Big problems for the small man

WHERE DO all the recent happenings leave the ordinary investor? As always the big picture is important. The reform era beginning the 1990s has altered not just the perceptions of stock markets but made them the focal points of major policy initiatives. Slightly earlier - in the late 1980s - the non-resident Indian community was offered sops and incentives to invest their savings in domestic shares. The domestic investor as a class came into his own only in the 1990s especially after the newly empowered capital market regulator, the SEBI, set about introducing a comprehensive plan for protecting small investors. The SEBI's mission - its very first - was a success insofar as it institutionalised investor protection. As a consequence, the equity culture hitherto confined to the western part of the country spread to other areas. Both the primary (new issue) and secondary markets were subjected to reform, with the small rather than the big investor continuing to be the main beneficiary.

However, for a variety of reasons by the time the next phase of reform started the small investors were marginalised. Policy- making in India has in recent years given increasing importance to the stock market. But most of the recent measures have been predicated on technological adaptation. It has been an expensive proposition in the first instance - for the exchanges, market intermediaries such as brokers and in a sense to the average investor too.

It is sad but nevertheless true that the small investors have been completely left out at a time when they should have been the dominant force. The spread of the equity cult has been stopped in its tracks. Too bad for ordinary people but excellent news for those who would like to dominate the market. If ever any economic activity has to be democratised it is the stock market system.

The recent budget has added to the woes of the small investor. In the process, it reinforces the recent official thinking that the average investor should prefer the stock market route to other avenues such as fixed deposits and small savings. In the budget, the rate on small savings was cut, tax exemption limits on bank deposits (80L) brought down and the scope of TDS vastly extended.

Collectively, they discourage investment in deposits and encourage savings flow to the share market. Mutual funds have had fantastic tax breaks, dividend tax has been halved leaving no one in doubt as to where official preference lies.

Compounding the investors' woes has been the collapse of the non- banking finance companies, the plantation schemes and so on. A handful of strong entities alone will survive. But mutual funds are hardly the role model at this stage with very few of them even ensuring the principal amounts. Over the long haul, the mutual fund route will be the desired option but who can wait for so long?

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