The Telegraph
Since 1st March, 1999
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Dear Jaswant, greetings from Goa. The worst thing about being finance minister is that while the rest of us are sunning ourselves on the sea-side, the finance minister is stuck in bitter cold Delhi putting together his budget. On the last day of February, you will take your bow on the national stage as you present, in your new avatar, your first budget. One of the things your audience would expect of you is action on the mess left behind by your predecessor in the stock markets and the Unit Trust of India, as revealed in the report of the joint parliamentary committee. Here are a few unsolicited words of advice on how you might wish to deal with that.

First, get rid of Yashwant Sinha. You told the JPC that in your view a minister must share the credit for all that goes right with his helpmates, but himself take the blame for all that goes wrong. A commendable principle. The JPC have faulted the ministry of finance in at least 52 different paragraphs of their report. There can be no ministry without a minister. And, as a member of the previous JPC, it was none other than you personally who drafted those resonant sentences, reiterated by the present JPC, that in our scheme of constitutional jurisprudence, the parliamentary system cannot sustain the distinction between high acts of policy being the domain of the minister but not the low sins of omission and commission by those reporting to the minister. If Sinha remains while others pay the price for the huge mistakes that have been made, that would not only be unjust, but it would be subversive of the doctrine of ministerial responsibility which you, in particular, and six other erstwhile members of that JPC now serving as ministers, adumbrated when you were in the opposition. Or do you want us to disrupt your maiden budget session like you disrupted the monsoon session of 1994, demanding ministerial resignations before even beginning the debate on that JPC report'

That said, what must you pledge to do to prevent a repeat of the scandals in the stock market and UTI which have robbed millions of small investors of their hard-earned savings and set back the vital national requirement of jacking up household savings' First, the ministry over which you preside. Your immediate predecessors forgot the previous JPC the minute every drop of political mileage had been drawn from it. What little action there was belonged to the 18 months between the passage by Parliament of the revised Action Taken Report in December 1994 and the fall of the P.V. Narasimha Rao government in May 1996. The ATR was then left to moulder. In consequence, no less than 32 of the recommendations of the present JPC are analogous to the recommendations of the previous JPC. That is one measure of non-implementation. The other is that after identifying the Harshad Mehtas and other petty criminals of the world of capital markets, your predecessors completed judicial proceedings against only 6 of the 72 accused, 3 of whom were, in fact, acquitted!

Fatally for the system, the high level coordination committee for capital markets set up by Manmohan Singh in the wake of the 1992 securities scandal under the chairmanship of the governor, Reserve Bank of India, with chairpersons of all regulatory agencies as members, and serviced by the ministry of finance itself with its seniormost officers in attendance, just went kaput through the years of Yashwant Sinha’s stewardship, all through the bogus boom of 1999-2000 to the bust-up of 2001. Not that the HLCC did not meet. When there is an opportunity of tea and biscuits, our babus are not the ones to pass it up. They met, they talked, they disbursed — and they minuted their deliberations. But the JPC were astonished to find that while the daily stock market turnover soared from Rs 30 crore a day to Rs 15,000 crore a day, the HLCC did not care to ask itself where the hell so much money was coming from' Was it legitimate money' Who were the key players (such as market-leader Ketan Parekh)' Were they men and women of unimpeachable antecedents' Was it right and proper that foreign investors, including dubious entities of Indian origin, should be able to exploit the Mauritius route with no system of monitoring, let alone regulation, in place'

The HLCC never asked itself about off-market badla in the Calcutta Stock Exchange, making a mockery of risk-containment measures elaborated by the securities and exchange board of India ; or of the failure of the RBI to check the illegitimate diversion of funds by corporate borrowers to the stock market to make a quick buck; or of the rampant abuse in urban cooperative banks like Madhavpura of limits of lending to stock brokers of the Ketan Parekh kind. In consequence of these and a zillion other infractions of their own rules and regulations, there was a virtual breakdown of the regulatory system put in place to safeguard the integrity of the stock markets. In consequence, crores of investors and tens of thousands of crores of small savings were washed down the drain of speculative greed. And the capital markets division of the ministry of finance followed their minister in looking the other way. No one wanted to disturb the feel-good factor. Governor, RBI, cheerfully admitted as much to the JPC. He remains governor, as the SEBI chairman enjoys an undisturbed retirement, while the housewife and the pensioner who lost their last paisa are left shivering in the cold. Can such a system ever be reformed if the chiefs of the RBI and SEBI do not join their minister of the time in paying the price of their negligence'

True, chairman UTI, was sacked — for keeping Yashwant Sinha “deliberately in the dark” and for “repeatedly” assuring the ministry that all was “hunky-dory” — the expressions in quotes are from Sinha’s exculpation of himself in the Rajya Sabha. The JPC have found that the ministry “did little to bring itself out of the darkness”. One phone call from the minister to chairman, UTI would have sufficed. Sinha claims he instructed his officers to do so. The officials have sworn on oath to the JPC that they did nothing of the kind. There was not even a file on the subject. It was only on the insistence of the JPC that a few miscellaneous papers were thrown together in a folder and presented to the JPC. And those papers underline the terrible truth that there was no contact between the ministry and UTI in the run-up to disaster.

This lackadaisical attitude to governance was the root cause of the UTI imbroglio. Although two high-powered committees and Parliament’s standing committee on finance had warned UTI and the ministry of the calamity in the making unless certain key legislative measures and policy decisions were taken, the ministry and UTI were content to let sleeping dogs lie. Gently sending reminders and protestations to each other but doing nothing fundamental to forestall the holocaust. At least two crore investors lost thousands and thousands of crores of rupees for putting their trust in US-64 — and the government of India.

Jaswant, can any of us have a Happy New Year if only chairman, UTI, is punished and everyone else responsible gets off scot-free'



Silver Sands, Candolim, Goa

December 31, 2002

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