Why the stock markets are in turmoil across the world

The Indian stock market has been on what seems to be like a freefall for nearly six months since last September. On the Bombay Stock Exchange, prices have fallen by 13 per cent till mid-March compared to September and experts believe that this fall may continue.

The overt reason for this slowdown is the lowering of profit growth in top Indian firms and foreign investors selling $25 billion in Indian stocks. But this Indian decline is much sharper compared to the 2 per cent fall in Asian and global emerging market indices.

The overall global decline is, of course, the result of the mayhem that Donald Trump has wrought since coming to power for the second time. His aim is as straightforward as it is naive — make America great again by caring for only the interests within the country and discarding all concern for the need to be a part of the minimum needs for global economic cooperation. But is this really happening? In fact, things are moving in a contrary direction. President Trump's policies are having an opposite effect for him. They are sending tremors through the Wall Street.

While the White House is defending the economic agenda at home, Trump has also made progress on a top foreign policy goal — getting Europe to boost its military spending so that the US does not have to pay to protect Europe. Key foreign leaders have reaffirmed support for Ukraine after Trump publicly told off Ukrainian President Volodymyr Zelenskyy last month and taken steps to expand their defence outlays.

This is boosting the shares of international military firms higher, giving an upward jolt to stock markets in some of the very countries where Trump has taken his trade war.

Trump's attempt to get the European countries to boost their defence spending has caused European stocks to see their strongest start to any year since 1998. Plus, international stocks overall are outperforming their American counterparts by more than in any year since 1990.

As a result, the US stocks are falling behind. Since Trump took over in January, a range of European countries' stocks have risen between 5 and 20 per cent even as US stocks have fallen by 5 per cent.

Last week, a selloff in global shares eased in Europe following a sharp fall in US stocks that came as investors raised concerns about the negative economic impact of Trump's tariffs. He wanted to raise tariffs to boost his domestic economy. But at the end of the day, it is the stocks elsewhere that are going forward and US ones have been left behind.

Where does this leave India? Right now, Indian stocks remain down in the dumps even as other non-US countries' stocks are going forward.

It seems that only the US and Indian stocks remain in the dumps. What is India trying to do and what can it do differently so that Indian stocks and corporate investment prospects revive, taking the overall economy along with it?

Right now, India is seeking to negotiate with the US so that its tariffs are reduced. It is doing what it is being asked by the US to do — lowering Indian tariffs, which are among the highest in the world.

What India has to do to please the US and what it has to do for its own good are, quite fortuitously, similar. Lower trade barriers will bring in more reasonably priced products, which will force Indian businesses to lower costs and become more efficient. At the end of the day, Indian consumers will be better off. Inefficient businesses will die, which should have happened long ago.

Fascinatingly, the US will have to follow its own course correction. The US administration cannot expect its economy to live in complacent isolationism. Lower tariffs will mean lower costs for US consumers and businesses, which are mostly intrinsically robust. This will do the US fine. Incompetent businesses, which are proportionately far fewer than in India, will die and no one will feel sorry for them.

It is Trump's own beliefs which have to be modified. Of course, the US will become great again, which it already is, but not by the way Trump wants it to go. Isolationism and not caring for others will have to give way to entering into an era of better global cooperation, which the US was already into before Trump came in. The US will have to go back to what it was earlier so that it can remain great, after having put behind the aberration that has been created by Trump's misconception.

Coming back to India, it will have to wait for its stocks to revive. They will do so once global stocks and analysts see leading companies regaining their bottom lines. Right in the beginning, we noted that Indian stocks have had a setback because the profits of leading companies have underperformed. They need to set things in order and go forward.

Also, the government will have to pay attention to manufacturing, which is a global slow-runner. India had thought that software first and artificial intelligence now would bring in foreign exchange goodies. That is fine, but not enough.

The government will also have to look hard at the number of skilled Indians going abroad. Their inward remittances are fine, but a serious shortage is developing in sectors like healthcare. Too many doctors and nurses are leaving. As a result, the Indian public healthcare system is suffering even as its doctors are manning healthcare systems in developed countries.

If healthcare professionals have to be paid better for our public healthcare system to run better, the government doctors and nurses will have to be paid better. This will have to be paid for by the Central and state governments out of their own fiscal resources.

When the healthcare system does better across the board, there will be another gain, a windfall — it will be able to better service the health tourists, who will come in greater numbers. In fact, some leading Indian corporates are setting up corporate hospitals. The better-off Indians will also be ready to patronise them.

Thus, the Indian stocks can go forward again as manufacturing becomes more efficient and better and healthcare professionals stay at home and empower corporate healthcare for health tourists and better-off Indians.