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Sunday, November 04, 2001












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Distancing Govt from UTI


S. Vaidya Nathan

IN MANY ways, the crux of the UTI Corporate Repositioning Report appears to be to take the Government out of UTI. While this is desirable, the references to the need to protect the government from having to extend a lifeline to the UTI are jarring.

The distancing would mean no more bailouts of the kind done for US-64. But the Committee could have stressed more the positive effects that would flow from an autonomously managed UTI without any role for the government.

The Committee has, however, categorically noted that any form of government role is bound to be seen as creating an accountability for the UTI's performance. This is because of the established perception that the UTI is backed by the government.

The changes proposed would mean privatisation of the UTI. But this will happen only when the stables are cleaned and provisions made for the liabilities in assured return schemes and US-64. As part of this exercise, the Committee has also suggested scrapping the UTI Act.

This has been suggested by quite a few expert committees over the last six years. Having had to back two bail-out packages in the space of three years, the government may use this report as a lifeline to get out of the UTI.

The distancing of the government from the UTI scheme of things would by itself be no panacea for the UTI's problems. As this process may take some time to implement, the more immediate issue to be addressed is putting in place systems to improve the quality of fund management.

Two aspects that would be crucial if the UTI is to privatised are: The choice of the strategic partner and the time frame for the exercise. The strategic partner may have to be a global major as few domestic institutions may be able to bring in the requisite confidence and reputation.

Mutual funds of most institutions perform indifferently. So, if it comes down to getting a foreign partner, the government could well consider setting up US-64 and the assured return schemes as a separate company.

It may then be easy to find takers for the rest of the assets, which would still be considerable at around Rs 16,000 crore. This may improve the odds of getting a partner of repute, though any global major may show interest only when things look up across the markets.

Ultimately, any restructuring of the UTI has to ensure a structure for the UTI that would provide for accountability, transparency and better governance than in the past. Only this can improve investor confidence.

Pic.: Will Mr Sinha pick up the gauntlet of UTI privatisation?


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