The demise of Rakesh Jhunjhunwala (RJ), the ‘Big Bull’ of the Bombay and National Stock Exchanges, on August 14 is a big setback for the Indian economy. This statement is likely to invite derision and contempt of eggheads in academia and the overwhelming majority of citizens who believe that India’s century-old stock market is little more than a casino in which wily traders gamble large sums of money.
However, the truth is that stock markets encourage the savings habit and facilitate the flow of national savings — especially household savings — into industrial and economic development. When risk-taking investors such as RJ succeed in building great fortunes by investing in corporate paper, millions of citizens are encouraged to limit consumption and invest their savings in financial instruments issued by business enterprises. These savings are deployed by entrepreneurs and corporate managers to promote and/or expand their enterprises. This sets a virtuous cycle in motion by way of creating employment and generating incomes, a substantial proportion of which accrues to the Central, state and local governments by way of taxes, necessary to maintain law and order, provide justice and education, health and welfare services to the poor majority.
By carefully tracking corporates most likely to succeed from his college days, RJ started investing small amounts in well-managed companies and over half a century built a blue-chip portfolio valued at a humongous Rs.31,407 crore. Following his example, millions of citizens countrywide started saving and investing in corporate paper which financed the growth and expansion of Indian industry.
Yet perhaps RJ’s greatest virtue was his steadfast belief in India’s ancient entrepreneurial wealth creation tradition. RJ was firm in his belief that India is the world’s largest marketplace and that high-quality goods and services provided at affordable price will invariably find ready purchasers. That’s an understanding of development economics which academics and bolshies with zero risk-taking capability and penchant for comfy salaried employment, will never grasp. That’s why nothing shakes their belief that the stock markets are mere gambling dens. RJ knew better and played a major role in the growth and development of India Inc. RIP.
