Finance minister P Chidambaram is not given to setting the market aflutter with his pronouncements. So, when he dropped a mention in Parliament on Tuesday of a case under government investigation of terrorist funds on the stock market, it raised eyebrows all around. And with it, several issues. It was not so long ago, remember, that the market watchdog Sebi had said that there was no evidence of terror funds playing the market. This in itself was not long after the problem, as a possibility, was first brought up by the national security advisor. The sequence of these statements suggests, first, that Indian authorities are not oblivious to such dangers, and second, that something has changed in terms of risk assessment over the past six months. Sadly, the latter takes away any comfort provided by the former.
Still, it would be advisable to keep financial markets from displaying any unnecessary signs of panic, given the market?s sensitivity to such intangibles as ?confidence?. The term ?terror? can terrify people. As the ?rogue economists? Stephen Dubner and Steve Levitt have written, Americans are at greater risk of dying in swimming pool accidents, but that doesn?t touch off the same set of nerves. In India, too, a sense of perspective will serve us well. With billions of dollars gushing through global financial systems across continents, it would be a statistical impossibility not to have any money at all ending up as funds for acts of terror. But what can be done? While anonymity is unavoidable in market situations, heightened transparency would indeed be welcome. Computer network trails, for example, could be traced by intelligence agencies. The crucial element here would be not to disturb the system?s efficiency by introducing bureaucratic impediments. Investor sentiment could collapse if every trade were to be monitored intrusively, especially since global hedge funds and other investment vehicles often operate with anonymity as a core investor benefit (as an extension of the right to privacy). In fact, if there is a specific terror trail that Indian spooks must go after, it would be best if this investigation is kept secret till such time that the guilty are nabbed and charged under the relevant laws with the requisite evidence to obtain convictions. That way, intrusions would be fewer, and investors will be assured of the market?s soundness.
