Beyond the US-64 conspiracy

By Harish Khare

WHATEVER ELSE the Agra Summit may or may not be able to achieve, it has certainly distracted attention from the enormity of the crime of the US-64 over which Mr. Atal Behari Vajpayee's Finance Minister has presided. Had Parliament been in session, the Opposition parties would have stalled proceedings till the Finance Minister was made to resign. Or, had Mr. U.N. Biswas been heading the Central Bureau of Investigation, he would have applied the same principles of ``conspiracy'' that he applied so zealously in the case of Mr. Laloo Prasad Yadav in the fodder scam. After all, all Biharis ought to be equal before law or equally accountable for the sins they preside over. But, then, Mr. Yashwant Sinha is a lucky man; he is part of the su- raaj party; otherwise the deshbakhts from the Sangh Parivar would have gone after the Finance Minister's hide.

Economists and pink papers' editors who are otherwise good at explaining away the corporate sins of the pin-stripped entrepreneurs are doing their best to fudge the US-64 issue. Deliberately the blame is being laid at the door of the ``fund managers'', as if these financial bureaucrats were free to make honest and rational judgments. The Finance Minister's disclaimer that like any other financial institution the Unit Trust of India functions autonomously is to be treated with the same contempt as was treated Mr. Laloo Yadav's contention that as Finance Minister of Bihar he could not be personally supervising every withdrawal from the State Treasury.

The outlines of the criminal conspiracy behind the US-64 are fairly well-established. Investments made by nearly 20 million middle and lower-middle class Indians were made available for dubious entrepreneurs to ``play the market''. The crime is that those who made the decisions knew very well that the investment decisions were financially unsound and ethically indefensible. The defrauding of the US-64 is not an isolated phenomenon but very much a part of the larger nexus between corporate crooks- politicians-financial institutions; this nexus existed before the epoch-changing 1991 market reforms but has re-energised itself with much greater confidence and immunity from scrutiny and accountability in the era of liberalisation and de- bureaucratisation. And this new nexus has acquired greater efficacy than the old nexus identified in the much-talked about Vohra Report.

The economists argue that the small investor has no cause for complaint. He wanted to enjoy the fruits of market and therefore should be prepared to live with the uncertainties and the risks inherent in it. The economists argue that the small investor got paid good dividend when the market was doing well, and now that the market is down he must lump a temporary freeze announced by the UTI bosses. Fair enough.

Yet, none of the economists and other proponents of economic reforms are perturbed by the evidence that the big corporates, banks and financial institutions were given inside information sufficiently in advance to enable them to make large-scale withdrawals from US-64. Names being mentioned in this regard include Reliance, Tata, Bombay Dyeing, Bajaj, Videocon, Bank of Baroda, the Infrastructure Development Finance Corporation, and others. This is not healthy, competitive economic activity of the kind a Milton Friedman would approve, but crony capitalism of the most unwholesome kind.

What is also fairly evident is that the US-64 investment patterns reveal not only the existence of a nexus between the mutual fund managers and the big corporate crooks but also of a beautiful jugalbandhi between the mutual funds and the Bent and the Beautiful set, whose fun and frolics are celebrated daily in Page Three journalism. This Bent and the Beautiful set has used its newly-manufactured respectability to make a fast buck, all in the name of entrepreneurial activity but at the expense of the tax- payer. This Bent and the Beautiful set and its apologists have so distorted the collective discourse against the public purpose that no one dares question the morals, the manner or the competence of the so-called entrepreneurs. Perfect setting for the kind of rigging that was visited upon US-64.

This unacceptable pre-1991-type rigging of the US-64 would have remained a market transaction between the mutual fund and the investor, but for the fact that Rs. 3,300 crores of the taxpayers' money were infused in this fund in 1998. That tranche is gone, virtually vanished in the same manner that the taxpayers' money disappeared in the fodder scam; only a U.N. Biswas-type officer can ferret out the truth as to who participated and who benefited - from the Union Finance Minister down to the nameless fund managers - in the conspiracy to defraud the national exchequer of this Rs. 3,300 crores. The bottom line is simple: the entire Union Finance Ministry establishment has conspired to allow a handful of crooks and scamsters to gorge on the taxpayers' money. The habits cultivated and finessed in Patna appear to have travelled to New Delhi.

The Rs.3,300-crore dosage of the taxpayers' money that was prescribed for US-64 has simply turned out to be a case of state subsidy for the corporate crooks. And, this is precisely what is being done in the bailout package prescribed for the Madhavpura Mercantile Cooperative Bank of Ahmedabad. The Reserve Bank of India and other regulators who were supposed to keep an eye of the bank had neither the resources nor the inclination nor the time to play invigilator while crooks and crooked bank officials joined hands to play defrauder. The impulses, individuals and institutional habits that allowed the scamsters to get away are easily identifiable. Instead, the investors' anger is used to justify putting together yet another bailout package.

What has mattered most is that the Madhavpura Bank happens to be located in the Union Home Minister's constituency. Not long ago Mr. L.K. Advani found himself gheraoed by the defrauded investors and had to make an inelegant exit from the Shahi Bagh Circuit House. If Mr. Advani is half as intelligent as his public image, then he cannot be unaware of the nexus between those who defrauded the Madhavpura Bank and the bosses in the ruling BJP dispensation in Gandhinagar. Rather than read the riot act to his own partymen, Mr. Advani has found the easy way out of making a pliable Union Finance Minister come up with a bailout package for the bank. And Mr. Sinha and his Ministry did not even put a symbolic fight. Principles of sound financial management can be tossed out of the window when the Union's Home Minister has to worry about getting re-elected to the Lok Sabha.

Of late, the Vajpayee Government has been burning the midnight oil trying to get out of the so-called unviable public sector undertakings, on the plea that it is not the Government's business to run commercial enterprises. The argument is that there is no point in throwing the taxpayers' money in enterprises which are not likely to make profits. Fair enough. The same vigorous and honest approach must now inform the Government's organised subsidies for the private sector. The financial institutions must be made to get out of the private sector. Ten years is a long enough time for the state to give policy and financial breaks to the so-called private sector. If the economic reforms have to have a wider public purpose and political saleability then the taxpayers's money and governmental patronage should no longer be put at the disposal of the corporate operators.

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