Posts this month
A blog on financial markets and their regulation
Above is a plot that I have put together of the real (inflation
adjusted) stock price index in India from 1965 to 2008. The plot is on
a log scale – each horizontal grid line represents a doubling of
the real stock price.
I have divided the sample into three periods and it is obvious that
all the action happens in the middle period from 1985 to 1994. On a
point to point basis, practically the entire increase in real stock
prices happens during this period.
The compound annual growth rates on point to point basis are: 0.57%
(1965-1984), 18.95%(1985-1994) and 0.33% (1995-2008). Since point to
point comparisons are misleading, I have also plotted exponential
trend lines (straight lines on the log scale plot) for each of the
three time periods. These trend lines also tell the same story of huge
growth during 1985-1994 and tepid growth before and after. The
compound annual growth rates from the trend lines are: 1.78%
(1965-1984), 17.62%(1985-1994) and 6.39% (1995-2008).
This is not really surprising. Most of the movement towards a free
market economy took place during the Rajiv Gandhi prime minister-ship
in the mid/late 1980s and the Manmohan Singh finance minister-ship
during the early 1990s. Since then, reforms have been at a glacial
pace. India learned the wrong lessons from the Asian Crisis and seems
to be learning the wrong ones again from the current crisis.
Notes on the data