Growth Versus Greed

The moral of the story of the Reliance Power IPO
Jug Suraiya

Like a collapsing supernova that turns into a black hole and sucks everything into it, the Reliance Power IPO imploded, suctioning money out of the market and causing the Sensex to fall by 834 points. Despite warnings by many market analysts that the scrip — which was supposed to have made Anil Ambani ‘the richest man in the world’ as the front pages of several newspapers had exulted — was highly overpriced, it attracted a stampede of speculators out to double their money in a matter of weeks and make a killing. As it turned out, the only thing that got killed was their unrealistic expectation. Instead of hitting Rs 900, as grey market speculators had hoped, Reliance Power, which opened at Rs 548, closed the day at Rs 372.50.
Though other factors — like persistent fears of a US recession and downbeat Asian markets — contributed to it, the third biggest-ever fall in the Sensex which brought it down to 16,631 was largely attributed to Reliance Power’s Humpty Dumpty act, as spooked investors fled the market. Though many liquidated their holdings to cover the positions they had taken on the scrip, an estimated Rs 2,300 crore has yet to be settled by speculators who may have no recourse but to default. This is likely only to further increase market volatility and nervousness and have a dampening effect on future investment, particularly through the IPO route. Already, at least two sound offerings from reputable corporations have been taken off the market, and others may postpone or shelve their debuts, resulting in private sector project bottlenecks which could slow down the economy as a whole.
Analysts will sift through the rubble to find out what went wrong and why and how it might have been avoided. But perhaps for now a one-word answer might suffice: greed. Way back in the bad old days before Narasimha Rao’s government (with Manmohan Singh as finance minister) was forced to embark on economic liberalisation when it was discovered to general consternation that there was, literally, only enough money in the national kitty to keep the country running for two weeks and no more, there was a concept called the ‘Hindu rate of growth’. Between 1950 and 1980 this so-called ‘Hindu’ growth rate, deemed to be endemic to the country, was pegged at 3.5 per cent. It was seen to be a sort of economic Lakshman rekha, an invisible but unbreachable barrier, that, given our conditions, we just could not cross, try as we may.
Economic reforms — even of the halfhearted, on again, off again variety we have had — soon proved the Hindu rate of growth to be exactly what it was: a load of hogwash. In 2003, India’s growth rate was calculated to be 8.5 per cent. The Sensex, for the first time, crossed 4,000 (though we are often told that really speaking stock markets are just a form of gambling and have nothing to do with the state of the economy, markets are nonetheless a barometer of public ‘sentiment’, and hence, confidence in the overall economic health of the country).
By January 2008, the Sensex had hit 21,207 and the finance minister predicted yet another year of 9 per cent growth for the world’s second fastest growing economy. Almost without our realising it, the erstwhile Hindu rate of growth had metamorphosed into what might be called the Hindu rate of greed. It’s not just the financial sector which has been infected with greed. As far afield as Bangalore and Gurgaon, the greed of so-called property ‘developers’ has created high-rise upmarket slums with a swish address and downmarket, if not non-existent, civic facilities. The greed of adventurist entrepreneurs has skewed developmental policies in Nandigram, Singur and elsewhere to create wealth for the few and desperate poverty for the many.
Greed is the key to the new India in the making. With not just the economy and the Sensex, but property, gold, salaries, expectations, everything on the up and up, anyone could — and should, and would — become rich overnight. Needy was out; greedy was in. Greed wasn’t just good; it was god. And a god not of small things, but of big things: big aspirations, big dreams, big hopes. Think big and you’ll make it big: that was the new mantra.
The crore was the new lakh. A lakh? What use was a lakh? What could you buy with it, apart maybe from a Nano (and if you were prepared to settle for a ‘people’s car’ you probably were too declasse to own a car anyway)? What use was a lakh when a B-school graduate worth his degree could command a lakh a month as starting salary? A crore? What use was that when anyone who owned a house, or even a flat, in any metro could claim to be at least a notional crorepati, maybe several times over? What comes after crore? A hundred crores, an arab (spelt with a small a)? It was not economic inflation; it was a hyperinflation of the imagination, a hyperinflation of language. It was an accelerating rate of greed, the apotheosis of the parvenu. And it resulted in the Reliance Power short-circuit.
Of course there’s life after Reliance Power. We’ll be told — yet again — that the ‘fundamentals’ of our economy remain strong, that we can still grow, at 8.5 or 8.75, if not 9 per cent. And of course we can, and should. A growth of 9 per cent is very good, of 10 per cent is even better. But a 100 per cent growth rate of greed? Perhaps not so good. Ask Anil.

Source: Times of India
Date: 13th Feb 2007