The Hindu : The people's money

Online edition of India's National Newspaper
Friday, Dec 27, 2002

Opinion

Opinion - News Analysis

The people's money

By Mani Shankar Aiyar

There are various ways of estimating the losses incurred by investors and the country in the stock market scam. One convenient measure is the sensex. At the height of the boom, the sensex crossed 6,000; ever since the crash, it has hovered around 3,000. This means those who remained with the market have lost up to half their investment — probably irretrievably. Of course, those who got out when the market was reversing gear have suffered less.

Those who got out — more or less on time — were the big boys. The broker duo of Shankar Sharma and Devina Mehra, for example, spotted in mid-2000 that the market was going down and got out themselves besides advising their clients to do the same. Then the foreign institutional investors, who pulled out progressively through 2000, then precipitately in early 2001 before Yashwant Sinha's "well-received budget" sent everything crashing. There were then the really big players, Reliance Securities, for example, who cleverly decided not to redeploy nearly Rs.2,000 crore of their investments in the National Stock Exchange when they spotted disaster before it hit everyone else. Another quick exit was made by the country's largest nationalised bank, the State Bank of India, which was the first to recognise that UTI's US-64 was in grave trouble and started the Gadarene rush of redemptions of USD-64 units, which led the run on the scheme.

So, the big boys got out, it was the small investor who got thumped. Much more than the corporate or institutional investor, it was parents saving for their daughter's wedding, the indigent putting their paise together for their son's education, the pensioner trying to beat inflation, the housewife who put aside a little against a rainy day who got clobbered. It is for them that Jaswant Singh has put together a rescue package. But that rescue package is going to cost the really poor, those who have never heard of UTI, about twice the annual Central Government expenditure on the food subsidy. Thus does the present Finance Minister unravel the weaved-up follies of his predecessor.

There is, however, one segment of the super-rich who really got whammed. First among them was Big Bull Ketan Parekh. Ignoring what sober elements like Shankar Sharma and Devina Mehra were advising him, he decided he would single-handedly reverse the downward swing of the market to get back to making the humongous sums of money he was making when the market was rising. This, of course, meant he first had to find humongous sums of money to invest in the market. That is when he exploited every loophole of the regulatory system put in place by Yashwant Sinha & Co. That system was like a fishnet: more holes than thread to hold it together.

Whether it was the "virtually unregulated" Mauritius route or the wholly unregulated off-market badla on the Calcutta Stock Exchange or the laxly regulated urban cooperative bank network or the easy norms relating to the exposure of banks to individual stock-brokers or the relaxed approach of the RBI to bank loans being diverted from the business for which they were borrowed to play the stock market or SEBI and the Ministry of Finance looking the other way — there was not a trick in the book which Ketan Parekh and his ilk missed. They could do so only because Mr. Sinha's Ministry did next to nothing about getting all concerned to put their act together.

Added to the ineptitude of the regulatory agencies was the connivance of the public sector financial institutions. The UTI chairman and his cronies treated the savings of crores of small investors as their licence to kill. Parliament's Standing Committee on Finance cried itself hoarse warning Mr. Sinha that the UTI Chairman's powers to play as he wished with Rs. 75,000 crores of other people's money was an invitation to scam, scandal and shame. But Mr. Sinha, like Nero, fiddled while the stock market burned.

The trust of the nation was betrayed. The people's money was looted. And the former Finance Minister wants us to believe that it was all because his Finance Secretary delayed handing him a letter by two days and the UTI chairman kept everyone "deliberately in the dark". No, the root cause of the scam was Mr. Sinha's disastrous stewardship of the Ministry to which he was so woefully over-promoted.

(The writer is a Congress(I) MP and member of the JPC)

Printer friendly page
Send this article to Friends by E-Mail

Opinion

Stories in this Section

Communal crimes and punishment

More friendly in tone

Puja at the Qutub Minar