Don’t bear this cartel

Several commentators spoke about the fact that Indian expectations of the Agra summit were distinctly muted by comparison with those in Pakistan. There could be two reasons — Indians are more realistic, or they were more concerned about other matters.

As to the first, it is silly to think the bitterness of 54 years would be washed away in 54 hours. About the second, what could be more important than Indo-Pakistan relations? Well, I put it to you that most Indians today are chiefly concerned about bread-and-butter issues. And one of the biggest hits taken by their (already pinched) pockets came with the Unit Trust of India’s decision to halt trading.

We know of the consequences — affecting parents preparing for a wedding or a child’s education, a sudden dearth when the doctor orders an operation, or something as small as a cherished vacation being postponed. These stories will never rival Musharraf or Jayalalitha in the headlines, but they matter to those affected.

The Union finance minister sounds rather feeble when he offers the explanation that he simply wasn’t told how bad the situation was and is as surprised as the millions who put their trust in the Unit Trust of India. There is, understandably, some bitterness, some disagreement with Yashwant Sinha’s bald statement of ‘‘I did not know!’’

Cynics take issue with this claim. Give the man a break and accept his confession of ignorance. At the same time, I must raise some other issues — just in case his mandarins have kept the finance minister in the dark on these too.

First, there is the usual litany about senior offices not being filled in time. The secretary (finance) will retire on January 31, 2002. Even granted three months of extension, he will not be around to implement the next Budget. Next, there is the case of the chairman of the Central Board of Direct Taxes; the new man will assume office on August 1, 2001 and demit it on December 31. This revolving door policy reduces the preparation and fulfillment of the next Budget to something of a farce.

If finance ministry bureaucrats are so heedless about filling vacancies in the offices next door, you can scarcely expect a better performance when it comes to other institutions. And so it proves.

The Industrial Development Bank of India has been without a head since February. The Industrial Finance Corporation is a sick body, with a whopping 40 per cent of its assets classified as ‘‘non-performing’’! And then there is SEBI, supposedly the stern doctor dishing out preventive medicine. Instead, it is nothing better than a coroner dragging his feet from one autopsy to the next. (Some of these problems began before the National Democratic Alliance government took over, but what action was taken to ameliorate matters?)
But let us return to the Unit Trust of India. The full story of this debacle is still to be written. Yet this is not the first time that the Union finance minister appeared in the tale. In 1998, when Yashwant Sinha took office, one of his first acts was to give the Unit Trust of India a large infusion, over Rs 3,500 crore.

The Unit Trust of India is not a unit making industrial products. It is an organisation which makes money by playing the markets. When the markets dive, its assets are not immune. I understand there were some paper profits on transactions even this year. But when the markets slumped, and then crashed, they took the Unit Trust of India down with them. Was there anything mala fide in all this? Are there any secrets we are yet to hear?

These questions hang in the air. But even without the benefit of investigation, we already know some facts. Part of the problem lies in distant NASDAQ, and the general fall in value of information technology stocks throughout the world. Part of it is also because stocks were inflated by a bull cartel on the run.

And there is also some evidence of a bear ring operating in India. Some say that this cartel has access to funds from abroad. And they too, I am afraid, had a free run. What does the finance minister know of this bear cartel? It is alleged that the financiers behind Tehelka made a packet even on a depreciating market. Is this true? How could this be if the company itself supposedly has debts running into crores?

It is my understanding that what happened to the Unit Trust of India is nothing more than a symptom of a disease. Another effect, one that has received almost no media attention, is the fact that the depression in the markets has suddenly made life easier for foreign operators.

The Union finance minister need not take my word for it. All he needs to do is to summon any foreign fund manager for a frank discussion. There is really no need to wait for an ‘‘investigation’’ by officers who are already guilty of keeping their minister in the dark.

If he wishes, the finance minister could use the intelligence units from some public sector banks. These knew that the Unit Trust of India would be in trouble if the Sensex dipped under the 4000 mark. Foreseeing trouble, they left well in time. What a pity the Union ministry of finance lacked the same reflexes! It is open to question which was worse — the finance ministry’s lack of intelligence in the first instance, or its knee-jerk responses when the truth became known.

The ‘‘core issue’’, to use General Pervez Musharraf’s pet phrase, is the economic downturn. This is a global phenomenon as is the slump in the markets. However, India was unique in giving a free run to the bear cartel.

Neither the ministry of finance nor SEBI stopped these men though their activities were known. (In 1998, the authorities in Hong Kong and Taiwan were quicker off the mark under similar circumstances.)

Face it, the finance ministry stumbled badly. Is the ministry willing to accept, even at this late date, that India’s markets are fatally exposed to foreign operators? And, even more important, is the finance ministry willing to act on that knowledge?

I do hope, incidentally, that the bureaucrats are willing to share all their information with their minister. Or, trust me on this, Yashwant Sinha will soon catch an earful from the voters.

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