Reforms
There is a tussle between the Finance Ministry and the PMO over
fixing the responsibility of the scam. The Prime minister denied on
1st August 2001 in Parliament that PMO had anything to do with the
muddle. The government and the opposition would do better if they
stop passing the buck and apportion the blame at this stage. They
must rise above petty politics and collectively suggest reforms in
UTI. Lessons must be learnt and the political leadership should enable
the implementation of the learnt lessons to arrest the future crisis.
If the lack of confidence spreads to public sector banks, which is
already saddled with large non-performing assets, it would be catastrophic
for the country. Reforms in finance sector should not be delayed any
further.
In stead of talking about privatizing our financial institutions,
there must be a broad political agreement on how best our public financial
institutions (UTI, LIC, GIC etc) ought to be handled both in normal
and exceptional times. Currently, the government has ordered the public
sector banks to come to the rescue of UTI. Although the public financial
institutions are statutory bodies with autonomy, there must be a monitoring
mechanism to avoid any recurrence of such scams/exceptional situations.
The political interference in decision-making will make the autonomy
a farce and meaningless. Politicization of high level appointments
in public sector companies must be addressed immediately and the appointments
must be made more transparent. An amendment in the Act of UTI and
other financial institutions must be brought to deal with the political
interference. The political interference should attract strict punishments.
Deepak Parek's report must be earnestly implemented to regulate the
procedures related to investments, disinvestments and redemption.
The UTI exposure in stock market should not be more than 40% of its
investments. The stock exchanges must be freed from the stranglehold
of brokers. Nominal transaction tax must be imposed on all stock exchange
transactions. SEBI (Stock Exchange Bureau of India) procedures must
be made transparent and its reports made public. It should be revamped
completely to assume a greater role as a regulatory agency to tackle
the role of mischievous brokers. The US-64 scheme must be made a balanced
scheme by reorienting it as a debt instrument also to a certain extent.
Enquiry
In order to find out whether there was a systemic failure due to
the error of judgement or dereliction of duty and deliberate brokerage
that led to the scam in UTI's US-64 scheme, a CBI enquiry was ordered.
Apart from the CBI probe, a 3-member panel was constituted to carry
out an independent enquiry. The members of this panel include a former
RBI governor and a former CBI director. The opposition party, Congress
has welcomes this enquiry. This panel would enquire 10 years of UTI
actions. Similar panels must be set up to investigate the actions
of the other financial institutions such as LIC, GIC etc.
The 30-member Joint Parliamentary Committee (JPC) headed by Mr Prakash
Mani Tripathi which is already probing the post-budget stock market
shenanigans will now extend its reach to examine UTI affair in its
entirety. The JPC would meet during the inter-session period and is
expected to go full steam ahead after the monsoon session. JPC has
already issued notices to the UTI for taking evidence on August 28,
2001. JPC must be enabled to summon officials from PMO, Finance Ministry
and UTI. The JPC is expected to give a path-breaking blue print for
official policy on core economic governance issues. If parliamentary
debates are any indications, they are not encouraging signals. They
have only created confusion and fear in public.
Those who deliberately erred with malafide intentions must be brought
to the book and punished. It is hoped that more disclosures by the
CBI probe, report from the independent enquiry panel and JPC would
ensure the strict monitoring of public financial institutions including
UTI.
Way Forward
Although there is some concern on the suspected murky deals in US-64
scheme, this author also believes as expressed in certain sections
of the Press that UTI is at the receiving end of extraordinarily bad
publicity. The government itself has worsened the matter. It is the
association of the government that will see UTI through rather than
the government's attitude to try and fix the responsibility in a hurry
to wash off its hands. Restructuring and corporatization of UTI as
well as holistic integrated approach to entire public sector financial
institutions is the need of the hour.
It is heartening that in spite of the confusions created by our politicians,
there have been no large-scale redemption requests by unit holders.
UTI should not shy away from earning super profits by cautious and
judicious investment in stock market. Caution and transparency must
be the twin "mantras" for successful functioning. UTI has to regain
the eroded investors' confidence in a far more comprehensive way and
embark on tough and painful process of re-structuring. The government
by its word and deed should reinforce the confidence in the financial
sector. The public need not get panic and it is the moral responsibility
of the central government to rescue the UTI and other public financial
institutions in order to protect the interest of investors in these
financial institutions.
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