India — gripped by the second wave of the COVID-19 pandemic — has been endlessly witnessing desperate scrambles for hospital beds, the dire need for oxygen and mass cremation. Amid all this, the stock market is booming. In fact, Mumbai Sensex has signaled that bullish trends have been on the rise. Over the year ending April 1, 2021, while benchmark composite indices rose by 19% in the Philippines, 35% in Indonesia and 48% in Thailand, the rise was a staggering 77% in India, which experienced one of the sharpest real economy contractions in economic activity over that period. Moreover, India — unlike other Southeast Asian countries — has witnessed increased speculative investments at the expense of portfolio investments in bonds.
RBI’s Support for the Super-rich
Thriving stock market amid a general slowdown is a direct result of the Reserve Bank of India’s (RBI) over-friendly attitude. During the years, investors have been assured that if any kind of instability visits upon them, the authorities will immediately arrive to offer moratoriums, state-guaranteed loans and other liquidity-enhancing measures to make up for disappearing cash flows. Their expectations are entirely accurate. On May 5, 2021, RBI announced repayment relief, as well as $6.8 billion in three-year funding at its policy rate of 4% for banks. These liquidity infusion measures gave Indian equities a booster shot, lifting the benchmark indices 0.88% higher on the same day.
RBI’s supportive stance toward the stock market has proven to be extremely beneficial for the ruling class. When the stock market was entering a bear phase in 2020 — with crony capitalists like Mukesh Ambani and Gautam Adani suffering losses — the central bank instantaneously began its policy of regular credit injections and quantitative easing. Refilled coffers directly aided the concentration and centralization of capital, allowing businesses to begin a new round of speculation with less competition and higher profit margins.
When stock prices were falling in February-March 2020, powerful investors — rather than offloading their stocks — used the state’s money to buy up stocks from smaller owners who were busy panic-selling. Therefore, when stock prices increased after April, they got enormous capital gains. In spite of occasional ups-and-downs, the stock market scaled new heights in 2020, leading to an astronomic increase in wealth appropriation by the speculative super-rich class. The ranks of Indian dollar billionaires swelled from 102 to 140 in 12 months, their combined wealth doubling to $596 billion in 2020, when the oppressed masses of India were bearing the entire burden of the first wave of the pandemic. These 140 billionaires now eat up 22.7% of India’s GDP of $2.62 trillion.
Global Conditions
The situation of India’s financial sector is a part of the wider global conditions which have evolved since the 1990s. With low profit rates in the productive sectors of the economy, endemic overproduction and weak demand, investments decreased. Corporations turned to the financial sector and the stock exchange. The vast sums of capital that could not be profitably invested in the real economy produced a growing market for high-risk, high-reward investments. In other words, the expansion of the financial system, of the whole debt and credit apparatus, has been a way of utilizing the economic surplus which is not utilized in productive investment. It is instead poured into speculation, and that creates a wealth effect that has a secondary stimulus to the underlying economy, because as people who benefit from asset price increases get wealthier, they spend more on consumption, and that stimulates the economy. Finance also provides some jobs, although not as much as other sectors of the economy.
While stock values represent future expected streams of earnings arising primarily from production, finance has become increasingly autonomous from production or the real economy, relying on financial bubbles and unsustainable explosions of credit/debt. This means that the speculative process depends for its very continuation on the piling up of greater and greater amounts of debt, and in order to do this, it needs to have constant cash infusions from the real economy to provide additional capital that can be leveraged. But as the underlying system remains stagnant, the bubble eventually bursts — typically after a speculative mania in which the rapid rise in quantity of debt leads to a marked decline in its quality.
At this point of time — when the liquidity has dried up — the monetary authorities intervene to keep the whole house of cards from collapsing. This serves to reduce the risk to speculators, thereby keeping the value of stocks and other financial assets rising on a long-term basis, along with the overall wealth/income ratio. In these circumstances, asset accumulation by speculative means has replaced actual accumulation or productive investment as a route to the increase of wealth, generating a condition which Costas Lapavistas calls “profits without production.” The recent actions of India’s central bank are structurally situated in this new global regime of profiteering which is geared toward irrational profit-making for the few.
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