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Circular trading by organisations to get public funds is a practice that involves the same set of companies involved repeatedly selling and buying. This is done in order to obtain access to funds from the public without actually benefiting them, but for the companies’ own gains. It can be seen as an illegal activity, since these companies are using public funds to enrich themselves without benefiting the public, which is the intended usage of public funds.

Circular trading by organisations to get public funds involves a company setting up a transaction in which it is both the seller and the buyer. The company purchases a stock from itself, and then resells it. The profits from this transaction are then used to fund the company’s operations.

Circular trading has been used by many Indian companies to obtain finance via government grants and tax exemptions. While the government may provide the funding, the companies are still the ultimate beneficiaries of the funds.

Circular Trading An In-depth Analysis

For example, one company may receive funds from the government, but the company can then purchase stocks and other assets from itself or one of its other companies. The profits earned from reselling the same stock are then used to fund the first company’s operations. This type of circular trading allows the companies to receive funding from the government, while at the same time making a profit.

The most significant problem with circular trading is that it leads to financial gains for the companies involved without any corresponding benefit for the public. The public is essentially being cheated by companies who are using public funds for their own benefit. Furthermore, since the transactions involved are private and often complex, it can be difficult for regulators to detect the presence of circular trading.

Another issue with circular trading is the fact that it can make it difficult for companies to get more funds for legitimate purposes. When companies are constantly involved in circular trading, it signals to authorities that the company is only interested in making profits from the trading activities and not in developing the company or expanding its operations. As a result, legitimate requests for funds may be rejected or ignored, which makes it even harder for companies to grow or improve their operations.

Finally, circular trading can also have an adverse effect on the stock market. By trading heavily with itself, the company can artificially inflate the price of its own stocks, which can attract a lot of attention and increase investor interest. However, when there is no actual benefit to the company itself, investors may start to lose trust, leading to a drop in the stock price. This can then damage the company’s reputation, which can make it even harder for the company to obtain funds.

Circular trading is an example of why public funds should be used for the benefit of the public, not for the benefit of companies. Companies should not be allowed to cheat the public out of their money by using circular trading to obtain funds from the public. If companies are found to be engaging in such activities, the government should investigate and take appropriate action. Furthermore, companies must be held accountable for how they use public funds, and clear rules and guidelines should be established to ensure transparency in handling public funds.


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July 2024