Over to the JPC

THE CONSTITUTION OF a Joint Parliamentary Committee (JPC) to probe the latest stock market crisis is inopportune and unlikely to benefit either policy-makers, the capital market or the investors. Neither the diagnosis of the stock market's problems nor the possible solutions are beyond average comprehension. If a comprehensive review was at all needed, a team of inter- disciplinary specialists might have fitted the bill better and saved considerably on time and costs. Going by the experience of the earlier JPC, this one might find it difficult to complete its rather ambitious agenda within the time-frame of 3 to 4 months assigned to it. Especially because this time key State elections are round the corner. There will be a prolonged bout of uncertainty even as the JPC grapples with its tasks.

There are other more direct costs arising out of the JPC. The agenda this time is even wider than last time and because the stock market has grown exponentially since, the list of agencies and institutions which the JPC will investigate has grown longer. It is common knowledge that the financial costs of a JPC-type investigation are high and a large percentage of those are borne by the institutions investigated. All those would be understandable if only the JPC investigations and follow-up lead to a better financial system. A cost-benefit analysis of the JPC can be undertaken from two standpoints. One, the earlier JPC took two long years to complete a voluminous report. Most of its recommendations were implemented. However, another crisis necessitating a new JPC has surfaced within a short span of seven years. It is difficult to see what new ground the latest JPC will cover.

Second, this time there has already been a flurry of regulatory action that, though akin to fire-fighting, has had much the same effect as a follow up to a JPC-type report would have. For instance, a hastily-drawn RBI circular of November 2000 permitting banks to invest substantially more in the stock market has already been modified. Cooperative banks at the centre of the latest crisis have been asked to roll back their stock exposures. The SEBI on its part has been hyper active - banning short sales, speeding up corporatisation of stock exchanges, penalising high profile share price manipulators and is close to ushering in rolling settlement for all categories of shares. Regulatory action even when undertaken under pressure can have salutary results. Hopefully the setting up of the JPC will catalyse the regulators. On no account should it lead to another prolonged bout of inaction. Nor should the several ongoing investigations by the IT authorities, the CBI, the SEBI and the RBI be delayed.

In short, there are only muted expectations from the JPC. However, it can contribute immensely if it concentrates on a few specifics. The role of the small investors is one area that needs to be addressed. Another area for the JPC is it should find out why existing laws and regulation are inadequate to prevent a recurrence of market crisis. Even more basic of course is to define the contours of a crisis that requires extraordinary intervention such as is happening now. This time, for instance, there are few indications that the stock market malaise is widespread. The failure of one obscure cooperative bank does not lead to a facile conclusion of a broker-banker nexus. As for the heavy and disastrous betting on technology stocks, the JPC needs to be reminded that just a year ago it was sheer heresy even to countenance their fall. There could be wisdom in hindsight but it will not be useful for a JPC-type solution, which in all probability will identify a systemic failure.

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Section  : Opinion
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