Were Modi-Shah Responsible for the Stock Market Crash?

The Probe's Editor in Chief Prema Sridevi in conversation with Dr. EAS Sarma, former Secretary to government of India on his letter to the government regarding PM Narendra Modi and Amit Shah's statements and the resulting stock market bloodbath. 

“Why Did Modi-Shah Speak About Stock Markets During Electioneering?”

Prema Sridevi: Today with me on this episode of "Unbreak the News" is Dr. E.A.S. Sarma, former IAS Officer and former Secretary to the Government of India in both the power ministry and the finance Ministry. Dr. Sarma, both while in service and after retirement, has always raised his voice for transparency and against deficiencies in our democracy. Thank you, Dr. Sarma, for joining me on the show.

Dr. E.A.S. Sarma: Thank you.

Prema Sridevi: Dr. Sarma, the letter you have written to the Secretary of Economic Affairs, Mr. Ajay Seth, is in the spotlight. In this letter, you've raised some very serious allegations. You essentially linked Prime Minister Narendra Modi and Amit Shah to the stock market crash that led to a net loss of about 3 trillion rupees. Tell me, why did you write this letter? These are serious allegations, and what evidence do you have to support your claims?

Dr. E.A.S. Sarma: No, I have not made any allegations against the Prime Minister or Home Minister. I only looked at the stock market surge on the third of June, one day before counting, and then the crash by almost 6000 points the next day when counting was going on. Then there was a slight recovery. I was concerned because stock markets are supposed to be maintained in a stable way because investors have a lot of confidence in them. This kind of volatility shakes the confidence of investors, and very often, when fluctuations take place, some people gain and some people lose. My impression is that most small investors, who have no in-depth knowledge, do not know what's happening in the stock market; they have just invested all their hard-earned savings. They can't do speculative trading.

The people who do speculative trading are the speculators and those who manipulate the stock market indirectly, both in India and outside. India has a shadow economy with a number of shadow shell companies outside. I was surprised why the Prime Minister of India and the Home Minister of India should talk about the stock market during electioneering. Elections are about the common people of India, their livelihoods, social security, shelter, drinking water, and protective laws. I looked at the sequence of events. Normally, individuals like the Prime Minister and the Home Minister, occupying very responsible positions, would not make imprudent statements in a public meeting because their words carry a lot of weight. I wondered if anyone in the Ministry of Finance, so-called experts, gave them the input. I looked at the sequence of events: exit polls and opinion polls. There were news reports about the Finance Ministry preparing for crisis management, anticipating a crisis. Then the Prime Minister and Home Minister made statements, followed by a surge of 2000 points and then a crash. This disturbed me and therefore I dug deeper and then wrote a letter to the government. Now, the question is who are the gainers and who are the losers in it. The small investors lost money and the stock market sharks and speculators minted money. 

This should be a huge worry for all of us. Such huge surge and volatility in stock market is a sure index of somebody exploiting it and the common man being at the receiving end. 

“How Can Amit Shah Ask People to Buy Stocks?”

Prema Sridevi: Basically, Amit Shah says in an interview to a TV channel that you can buy stocks before June 4. It will shoot up. The Prime Minister says the day when election results will be announced, you can see India’s stock market… Basically he says that all the programming of business channels will fail, meaning the stock market will break record. For a common man, this would seem like Modi and Amit Shah are very optimistic about a huge victory. If I may play devil’s advocate, the PM and Shah might actually say that this was an honest mistake. What makes these statements more serious than what they appear like?

Dr. E.A.S. Sarma: I am really shocked that the Home Minister should say, "You buy." You can privately tell your friends and family, but in a public meeting, giving an interview to the public, such statements carry a lot of weight. The Home Minister and Prime Minister of India making these statements misleads small investors, especially when you're coaxing small savers to invest in the stock market. 

Prema Sridevi: Dr. Sarma, you've said in your letter that the bigger stock market sharks have profited at the cost of small and marginal investors. Please explain. So, when I read this letter, it appeared that all this did not happen as a natural course but that there was a modus operandi behind it. According to you, this was triggered by none other than the PM and Amit Shah themselves.

“Were Modi & Shah Advised by an Expert in the Finance Ministry?”

Dr. E.A.S. Sarma: Absolutely. I normally would not expect such senior persons like the Prime Minister or Home Minister to make such statements. My worry is why they made the statement. It has nothing to do with the electioneering. Why did they suddenly make this statement just before the elections? 

Were they advised by someone in the Finance Ministry, some so-called expert? Who is that expert? There should be an identification. And if the Finance Ministry had nothing to do with that, who is the outside expert? Does that outside expert have any corporate links or links to speculators who have taken advantage? This is insider trading. Are there any links, which I hope not, between these opinion pollsters, exit pollsters and the stock market bloodbath? Why did the Prime Minister and Home Minister go out of their way to make such a statement? These are issues that need to be investigated independently. We should be able to know who has profited at the expense of small investors.

Prema Sridevi: You’ve said that the PM and Shah's statements made small investors feel that people with such huge positions of power within the government were speaking. So, obviously these two key members had some inside information and then people started investing their hard-earned money in stocks. What followed was a bloodbath. Is this issue a question of morality and ethics, or is it more than that and involves a conspiracy and offence that is more criminal in nature?

Dr. E.A.S. Sarma: I hope not, but there are moral and ethical issues, as well as legal issues like insider trading. The SEBI regulations are very clear. The possibility of a money laundering route should be investigated. We need to understand the place of shadow economies and shell companies that are manipulating the market. An impartial inquiry alone can bring out these facts, and it should be done transparently under judicial oversight.

Prema Sridevi: You've also spoken about SEBI's role and mentioned that SEBI could have calmed the market by countering these false statements. 

“SEBI Needs to Explain What They Did During This Crisis”

Dr. E.A.S. Sarma: SEBI should have managed the crisis if there was a crisis management strategy in place. The fact is that the surge and crash occurred, leading to volatility, which is not good for the credibility of the stock market. SEBI needs to explain what they did during this crisis. The stock market needs in-built mechanisms to remain stable.

Prema Sridevi: You’ve worked as a Secretary to the government in the past. Have you ever come across a situation where senior members of the government or ministers, or even the Prime Minister, made such statements?

Dr. E.A.S. Sarma: Never. I worked with Atal Bihari Vajpayee, I.K. Gujral, and Deve Gowda. I also worked when Dr Manmohan Singh was the Finance Minister and they never ever commented about the stock markets this way. In this case, it looked as though they were going out of the way to make these statements. It looked that way to me.  

Prema Sridevi: You've mentioned that the regulatory agencies were getting ready to deal with the stock market crisis that was likely to occur. How can you say this, especially because the results we saw were unexpected and probably came as a surprise to the Prime Minister as well? Are you actually saying that the regulators had known that the results would not be good for the BJP and therefore there could be a crisis in the market, which looks very unlikely.

Dr. E.A.S. Sarma: I wouldn't know the mind of the regulator, SEBI. But the fact is that if there is any volatility, it needs to be contained to a reasonable level. SEBI should have managed this better, but the facts suggest otherwise.

Prema Sridevi: You've also spoken about exit polls. You believe that exit polls should not be conducted at all. Is there a direct link between the exit polls and the stock market crash not in a way that it happened because we all know that it naturally occurred. One thing led to another. What I want to know is if you think there was a larger conspiracy behind all this? 

Dr. E.A.S. Sarma: Normally, exit polls would create a situation. While there may not be a direct link, the sequence of exit polls, crisis management reports, statements by the Prime Minister and Home Minister, the surge, and then the crash raise suspicions. This should be investigated. 

Prema Sridevi: The question is also about the sanctity of these exit polls. In some countries, data related to exit poll companies is made public, including who funds them, the sample size and the questions they ask. In India, none of this information is made public. In fact, when I was going through the about us page of an exit poll company which had released the exit poll data recently, it says that they help political parties and politicians win elections. If these companies actually help political parties win elections, then how can the same companies conduct exit polls. Isn’t there a clear conflict of interest?

Dr. E.A.S. Sarma: Clearly, there is a conflict of interest. The sample sizes are very small. These exit polls should not be permitted at all. How do they help democracy except that they build up this kind of fever? The Election Commission of India should ban it.

Prema Sridevi: What role has the media played in this stock market bloodbath?

Dr. E.A.S. Sarma: The media's role is somewhat limited to reporting statements.

However, if the media has exaggerated these statements several times, they might have joined hands with someone to hype up the stock market fever.

Prema Sridevi: Now that lakhs of investors have lost their money, what mechanisms should be put in place to prevent this from happening again? What needs to be done to address the current issue?

Dr. E.A.S. Sarma: In a stock market, there are circuit breakers to calm down wild fluctuations. Such mechanisms should be enforced to maintain the credibility of the stock market. India’s stock market is not mature enough to absorb these wild fluctuations. Until the stock market has in-built mechanisms to remain stable, proper safeguards must be in place to contain fluctuations to a reasonable level.

Prema Sridevi: Thank you, Dr. Sarma, for your insights.

Dr. E.A.S. Sarma: Thank you.

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