FMs - an endangered species

By S. Swaminathan

The Union Finance Minister, Mr. Yashwant Sinha, seems to have come through the combined assault by the Opposition in Parliament over the UTI imbroglio, but only by the skin of his teeth.

His attempts at a persuasive enunciation of the Finance Ministry's shock and consternation on being kept totally in the dark about the UTI's then Chairman, Mr. P.S. Subramanyam's, decision to suspend repurchase and sale of units in US-64 were foiled in the Lok Sabha and in the Rajya Sabha.

Politicians seizing the high ground on 20 million investors being left in the lurch because of the UTI fiasco seemed less to care for the interests of the investors than to persecute the Finance Minister and try, if possible, to batter Mr. Vajpayee's leadership of the coalition Government even if it could lead to political destablisation without any palpable relief and reassurance for the small investors stuck with the UTI.

The most amazing performance in Parliament came, of course, from Dr. Manmohan Singh, the former Finance Minister, who had the odious distinction of witnessing the mega-securities scam in the early 1990s, right under his nose.

As a stodgy convert to brazen partisan politics, Dr. Singh perhaps could not but take it out on Mr. Sinha all because the latter had pointed out that the UTI's massive investment in 1994 in the equity shares of Reliance Industries, under a preferential allotment, and in a dubious fashion, occurred while Dr. Singh was holding court as the Finance Minister!

Dr. Singh ought to know, better than any other Parliamentarian, that a Finance Minister, in the post-liberalisation era, cannot possibly function as a Mr. Know All about the goings-on in the whole constellation of financial institutions in the public sector, on a day-to-day basis.

It is all easy to castigate Mr. Sinha for having dwelt in a ``blissful realm'' of ignorance about how Mr. Subramanyam and his ``faithful'' colleagues on the board of trustees of the UTI, short-circuited the Finance Ministry and came up with a fait accompli of a decision to freeze market operations on US-64.

Contrarily, to accuse Mr. Sinha of being ``the man who knew too much'' about it but feigning ignorance to exonerate himself or to protect his Prime Minister is nothing short of a base political canard of converting the UTI mismanagement into a cause for confrontation with the Government with little or no genuine interest in safeguarding the interests of the investors, including the Communist Party of India (Marxist) which intriguingly enough found common cause with business corporates in investing its cash surpluses in US-64, thus reinforcing the popular image of that scheme as being rewarding without being prone to erosion in values!

Fault-lines in UTI

Now that the Joint Parliamentary Committee (JPC) on the stock scam which followed Mr. Sinha's budget for 2001-02 has been given wider terms of reference to look into the UTI scam as well, the prospects of the several layers of truth about the malfunctioning of the UTI over the last ten years being brought into the public domain should be considered reasonably favourable.

Nor is it a futile hope that the Tarapore Committee will unearth the circumstances resulting in the contamination of US-64 in more recent times.

Assuming that all these labours of the JPC, the panel and of the Central Bureau of Investigation (CBI) would help, in course of time, to purge the financial sector of its manifold maladies, there are major issues which the UTI debacle has brought to the surface which cannot be deferred in the usual ``chewing the cud'' fashion. The US-64 is no longer a scheme relevant to the market realities nor sustainable as a dividend fountain and a source of capital growth.

Merely granting the exit option to the millions of investors through a phased increment in repurchase price will not be a substitute for a realistic restructuring. The fact has to be faced that for the vast majority of holders of US-64 there are no feasible alternative avenues of investment.

Some strategy for the merger of US-64 with other schemes of the UTI which would protect the capital and the returns will have to be worked out.

The other major reform needed is to dispel the myth that the UTI is part of the overall financial obligations of the Government and independent of the dynamics of the economy, of industries in the country and of the secondary capital markets.

The best way of going about this task is for the UTI board of trustees to function as professional managers rather than as ``chosen confidants'' of the government of the day, taking instructions from the Finance Ministry or from an extra- constitutional outfit such as the Prime Minister's Office (PMO).

The nexus between the top brass of the UTI and corporates, which sought to access large public funds without going through the tortuous course of public subscription, is not a new development but an ancient ``invisible'' compact. There is no question that SEBI, the regulator, needs to be empowered to watch over UTI, in all its investment decisions and contractual relations with the investors.That the UTI's record of corporate governance has been atrocious and that its chairmen, over the years, have paraded themselves as wizards of the financial realm, infallible and inscrutable at the same time, deserve to be seen as a priority concern.

The endemic issue

The demand that since the UTI is a public sector financial institution coming under the sway of the Union Finance Ministry, any malfeasance, impropriety or even grave errors of commercial judgment by the management of the UTI, should automatically involve the resignation of the incumbent Finance Minister is not only unfair and unconstitutional. It borders on a savage instinct of punishment mistaking the victim for the villain.

In a vast umbrella organisation such as the Finance Ministry, there is a whole hierarchy of bureaucrats who are entrusted with the task of monitoring activities and developments of scores of financial institutions including the nationalised banks, the LIC, GIC, UTI, NABARD and so forth. To say that the ``buck stops with the Finance Minister'' may be a trite rehash of folklore but can never be practical wisdom identifying the person of the Finance Minister with everything that may go wrong with the system. It is much more prudent to go by the dictate of parliamentary democracy that a minister stays or leaves depending upon the confidence of the Prime Minister.

That Prime Ministers themselves could lose their nerves in dealing with such situations was illustrated in the late 1950s when an able Finance Minister, T. T. Krishnamachari, was ``sacrificed'' by the then Prime Minister.

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