Sucheta Dalal :Where is the Prime Minister? (25 March 2002)
Sucheta Dalal

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Where is the Prime Minister? (25 March 2002)  

As Gujarat continues to burn with curfew being routinely imposed in different parts of its capital city, here are the official numbers on the mayhem: 700 people have been killed, 1300 are injured; 1788 vehicles have been burnt, several thousand crores have been lost to business and industry in terms of shops and factories that have been looted or burnt. Is this havoc sufficiently serious to take the Prime Minister of the country on a personal visit to the shattered State at least three weeks after the carnage? Where is the PM, say government officials and relatives of Gujarat victims? For that matter, where is Atal Bihari Vajpayee, the sensitive poet and caring human being?

Who is UTI’s sponsor?

All potential ‘sponsors’ of Unit Trust of India’s (UTI) schemes are vehemently denying the responsibility. When UTI was ‘established’ in 1964, the statute dictated that State Bank of India (SBI), Industrial Development Bank of India (IDBI) and Life Insurance Corporation (LIC) should contribute to the capital. They had no choice. SBI and LIC in fact have adequate money to bail out UTI’s beleaguered assured return schemes, but even a determined government will find it difficult to stick the role of ‘sponsor’ onto them. IDBI however, will find it difficult to escape. Although UTI was firmly controlled by the finance ministry and sometimes the Prime Ministers’ Office, IDBI had many powers under the UTI Act. For instance, the UTI chairman has to be appointed in ‘consultation’ with IDBI; UTI’s Executive Trustee and four members on the board of trustees are appointed by it and the entire four-member Executive Committee is of its choice. It also has powers to give directions to UTI, call for information from it and appoint UTI’s auditor. It is of course, another matter that all decision were made in Delhi and only rubber-stamped by IDBI. Unfortunately, IDBI has no money and in fact, has plenty of problems of its own. Who then will bailout UTI’s MIPs?

Who pays for MIPs?

Since it is impossible for IDBI to rescue UTI, government is working overtime to find a way out. Avoiding it is not on the cards—even the Malegam Committee is clear that if returns were assured, a bailout is inevitable. However, the committee is delightfully vague about who coughs up the money. In 1993, the Canstar case set a precedent that will be difficult to ignore. If Canara Bank as the sponsor had to pay the returns assured by Canstar, Bank of India had to pay for BOI Mutual Fund’s schemes, LIC, GIC and SBI had to pay for schemes sponsored by them which failed to meet assured returns, then how would IDBI escape? The only way is to work another fudge where government finds a way to pay IDBI and the money is passed on to UTI. One will have to wait and see how the finance ministry mandarins structure this bailout.

RBI’s NBFC efforts

How murky were the affairs of Non Banking Finance Companies before CRB Group collapsed one day and triggered a run on scores of others forced the Reserve Bank to tighten its rules? These statistics from the central bank provide an indicator. The RBI has rejected a humungous 18,000 applications for registration since it began its filtering process. In fact, it has granted registration to just 780 companies, but is still careful to point out that RBI registration is not the same as a performance rating. Simultaneously, the RBI is conducting seminars and training programmes for cops and auditors. The idea is to educate police officers about what constitutes an economic offence under its rules and to show auditors how to detect misstatements and signs of scam. If only the RBI had turned active when NBFC’s were raising tens of thousand crores, much of which has vanished.

MNC buybacks

The quick moves of MNCs such as Reckitt & Coleman, Cadbury, Cabot India, ITW Signode, Philips, Castrol and a dozen others to delist their shares by buying back public holding has created enormous heartburn among investors. In the absence of good investment opportunities, they would like the regulator to intervene and stop MNC buybacks. But any intervention is impossible. If MNCs do not need public funds for their expansion plans then they do not need to remain listed. One must also remember that MNCs did not go public to meet capital needs they were forced to dilute their foreign holdings under the provisions of Indira Gandhi’s draconian Foreign Exchange Regulation Act in the 1970. Moreover, they had to sell their shares at a fraction of their market value and have rewarded investors handsomely since then. One can hardly complain if they now want to turn the clock back and go private.

-- Sucheta Dalal