August 13, 2001


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Left behind

T V R Shenoy

Where are the chowkidars?

I am not a dog lover. I simply cannot understand how and why seemingly sane adults go gaga over these animals, nor why pet care is a billion dollar industry in the United States. That does not, however, mean that I do not appreciate the use of dogs -- especially in the fields of crime prevention and of detecting criminals.

Here, I draw a clear distinction between a watchdog and a sniffer dog. The first may deter criminals and prevent them from acting in the first place; the role of the second is to hunt out crooks once some breach of law has occurred. Sadly, the difference between the two jobs does not seem to be clear even in the sphere of human activity.

This musing is born of watching the activities -- maybe 'inaction' would be a more accurate description -- of the Union ministry of finance. I refer specifically to its relationship vis-a-vis the Unit Trust of India, the Industrial Finance Corporation, the Industrial Development Bank of India, and the Securities & Exchange Board of India.

Of these, only the first, the Unit Trust of India, is currently in the news. (Mark that word 'currently'!) I had hoped that some light would be thrown on the curious state of affairs by the medium of a debate in Parliament. Sadly, there was more heat than light.

The Opposition chose to focus on a single charge, namely that the Unit Trust of India had bought shares of Cyberspace at an inflated rate, and that these shares had then plunged in the markets. Nobody is arguing the point, but this is quite frankly a very small detail in the larger picture.

As I understand, the Unit Trust of India invested a little over Rs 320 million in Cyberspace. This is a lot of money, an unimaginable sum for the average Indian. But can you really say that this is a huge sum given the standard scale of operations for the Unit Trust of India?

In 1995, to name but one instance, the Unit Trust of India invested over Rs 10 billion in Reliance shares. I don't want any misunderstanding on this score, so let me clarify that I am not saying this was a poor investment. I am merely citing it as an example of the scale on which the Unit Trust of India operates.

Let us now jump to 1998. By this time, the year when the current finance minister assumed office, the Unit Trust of India was all but bankrupt. To avert an immediate crisis, the Union ministry of finance arranged a relief package of Rs 35 billion. Given this fact, I find it very curious that the Union finance minister and his minions solemnly state today that they had no idea how parlous the situation was with this leading mutual fund...

Buying Cyberspace shares at inflated prices may have been a bad idea, but the problems with the Unit Trust of India did not begin with this Lucknow-based firm. The fact that Cyberspace is based in the prime minister's constituency is an unhappy coincidence, but don't lay all of the Unit Trust of India's problems at its door.

Sadly, the Opposition parties have, irresponsibly, chosen to focus exclusively on Cyberspace and the phone-calls between the Prime Minister's Office in Delhi and the Unit Trust of India in Mumbai. This may be good politics, but it is also a disservice to the millions who put their faith in the Unit Trust of India. The Rs 320 million which were invested in Cyberspace surely couldn't have caused so much damage.

There are as many as three investigations studying the mess right now. The Central Bureau of Investigation is enquiring into Cyberspace. So is the three-member Tarapore Committee. Finally, there will also be an investigation courtesy a Joint Parliamentary Committee.

As I understand it, of every Rs 2,000 which the Unit Trust of India had to invest, it actually put in just one rupee in Cyberspace. Yet nobody seems to be interested in finding out where the other Rs 1,999 went!

As I said above, the Unit Trust of India is not the only financial organisation which is in trouble. The finance minister has just announced a bail-out for the Industrial Finance Corporation. With the Unit Trust of India's example fresh in the mind, I do hope that a crisis is averted before the year 2004...

The Industrial Finance Corporation, I should note, has been a sick institution for several years. Part of the problem is that it is owed Rs 5 billion by several other bodies, many of which have been underwritten by several state governments. Getting its money back will be a political headache.

Then there is the biggest of them all -- the Industrial Development Bank of India. On August 1, 2001, this institution got its third chief executive in just six months. As if that wasn't bad enough, there is a fourth man waiting in the wings -- and his tenure shall not last more than a few days.

I understand matters have reached the point where even the trade unions are petitioning the Government of India to provide the Industrial Development Bank of India with a proper executive. The workers have it right -- without proper care I can easily envision the Industrial Development Bank of India slipping away as the Unit Trust of India and the Industrial Finance Corporation did.

Last but not least is the Securities & Exchange Board of India. This, its creators had hoped, would be the watchdog of the Indian markets. Sadly, it has proved only a sniffer dog, a beast which appears only after the crime has been committed.

There are plenty of amateur detectives on the scene today, appearing after it is too late. Could we please have a couple of old-fashioned chowkidars as well, to prevent mishaps in the first instance?

Also read:

The UTI Crisis
The Capital Market Crisis

T V R Shenoy

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