Stock market: Barometer of indian economy
Many assume that the stock market represents the state of the economy. That is the primary reason for this distorted obsession about the market. There are several factually incorrect assumptions about the role of the market, says R. Vaidyanathan.
| IT is that time of the year when many suggestions are offered to the Finance Minister to modify the Budget to boost the stock market and, through that, the economy. This year the market is already in an upswing. Many assume that the stock market represents the state of the economy. According to most experts on the Indian economy, what applies to the New York Stock Exchange (NYSE) or the Chicago Board of Trade (CBOT) and its relation to the US economy automatically applies to our stock market and its relationship to the economy. The Finance Ministry mandarins too seem to be caught up in this web of confusion. That is the primary reason for this distorted obsession about the market, and there are several factually incorrect assumptions about the market's role. Stock market: Whom does it represent?
Let us look at some of the assumptions regarding our market. Proposition 1: Indian corporate sector is critical and has a dominant role in the economy. The major characteristic of Corporate India is that it accounts for 14 per cent of the national income.
In fact, it is the non-corporate sector (Table 1) consisting of partnership/proprietorship firms which has the largest share in our national income, (nearly 38 per cent) followed by agriculture (24 per cent) and government (24 per cent). Incidentally, in activities like trade (wholesale and retail), transport (other than railways), construction, and hotels and restaurants, the share of non-corporate sector in national income is more than 70 per cent. The service sector, consisting of all these activities is currently the main driver of GDP growth. In the last decade, the average annual growth rate of the service sector was more...
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