The stock market seems to have stabilised since the July-September shock last year. Interest rates on borrowing from banks have dropped by almost 40 per cent since their peak levels last year. Industry is having a ball though the same cant be said about their employees. The latter are the worst sufferers of the local as well as the global economic meltdown. The labour and employment markets continue to be badly depressed.

No one believed that the markets would recover so well, so soon. In all fairness, the credit for holding the stock market together through the entire crisis period should go to the public sector financial institutions, especially the Unit Trust of India (UTI) and the Life Insurance Corporation of India (LIC). The two corporations invested heavily in the market to prevent its total collapse after the foreign financial institutions (FIIs) dumped their holdings in a rapid-fire operation between July and October last year. The silent - and most timely — market intervention by UTI and LIC not only helped rescue the market from a mid-to-long-term collapse, but also saved thousands of big and medium sized industrial houses from possible bankruptcy or losing their companies to predators.

It must have been a spine-chilling experience for a good number of industry leaders, who borrowed large sums of money from banks and financial institutions for their expansion and acquisitions merely by pledging their over-priced stocks until April last year. The sharp fall in stock prices since July forced these borrowers to pledge more and more of their stocks with the lenders to cover the heavy depreciation in the value of the originally mortgaged shares. Normally, banks and financial institutions accept only 50 per cent of the market price of shares pledged as the actual mortgage value. Many large industrial promoters having minority holding (less than 51 per cent) in their corporations got themselves suddenly into a debt-trap after the market crashed and the interest rates started soaring. Simultaneously, they were losing control of their companies to lending financial institutions.

The story of Ramalinga Raju of the Satyam Computer Services, now under judicial custody along with his several other alleged accomplices in the US$1.4 billion accounts jugglery case, is well known. But, few may be aware that one of the key reasons behind the financial institutions' loss of confidence in Raju even before he confessed the biggest-ever financial fraud in history involving an Indian company was his inability to cover the huge loss of the value of the stocks he pledged with the FIs. It was the stock market crash in the second half of 2008 that exposed Raju's accounts jugglery as he found it extremely difficult to pledge additional shares and other assets with the FIs as security booster against the loss of value of the shares he had earlier mortgaged with them to raise funds when the market was highly inflated.

Raju had a very low stake, only around eight per cent, in Satyam Computer to make the matter more complicated for him in the otherwise multiple financial fraud case. If other family-owned business enterprises, having large exposure to debts from banks and FIs, managed to remain undisturbed in the public eye, it was again because of a highly mature and responsible approach taken by their lending institutions. The internal management panic within these heavily debt-ridden companies during the period of stock crisis may never be known to their ordinary shareholders. Thanks to these responsible government-controlled FIs and the way the latter handled the situation, they will remain an untold story for the benefit of all, or more so of the concerned corporate management.

Any text-book approach or careless step by the Indian FIs during the stock crisis period would have resulted in an unprecedented industrial upheaval and loss of business confidence which would have taken years to repair. The government too deserves credit as it provided the necessary moral support to these FIs to act in the best interest of the economy and the nation. If Indian industry was the least affected among the leading world economies during the worst crisis period last year, it was because of the government control over its banks and financial institutions. The experience should serve as a great learning for the government and act as a timely warning against the growing external provocation for the financial sector reform towards its decontrol.

Both the Prime Minister and the Finance Minister may agree that the control of some key sectors of the economy such as energy, food, health, education, basic infrastructure, including roads, sea and airports, civil aviation and telecommunication, defence production, and financial sectors be better left with the government at this stage at least for national security reasons. The national economy is still not strong enough to face the possible consequences of decontrol in these sectors, especially at times of crisis. History has proved time and again that most of the economic crises and security failures are the products of mismanagement of the free market economy.

Unfortunately, the government has already gone a bit far and fast to deregulate the essential sectors such as healthcare, education, energy and basic infrastructure only to make them too expensive to be of much use to the common man. Future national budgets must ensure that any deregulation of business and industry serves first the interest of the common man and not a handful of private business houses and entrepreneurs in the field. It must be recognised that India's financial sector and energy sector have so far performed well under a control regime in the larger interest of the economy and the common man. (IPA Service)