Stock markets seem to have recovered from the initial shock of the Israel-Hamas war and the fear of a wider conflagration sucking in bigger powers. That risk may not be over yet, with Israel continuing to pound Gaza in its bid to finish Hamas. But markets seem to have factored in the ongoing war. And unless there is a bigger conflagration they may not be easily deflected from normal behaviour. That would explain why after registering losses in recent days, the Sensex gained 283 points on the last trading day last week. The week had begun with the fears of the Federal Reserve raising rates. Not only did it keep the rates unchanged, the Fed expected to keep the rates steady should consumer inflation remain under check. Of course, due to higher yields on the US treasury bonds, and the high interest rates, Foreign Institutional Investors continued to pull money out of the Indian bourses. Last month FPIs sold shares worth Rs 21,680 crores. But thanks to household savings being channeled through mutual funds, the Domestic Institutional Investors remained enthusiastic buyers of equities. Among the other factors were healthy Goods and Services Tax collections. Due to strict enforcement by the tax authorities and a pickup in the economy the GST collection was second highest last month, increasing 13% over September as per the data released by the government. At Rs 1.72 lakh crore GST collection was the second highest ever, the highest being Rs 1.87 lakh crore in April this year. Thus far in fiscal 2023-24, the average monthly collection was Rs 1.66 lakh crore. Also, there had been a sharp spurt in the number of people filing income tax returns in the current financial year. Direct tax collections, including corporate and personal income tax, rose 25% in the first six months of the current fiscal over the same period last year. Even on the foreign exchange front, the reserves continued to be healthy despite the recent pull-out from the securities markets by the FIIs. Indian rupee had performed better than most currencies in the emerging markets. Besides, the festival season demand for white goods, passenger cars and two-wheelers, electronic items, etc., had contributed to the positive sentiment. In short, the overall health of the economy was sound. Consumer inflation was still higher than the comfort zone of the central bank but the government was keeping a hawk eye on prices. For example, when onion prices in some cities ruled between Rs 80 to 100 per kg, a floor price was set for exports while agri-market cooperatives were made to sell onions at Rs 25 per kg in the open market. Before the Opposition parties exploited high onion prices in the ongoing Assembly poll, the government stepped in to moderate the prices.
However a major concern which could still play havoc with the overall economy is the opportunistic competition between various parties to offer freebies to voters. Unfortunately, all parties, including the BJP, are guilty of being reckless in promising what the prime minister called “revadis”. A recent report said that the Madhya Pradesh Chief Minister Shivraj Singh had been so free in offering freebies to voters that should he win, every family in the State could get paid between Rs 10,000 to Rs 15,000 every month without any of its members doing any productive work. The Congress in a bid to wrest power from the BJP has been equally reckless in making such promises to voters. What damage it would cause the State’s finances no one in the ruling party or the Opposition is willing to consider. Meanwhile, though the Centre has thus far handled the economy quite competently, as the rising tax collections and rising corporate profits underline, as the Lok Sabha election nears the ruling party too could feel tempted to match the growing recklessness of the Opposition in giving extravagant “five guarantees” to the voters. With all fiscal caution thrown to the winds, politicians could wreck the economy by their sheer recklessness in the one unending season of elections leading up to the Lok Sabha poll in April-May next year.
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