The mainstream media in
I will return to the specific issue of Israel-Gaza and India-Pakistan in a bit. For the moment, let me examine the media’s love of copycat formulations. A great example of this was the reaction of Raghav Bahl, Managing Director of
‘Sovereign Wealth Fund’ is such a buzz phrase that mediapeople are dying to jump onto the bandwagon and take their country with them. Me too, they shout, my country should have an SWF too. If
Now, anybody who knows anything about SWFs is aware they are created by nations running budget surpluses as a way of deploying excess money. Most such funds are employed by countries whose economies depend on a single commodity. The investments serve as a hedge against the potential drop in price of that commodity.
As for Bahl’s suggestion that we buy shares in Indian firms with this wealth fund, the purpose of SWFs is to acquire assets abroad. Purchasing in the parent country would defeat the primary goal of such vehicles.
Bahl suggested in an interview on his own channel that we dip into our foreign exchange reserve, sell 20 billion dollars worth of US treasuries, and use the money to buy shares. His interviewer politely suggested (I give him credit for this, since Bahl presumably has the power to fire him) that selling foreign exchange reserves would be unwise because, no matter where India takes the money from, it would add to its deficit, reducing its creditworthiness. Since the forex reserve is used as a marker of a country’s ability (and the ability of corporations within that country) to pay foreign obligations, lowering our reserves would immediately impact our credit rating. The cost of accessing funds abroad could rise for Indian firms, potentially negating any positive effect that shoring up share prices might produce.
Bahl replied: “If one doesn’t arrest the secondary price damage in the economy today, the equity capital formation will be gone and the GDP growth will be seriously jeopardised, and that is a fundamental downgrade. This is only a financial rejigging of the balance sheet of the country, temporarily, and I am not saying do this forever.
Hacking our way through the jargon, we spot Bahl’s second copycat formulation. The first, remember, was:
Now the argument is: The US bought distressed assets, and provided bailouts, why can’t we? Well, consider the position the US was in. Its mortgage network was on the verge of collapse; the banking system was like a swimmer with cramp waving frantically before disappearing underwater; two of the ‘big three’ car companies were weeks away from running out of cash and filing for bankruptcy. Most people agreed the nation was facing its worst financial crisis for seventy years.
You might recall that, in early 2008,
When the policy was announced, CNBC TV18 was full of experts deriding the measure, cursing government handouts, invoking moral hazards. A few months later, the head of the same channel argued for government support to the 2% of Indians affected by share movements, the same 2% who’ve been making money hand over fist for four years while markets scaled one peak after another. Moral of the story: subsidies are fine as long as they are given to the rich.