Corporates are manipulating markets?

“All of them are acting in the stock market. They are all sponsored by the corporates. You will have to look at this carefully that undermines the confidence of people in the functioning of the market,” Reddy said in an interview to The Indian Express.

Contrary to the objective of serving small investors in India,corporates,NBFCs and banks are allowed to invest in mutual funds,and they even enjoy tax benefits.

When asked whether they’re manipulating the market,Reddy said,“at least the suspicion could be there. They may not be doing it. The regulators should look at it. I suggested a study.” As MFs are permitted to raise funds from institutions,their managements tend to cater to the interests of these large institutions possibly at the expense of interests of individual retail investors,Reddy said.

The former Reserve Bank of India Governor’s second book Global Crisis,Recession and Uneven Recovery,which was released on Monday also recommended a study on commercial banks’ lending and support to microfinance institutions that are profit-seeking.

Reddy,who took several measures to protect India’s financial sector ahead of the global financial crisis,said the creation of international financial centre (IFC) is dangerous for India.

“The idea of IFC for India is dangerous. Not just undesirable. That’s the lesson from the crisis. How does a centre become an IFC. Generally it becomes a financial centre by having a soft regulation. Globally,finance can move quickly from one place to another. If you have a soft regulation,that attracts activities. But that also creates leverage and other problems,” he said.

“Secondly,will the financial sector help the real economy grow? Ultimately the purpose of having a financial sector is employment. You take England. United Kingdom believed a lot in financial sector. It was developed as a financial centre. When there’s excess finance,then it collapses. That’s what happened in the United Kingdom. The United States believed a lot on the financial sector. It

has been affected. Whereas Canada,Australia and developed countries opened capital account. Even then they were not affected. They didn’t have “international financial centres”. After the experience from the global crisis,everybody should evaluate —are there benefits from IFCs? Are there costs? Which is better of?” he said.

These IFCs have left their stamp on the nature and ethics of globalised finance. From the epicentres of the crisis,they served as sources of contagion to other countries. Their ethics were also dangerous,he said.