Last week, I wrote about the tumbling condition of Indian share market. If you remember, the problem happened mainly due to the fact that many foreign investors pulled out their money after they feared that the Indian government might impose high tax on their income. I was shocked to find that over $1.2 billion was pulled out by foreign investors from the Indian share market in just one week. If you think it is huge then you will even more shocked like me to find that $1.549 billion was pulled out by foreign investors in Korean share market and in just one week the emerging markets saw $5 billion slipping away. There are now 916 registered FIIs in India and in 2004 the number was 552.
In free market economy, it is almost impossible to control the activities of investors in a share market- be it local or foreign. However, in third world countries when any major financial disaster happens the government has to bear the burnt. In Indian case, it is even more sensitive as thousands of families in India depend on the share market for their survival. Thus Indian government is facing a serious dilemma. On the one hand, India cannot afford to alienate foreign investors as they are now the main factor behind the growth of Indian stock exchange while on the other hand, any sudden crash in the stock exchange will create social instability in India.
My advice for the Indian government is that the government should arrange more open discussion about share market related issues in the media. This way, the common people will become aware of the risks involved with the share market and learn to act more cautiously.
Do you have any better suggestion?
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