Sucheta Dalal :Financing trouble (12 January 2003)
Sucheta Dalal

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Financing trouble (12 January 2003)  

When IFCI, armed with an order from the Debt Recovery Tribunal (DRT) attached a room in the government’s main administrative building, it again highlighted how Maharashtra’s Congress-NCP government lurches from one crisis to another. Its response also underlines why things are such a mess. The State has flung several belligerent allegations against IFCI, even as it cleared fresh guarantees worth a few hundred crore rupees to other favoured sugar cooperatives.

The government also finds other ways to help its supporters. One such is the introduction of board examinations for fourth standard students. Aside from spending big money to conduct the exam, the State has managed to spawn a multi-crore industry in guidebooks and tuition class for the tiny tots.

The beneficiaries are friendly private businessmen peddling education. Similarly, its reckless dilution of slum redevelopment rules has set off the construction of a multitude of high-rise buildings in Mumbai and only the intervention of Congress president Sonia Gandhi forced a rethink.

Another example is the rapid construction of the Worli-Bandra sea link without disclosing the project’s financial viability even to those commuters who are expected to avail of the facility.

These are only the highlights. So far, the Congress chief has firmly backed her Chief Minister, but she needs to worry about a lot more than the Modi effect if she wants to hold on to this rapidly degenerating State.

MSRDC’s bailout

Finally, it was the Housing and Urban Development Corporation (Hudco) that bailed out the cash-strapped Maharashtra State Road Development Corporation (MSRDC). The corporation urgently needed Rs 800 crore to redeem its first tranche of bonds, and Rs 400 crore of the money will come from Hudco’s generosity.

The rest has been borrowed from Life Insurance Corporation. Hudco is lending another Rs 250 crore to fund the ‘ambitious’ Worli-Bandra sea link with dubious financial viability and utility and further funds for other projects.

For instance, it will lend Rs 150 crore to the Godavari Irrigation Development Corporation and Rs 90 crore to Maharashtra Jeevan Pradhikaran. The Hudco-LIC bailout allowed MSRDC’s managing director to take a pot shot at the media for having predicted that MSRDC would default, but the question to ask is, have Hudco or LIC worried about whether MSRDC can repay the loans? Or have they sanctioned the money purely on the basis of a Maharashtra government guarantee?

Did the boards of Hudco and LIC ask even the most basic questions about loan recovery before sanctioning such a big loan? Sebi and the Department of Company Affairs (DCA) may write and rewrite codes of good governance and accountability for private sector companies, but it is time to pay some attention to public sector undertakings and such loan melas based on meaningless government guarantees. Otherwise, like in the case of UTI, the taxpayers will be end up bailing out these giant PSU lenders.

Governance battles

While Sebi has set up a committee headed by N. R. Narayana Murthy to work upon the Corporate Governance Code, the Naresh Chandra Committee, set up by the DCA seems to suggest that Sebi ought to stop meddling with corporate governance. The Naresh Chandra Committee has made the following recommendations on the issue: Sebi must refrain from exercising powers of sub-ordinate legislation (like the listing agreement of stock exchanges) where specific legislation exists in the Companies Act.

All changes should only be made through suitable amendment of the Companies Act, and even if Sebi wants change sub-ordinate legislation, it should seek approval from the DCA. Also, all decisions relating to companies, which impinge on the Companies Act ought to be taken in consultation with the DCA.

While the Naresh Chandra committee is clear enough, the Joint Parliamentary Committee (JPC) says the opposite. It wants Sebi to be vested with ‘comprehensive jurisdiction’ over listed companies. It also wants Sebi to be adequately empowered and made accountable to deal with matters relating to corporate governance, mergers and amalgamation, accounting standards and protection of minority shareholders.

Sebi is not worried about the confusion because the JPC is the highest body of Parliament, and the Naresh Chandra committee’s recommendations will only matter if they are accepted.


While the Naresh Chandra committee talks of consultation between Sebi and DCA, consider this: The DCA secretary is on Sebi’s board, but the Naresh Chandra committee had no representative from Sebi and Sebi’s Corporate Governance Committee has no DCA representative. Is it any wonder that consultations are a tad difficult?

-- Sucheta Dalal