So much of the presentation of economic news, especially in the financial press, is oriented around the behaviour of stock markets, that the uninitiated can be forgiven for thinking that their movements actually reflect real economic performance. Such an interpretation is not exclusive to India. Across the world, ordinary citizens have been conned by the media into believing that the relatively small set of players in international stock markets really do comprehend and correctly assess the patterns of growth in an economy, and that their interests are broadly in conformity with the economic interests of the masses of people in those countries.

This is not simply a deeply undemocratic position (as shown by C. P. Chandrasekhar in his article in the current issue of Frontline). It is also a completely false argument, since it has been abundantly clear for some time now that stock markets are very poor pointers to real economic performance. Stock market indices are indicators of the expectations of finance capital, and they can move up and down for a variety of reasons, most of which are not related even to the current profitability of productive enterprises. They are prone to irrational bubbles and sudden collapses which reflect all sorts of factors, ranging from international forces to domestic political changes, and may have very little relation to economic processes within the economy.

Consider the latest fall in the Indian stock market. While it is true that some of it is clearly a reaction to the uncertainty created by the unexpected and remarkable defeat of the NDA government at the polls, it also should be noted that across the world, financial markets have been in downswing in recent weeks. The New York Stock Exchange composite index fell by 4 per cent between 5 May and 14 May, and other markets across Europe and Asia have shown similar or even larger falls. Much of this is because of rising oil prices, the failure of the economically and politically expensive US military occupation in Iraq, and fears of interest rate hikes in the US.

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