'Govt. taking firm steps to resolve stock market crisis'

By C.R.L. Narasimhan

CHENNAI, APRIL 5. What has been the official response to the ongoing stock market related crisis? With the stock markets continuing to be turbulent and heading towards uncharted territory, there is a lot of uncertainty. Also in this season among market players fingers of suspicion are pointing towards one and all. There are allegations of omission and commission against the two regulators, the SEBI (the capital market regulator) and the RBI. What has the Government been doing?

The Hindu spoke informally to Dr. S. Narayan, the Revenue Secretary, Government of India. According to him the Government, far from adopting a passive attitude to the market crisis, has embarked on a decisive plan of action to combat the problems. IT investigations against six top brokers, five ``bears'', including Mr. Shankar Sharma of First Global, Mr. Nirmal Bang and Mr. Damani and the other the well-known ``bull'', Mr. Ketan Parekh. The Department commenced its investigations on March 15 (the last date for payment of advance tax ) and completed them by March 23. The dates are important: the two weeks before the closure of the financial year is when the market operators who have paid the advance tax will indulge in all kinds of tax planning.

The objective of the exercise was to detect tax avoidance besides fraudulent and fictitious transactions. It is well-known that brokers not only trade on account of their clients but also on their own account. Fictitious transactions, - that is, recording of non-existent ones - have been on the increase and are done mainly to rig up share prices. The IT investigations found ample evidence of these. Separately the RBI and SEBI are trying to find out whether there has been insider trading or collusive practices.

The scope of the IT inquiry has been restricted to financial fraud, money laundering and other economic offences besides tax collection and compliance. The Revenue Department will pass on evidences to the appropriate authority such as the CBI and the Enforcement Directorate for further action. The Ketan Parekh episode involving the Bank of India and the Madhavpura Mercantile Co-operative Bank are outside the scope of the IT investigation. Mr. Ketan Parekh, as already pointed out, is being investigated. Moreover, the case has criminal overtones what with an FIR being filed by the BOI against Mr. Ketan Parekh.

According to knowledgeable sources BOI should have filed the criminal case against the defaulting co-operative bank and not against Mr. Ketan Parekh. What has now happened is that the chairman of the co-operative bank suspected to be in collusion got about two weeks (before a summons could be served on him) to evade the legal process.

The IT investigations have found that Mr. Anand Rathi, till recently the president of the Bombay Stock Exchange (BSE), has had a turnover of Rs. 24,000 crores in just four months of his stock market operations. This indicates that the high profile broker-president was also a very big operator. If he was - as he is accused of - privy to privileged information he could have used it with devastating effect. Second, another high profile broker, Mr. Nirmal Bang, was found to be in possession of share scrips worth Rs.40 crores besides 25 kg of gold.

Follow-up vital

To investors and punters constantly swayed by the gyrations of the stock market, discoveries such as the above might not be surprising. So what follows next - the follow-up to the IT investigations - will be vital. It is hoped that the frequency of market crises does not lead to cynicism as to the eventual outcome. But this time, more than in the past, there is another major cause for worry. The rapidly integrating markets within India on the one hand and global integration on the other cannot but pose obstacles for those who chase the money trail that is fueling the share market volatility. So, contrary to popular perception it may not be a simple case of a banker- broker nexus or a failure of regulation. According to investigative agencies, the money trail has become murkier. No confirmation is possible but there is reason to believe for instance that the arrest of Mr. Bharat Shah, the well-known diamond businessman-cum-film financier for his alleged underworld links has its impact on the stock crisis.

While investigating agencies should be given a free hand, experts say the stock markets can be put back on the rails only if all participants uphold a value system. According to Dr. Narayan there is a strong case to treat the stock market on its merits, not be euphoric when the index zooms or be despondent when they fall.

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