There is a saying in Malayalam "Iruttu kondu otta adakkuka", which means "blocking a hole with darkness", which serves no purpose other than to camouflage the defect, while the core issue of closing a hole remains unsolved.
The Indian stock market has been facing a major crisis of confidence. This is reflected in the falling stock indices. The root cause is the policy paralysis at the Government level, the Global economic prospects, the downgrade of projected growth of Indian economy, the runaway inflation, rising fiscal deficit which means Government investments in economy in the near future will be severely curtailed, and a general feeling of despondency amongst the investors.
India took the FII route in early days of reform to attract overseas capital, while China opted for the FDI route. The FDI is more permanent as an investment, while the ills of focusing on FII is there for all to see. Firstly, it encouraged Black Money to be routed back to India through the Mauritius route, but more importantly we witnessed a flight of capital at the first signs of Global economic crisis, as witnessed in 2008.
The Global economy is in a much worse state than it was in 2008. Then it was only a few financial institutions that were affected, but now dozens of countries are in serious trouble, and some of them major consumers, and 'developed'. The recovery is going to be painfully slow.
The Government is going one step ahead in its idiocy and allowing Foreign investors and individuals to invest in Indian Stock Market. If the FIIs are not keen to invest in India, what makes the Government think individual investor will? Even if some were to do so, they are likely to take the money out more quickly than the FIIs in case of any negative indicators flashing.
Like many decisions of this lame duck UPA II government, this one also tries to pull wool over the eyes of the citizens without any intention to create long term benefit for them.
This is what I meant by saying at the beginning, 'Iruttu kondu otta adakkuka'
