Sensex crosses 15k... Poverty?

I was driving by in Mumbai last week, when a big hoarding caught my attention > Sensex crosses 15k but more than 23 million remain below the poverty line - An advertisement by DNA. True, the capital market in our country has undoubtedly shown tremendous results and many cyclical patterns of crashing and booming within 2 days.. So how does this affect our country? Why are the economists behind the capital markets and the big giant corporates panting behind their shares to do well? Where is all the money going if in one day Rs 17k crores were lost by the great crash? Thats a huge amount!

I remember during my first round of interview with ITC Ltd, the interviewer asked me how does the capital market reflect growth prospects of the Indian economy? I knew the answer but it was so basic, that I had no answers... It does... simply it does. Thinking back on those lines, people invest in the capital market... effectively investing in the companies they feel they are going to get some assured return risking their money. It may be capital appreciation or by way of annual dividend. So why will I as an investor or speculator invest in a company which is running into losses or has no bright future or for that matter in a country which shows no sign of growth? Obviously, to maximise my return on capital, I will ensure that my investments go in perfect companies where growth is obvious and there will possibly be no default. India is said to be a booming economy not only because it is an underdeveloped country, but also because the government has opened the economy for upgradation. The mass population by itself is the biggest consumer of goods and services and as people's wants grow, the demand grows thus showing a good prospect for corporates! Thus, the growth process is accelerated. And hence more and more people invest in capital markets. This in turn shows that our economy is booming and growing. Ofcourse this is one side of the story for capital markets boom. Various factors affect - international markets, oil price, other world economies, interest rates, government regulation, rumours, speculations, sentiments, etc. However a true investor will always remain in the market without worrying about the ups and downs.
So withthe sensex crossing 15k, obviously a lot of money is being exchanged. Where is this money? Why can't it be seen as a sign of real growth in terms of standard of living or in terms of poverty alleviation? Does a boom in the economy imply that poverty level has been reducing? Infact, its the opposite - the income disparity seem to be indefinitely large! When we talk in economics term, more demand for goods / services mean the industry is accelerated to supply which in turn means that more people are employed thus improving the standard of living and these people in turn are able to demand more goods and the cycle goes on. That means if the government sanctioned some amount towards infrastructure development, it means that more people will be employed to produce the goods - like roads, dams, bulldozer, bridges, railways and so on - who in turn will be paid for their services. They in turn will demand other goods (may be furniture, TV sets, new houses, cars, electronics) which previously they couldn't afford, thus setting the whole economy in parallel motion. So this means that the standard of living should have improved - but infact it is not. The middle men just got richer, the richer became millionaires and the poor remained where they are, with marginal increase in their income.

Even when profit figures of most giant corporates are doubling, it logically signifies that they are either expanding their business or atleast investing somewhere! Either ways the money should be available for consumption by the people of the country.

India suffers a basic problem of consumption and investment mismatch! The savings of the people are not mobilised and act like dead funds. There are known facts of people owning acres and acres of idle land with no rental income or any prospects of selling the land. They cash on the capital appreciation - dead funds. Unlike America, our economy thankfully doesn't move on credit system (may be half of America's growth is attributable to their credit cards!)- Indians have a tendency to save more and consume less - however, these savings are just dead funds most of the time! Proper investments and consumption ensures that the funds are parked in sectors requiring funds urgently for immediate growth. Consumption sets the machinery of production and growth into motion. The needy man is unable to get funds as and when required, thus leaving the country in spate of poverty! Round about this is a pure viscious circle!

The strong capital market indeed is a good sign for India Inc! However, poverty alleviation and infrastructure growth is mandate for India to shine like a Knight and help double the growth with low inflationary pressure!