Letters: Empower investors

Nilesh Shah's recapitulates the events related to financial market development

Nilesh Shah’s “Economic future lies in financial markets” (May 22) recapitulates the events related to financial market development, its regulatory architecture, and proposes a reduced dependency on foreign capital with increased domestic investment for poverty alleviation. In sum, he stresses broadening and deepening of financial markets for a better future of the economy. He draws upon a key argument: does India’s stock market contribute to economic growth, and what proportion of stocks included in the index traded on exchanges can be a good representative of that growth?

To achieve sustained economic growth, judicial, executive and legislative processes embracing financial market development should be synchronised and made foolproof. This can reduce “free riding” and “information asymmetry” problems and enhance market transparency. The economy at large should benefit from a healthy interplay of the market, agents and participants. Regulators come to play when the economic behaviour of agents is tightened or monitored, for example, in case of capital gains tax evasion or insider trading. However, the regulator’s role is to make the participants aware of the complexity of financial market functioning and train them in prudent investments.

Financial engineering for complex innovative products such as hedge funds is not warranted, rather products should be broad-based and have the capacity to offer a risk-adjusted return to risk-averse investors. Meanwhile, investors should be empowered for a free choice and informed decision-making on investments.

Kushankur Dey, Bhubaneswar

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