. The ruling party rejects the finding as malicious propaganda to malign the image of the country and its government - everyone misses the point, i.e., there may be some serious flaws in the socio-economic development model used in the past five decades by various governments. These flaws, on the one hand, may have resulted in a widening of socioeconomic disparities, and on the other hand, might have constricted the growth and development of the country.

 

Bloomberg columnist Andy Mukherjee opined “‘Billionaire Raj’ Is Pushing India Toward Autocracy”. A known critic of the establishment, Mukherjee extorted the voters to ask questions. He wrote, “The super-rich have opened their wallets to Modi, and income inequality has soared over the past decade. With an election coming, ordinary voters need to ask, ‘What’s in it for us?’”

My view is that India never had democracy. We have always been a feudal society. In the post-independence era, democracy has mostly been a tool to capture feudal power. Since the late 1970s most parties have used the façade of socialism to become feudal (e.g., BSP, SP, RJD, and DMK, TDP, TMC, BRS, AAP, etc.) BJP also adopted Gandhian Socialism as its guiding philosophy briefly. The longest-ruling Congress party had turned feudal in the late 1960s. Parties like SAD, PDP, NC, NCP, YSRCP, etc., have been blatantly feudal ab initio.

We, the people of India, have always celebrated the feudal powers of our leaders. The poor and oppressed admired and vehemently defended, for example, the diamond jewelry of Mayawati, the Luxury cars of Mulayam and Lalu, the riches of the Badal, Jayalalitha & Karunanidhi clan, and the variety of designer attires of our prime minister.

The unemployed, ill, starving, and oppressed take pride in some Indians making a place in the Forbes list of global rich, spending billions on their children's weddings, and visiting temples to ask for more wealth from God.

They also feel empowered in queueing up for hours to shower rose petals on their leaders’ retinue of luxury cars in meaningless pretentious roadshows.

They celebrate when patriarchs of the parties they support, “nominate” their favorites to public offices. No one wonders that they have been given no right to elect their representatives or leaders. Feudal parties impose people of their choice as the parliament, assembly, and local body candidates on them. The set of people who would be PM, CM, Mayor, minister, governor, etc., is pre-determined by patriarchs irrespective of who is elected or defeated in the elections. Nobody is interested in discussing or following any ideologies.

The people who suffer the most do not seek accountability from their leaders. On the contrary, the random guys daring to ask questions are termed seditious by the same people. No one dares to challenge the feudal lords.

The debate should therefore be on the core issue – “Whether we should end the pretense and choose between a true representative democracy or a proper Monarchy?”

My vote is for a true democracy, where people choose their representatives (not merely vote for the candidates imposed on them by some random guys sitting in Delhi party office).

 It was a sunny afternoon in winters of 1991. I was enjoying coffee at a famous public café in Connaught Place (New Delhi) with couple of my friends. All of us were waiting for our CA Final result, which was to be announced in couple of weeks. My friends were senior to me and were already working, having completed their articleship two years ago. We were discussing the economic changes that were getting unleashed in the country by the new regime that had assumed office a few months ago.

The economic changes had not impacted me in any positive manner by then. INR devaluation had led to inflation spike disturbing our household budget. Some of my close relatives who were running micro and small industries (then called SSI) were deeply worried about sustainability of their business as they were now exposed to competition from larger businesses and imports. My cousins had their own set of worries. The implementation of Mandal Commission recommendation was reaffirmed. The competition to get government jobs and admission into public educational institutions had intensified for general category candidates. The aftershocks of former Prime Minister Rajiv Gandhi’s brutal killing, gulf war, Punjab terrorism, were still being felt in Delhi. Overall things were not looking great from where I was standing that afternoon.

My friends who had started investing in stocks were however in high spirits. They had earned very good profits by trading. Their employers had promised them promotions if they pass their final exams. They already had a new Idol in (now infamous) Harshad Mehta to look up to. That afternoon, they could not see anything wrong. Arguably, this was their best time in life.

Our discussion was obviously not harmonious.

About an hour later, a middle aged man with very ordinary personality entered the scene. Tarun, my friend, excitedly jumped out of his seat to greet him. “Meet Mr. Hemant Pandey, my stock broker. Hemant ji advices me and also helps in executing my trades at Delhi Stock Exchange. He also knows brokers who can execute trade at BSE”, he proudly introduced the man to us.

And here begins the story.

On enquiry, I found that Hemant, a college dropout, was an “authorized agent” of a “sub-broker” of DSE broker. A friend of his friend was a remisier (a person authorized to go on trading floor) of a broker at BSE. He was therefore able to place orders of his “clients” to brokers at DSE and BSE. Though it could usually take upto 4 days to execute a trade and get confirmation of trade. The brokerage charged ranged between 2% to 5%; and only “market price” orders were acceptable. Delivery of physical share certificates with a valid transfer deed was not guaranteed. It was mostly on “best effort” basis.

That was the situation of Indian financial markets when the liberalization started 30years ago. Having direct access to a stock brokers’ office was sufficient to make someone “important” in his/her social circle. Something similar to if you have direct access to a Minister’s office today.

The people in their 20’s and 30’s who are spammed daily by multiple brokerages to open a trading account at zero brokerage, would never be able to fathom what it was like to be a stock trader or a “retail investor” in pre 1994 days.

Democratization of financial market is one of the most understated reforms of past three decades. The impact of democratization of society in past three decades is visible in almost every sphere. People belonging to the bottom of the pyramid have done particularly well in politics, administration, sports, entertainment, business & professions and science.

However, the easy and free access to financial and banking services has been the most remarkable achievement. Financial inclusion, as we call it popularly, is one of the core pillars of the entire socio-economic development endeavor in past three decades. Technology (especially digitalization) and Telecom Infrastructure are two other strong pillars which have supported the financial inclusion as well.

The tendency to overregulate is one of the undesirable aspects of modern democracy, as it promotes chaos, rebellion and anarchy. Since, the global financial crisis we have witnessed this tendency to overregulate dominating the financial markets also. As a natural corollary, the chaos (heightened volatility), anarchy (unassimilated assets trading at unfathomable valuations) and rebellion (rejection of conventional wisdom in favor of untested experimental ideas) is also prominently visible in markets. May be time is approaching fast when the democratization of financial markets that started three decades ago would also need an affirmative agenda for renewal.

Like Robinhood Markets of US, which pioneered commission-free investing model which allowed many people to start investing, including those who otherwise would never have ventured into stock markets, many platforms have emerged in India also. Zerodha, for example, is now the largest stock trading platform in India in terms of number of clients.

There are multiple platforms for trading of unconventional financial products like cryptocurrencies (e.g., Bitcoin) and Non-fungible tokens (NFTs).

Advent of new technologies, new products, new set of investors, new methods of valuations and different risk profiles perhaps require a fresh approach to the financial markets regulatory framework.

So far the regulators and governments have adopted an incremental approach for regulating the emerging developments in financial markets. This is apparently resulting in overregulation, misregulation, rebellion and chaos.

Margining and disclosure norms which are not in synch with the current market realities; abundant trading in unregulated (grey) markets; mushrooming of unregulated crypto & NFT exchanges and platforms; participation of large number of individual investors with inadequate financial literacy and risk tolerance etc. are some of the problems that are plaguing the markets.

Some of the problems that may require a totally new approach to regulations could be illustrated as follows:

·         Under pressure from market forces, the market regulator SEBI has been forced to defer the implementation of proposed tighter margining norms.

·         The managements are disclosing so much irrelevant and redundant information to the market, on the pretext of regulatory requirement. The relevant information many a times is getting lost in this overwhelming deluge of redundant information.

·         There are numerous cases of offer for sales (in guise of initial public offers) where the existing investors have exited at apparently unjustifiable price. The managers of these issues owe no accountability to the gullible investors who may lose substantial money.

·         Trading in new assets (Cryptos, NFT etc.) so far is unrestricted. There are numerous traders who may not be adequately skilled to understand the risks. There is no visible effort from regulators so far to improve the literacy and awareness level of these traders. It is therefore desirable that for the time being the trading is restricted to the discerning traders only.

President Biden stated on the International Day of Democracy, “No democracy is perfect, and no democracy is ever final. Every gain made, every barrier broken, is the result of determined, unceasing work.” He has made it clear that renewing democracy in the United States and around the world is essential to meeting the unprecedented challenges of our time. He brought the global leaders from government, civil society, and the private sector together to a global democracy summit, to “set forth an affirmative agenda for democratic renewal and to tackle the greatest threats faced by democracies today through collective action.”

It is imperative that this principle is applied to the financial markets also. The promised new code for the regulation of financial markets must take a fresh approach to regulation rather than adhering to the usual incrementalism.