Here’s how the government could offer India’s stock market some relief

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Subscribe to enjoy similar stories. Gone are those simpler times when a finance minister of the country could tell Parliament, as Manmohan Singh had in 1992, that he does not lose sleep over stock markets. While those who invest in shares directly or via mutual funds are still relatively few—India has some 180 million demat accounts and a little over 40 million mutual fund folios, with a considerable overlap between the two—the number of Indians with indirect exposure to stock prices via retirement savings and insurance policies would be about 350 million.

As something that touches the lives and welfare of a quarter of the population, particularly the relatively well-off and articulate, the stock market matters. No government can afford to be blasé about it. So, the decline in market indices since late September is a reality that the Centre should take into account for policy decisions.

Now, it is neither possible nor desirable for the government to try guiding capital flows in or out of stocks, but it can still take action in support of the market. The best way, of course, would be to step up the pace of economic reforms, so that the earning potential of businesses goes up. Perhaps it should also take a relook at India’s capital gains tax regime, which has stiffened.

India is undergoing a structural change, with savings getting financialized. While the gross financial savings of households are about 11% of GDP, savings are shifting into equity holdings, a departure from the old preference for bank deposits and small saving schemes. This continues apace, even as foreign money either moves out—whether to China’s equity market or back to higher-yielding debt and equities in the US—or enters India with caution amid some