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Jayanthi Iyengar

Though it is within the Joint Parliamentary Committee's powers to fix responsibility on all those who failed, including ministers, bureaucrats, regulators and institutional heads, the august body seems more comfortable settling for halfway measures.

A MAJOR drama is set to open next week in Parliament, with the Government expected to table the report of the Joint Parliamentary Committee (JPC) constituted to investigate the stock market scam of 2001. Information coming in at this point is that the committee submitted its report to the Government late last week for its perusal and that it would be tabled in Parliament next week.

Even viewing the developments from afar, it is does not take great crystal-gazing skills to guess what the Committee is likely to recommend. Despite having summoned three former Finance Ministers, including Dr Manmohan Singh, Mr P. Chidambaram and Mr Yashwant Sinha, and the incumbent, Mr Jaswant Singh, one can safely assume that the JPC will not fix responsibility at the political level for the market failings, the UTI imbroglio or for keeping the Mauritius concessional taxation route open for FIIs.

And having exonerated the political leadership in the Finance Ministry at the time of the scam, the JPC would probably find it difficult to fix responsibility on the North Block leadership. A draft report, leaked strategically to the media some months ago, had named former the Finance Secretary, Mr Ajit Kumar, and the former Securities Board of India Chairman, Mr D. R. Mehta, for dereliction of duty.

The JPC had subsequently gone on to disown this report, primarily because of the differences within the committee on the draft naming a powerful Mumbai business house, but the strategic leak had set off the bureaucratic support-base into an overdrive.

Opinion writers jumped into the fray criticising the JPC for being soft on the political leadership, while settling for soft targets — namely, bureaucrats who till then had an "unblemished record" — for pinning the blame.

Statements from the JPC itself in the ensuing months indicated that the final report would be a far more watered-down account than even the strategically-leaked draft. Briefing the media in October, JPC members had made it clear that the committee would adopt a "consensus" rather than a "confrontationist" approach. They also made it clear that the ministers in question were summoned not to "depose" before the JPC but to share their insights on the developments leading up to the freezing of US 64 on July 2, 2001; the critical CBDT circular of April 2001, which stopped tax officials from raising a tax demand on treaty-shopping FIIs investing in India through Mauritius; the role of the predominantly NRI-owned Overseas Corporate Bodies (OCBs); and the role of brokers, bankers and corporates to book undue profits through insider and circular trading measures.

Feedback coming from the government, which is currently processing the official JPC report — to be differentiated from so many draft versions which have been in circulation in the past few months — indicates that the committee has found only three fall guys for the market scam of 2001. They include stock broker, Mr Ketan Parekh, the former UTI chairman, Mr P. S. Subramanyam, and the IDBI for not informing the government of UTI's ill-health.

That is an easy option. The fact that Mr Ketan Parekh issued pay orders without sufficient cash in his accounts in Madhavpura Mercantile Co-operative Bank (MMCB) automatically made him liable for punishment. That the bank went under and took with it several other cooperative banks made his crime even more heinous, but that automatically brought into focus the role of the regulator and the regulatory framework.

Under normal circumstances, the ball would have stopped in the RBI court for a banking sector failure, but regulatory overlapses on the cooperative sector front take the responsibility-sharing into the domain of the Agriculture Ministry as well. Besides, most cooperatives are under the patronage of one politician or other. It is common knowledge in the market that MMCB was not alone is extending such credit.

But given the possibility that disturbing the co-operatives could be a political hot potato, the JPC would naturally prefer a superficial approach to the problem and lay the blame totally at Mr Ketan Parekh's doors.

That brings us to the bureaucracy. In the case of the UTI, regardless of the Government's claims of an arm's length relationship with the UTI during 1996-02, the fact remains that this was not the case. Finance Ministry files will show that the Capital Markets Division was in daily touch with the UTI and SEBI, and privy to the Trust's balance-sheet as well as the regulator's formal inspection reports of UTI's SEBI-compliant schemes.

Though US-64 became SESI-compliant only in January 2002, the Ministry also had information on the scheme's health since SEBI was conducting some sort of informal inspections even before 2002.

It is during one such inspection that the Ministry discovered the level to which the UTI was switching funds and assets between schemes to present a better picture of the Fund's health.

Hence, today, if the Ministry, and the Capital Markets Division, in particular, and its head disclaim knowledge, one can only assume only chicanery or ignorance, neither of which augurs well for the Ministry's image.

That Mr P. S. Subramanyam understood this reportng hierarchy is clear from the fact that he first dashed off a letter to the then Finance Secretary, Mr Ajit Kumar, on June 30, 2001. He then followed it up a day later by marking a copy each to Mr Rakesh Mohan, Advisor to the Finance Minister Yashwant Sinha, and to Mr Jamini Bhagwati, the then Joint Secretary, Capital Markets Division. Mr Subramanyam further followed up these formal missives by personally calling on Mr Sinha on the morning of July 2, 2001, prior to the UTI board meeting, which decided to freeze US 64.

Today, however much the North Block bureaucracy may defend itself for not being informed in time, the fact remains that few in the Ministry, from the Joint Secretary on up to the Minister, understood the importance of Mr Subramanyam's communication. And it is because of this ignorance that the investors paid in losses of Rs 3,000-5,000 crore.

Again, the North Block mandarins may argue themselves hoarse through their supporters — as bureaucrats, they claim they cannot defend themselves — that Mr Subramanyam chose to inform Mr Ajit Kumar late, that too on a Saturday evening.

But it is common knowledge within financial circles that Mr Subramanyam made futile efforts three days earlier to draw the then Finance Secretary's attention to the issue on hand. Anyway, public perception and an act of Parliament made the UTI the government's responsibility; responsibility fixing for the UTI's failure has to go beyond the former UTI chairman or the IDBI. It is a fallacy to blame IDBI for not being "the ears and eyes of the government". The government did not need one.

Nor would it have listened to IDBI, when the man in charge of the UTI could not impress on the North Block mandarins. What the government and those who manned it needed was vision and that is where the blame for the UTI's debacle lies.

The reality is that it is within JPC's powers to fix responsibility on all those who failed, including ministers, bureaucrats, regulators and institutional heads.

Yet, the august body seems more comfortable settling for a halfway measure. That amounts to making the public pay for the failures of those in high offices.

(The author is Consulting Editor, Business Content, Jain Television.)

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