Setting up a fall guy

This may sound dumb, but I’m still not clear about the exact reason as to why UTI chief P.S. Subramanyam was sacked. It certainly can’t be because, as Finance Minister Yashwant Sinha will have us believe, the UTI chief didn’t tell the ministry he’d be suspending US-64? Without saying so directly -how can they, they’ll be sacked -there have been enough UTI staffers including executive director B.G. Daga who have said the ministry was informed of every move. Daga, in fact, said so on national television when he was grilled on it.

Besides, with so many heads of government-owned financial institutions on the board of trustees of UTI — the chiefs of IDBI, LIC and SBI, and there’s even an RBI executive director — it speaks even more poorly of Sinha if he didn’t know what was going on. If he didn’t know, for instance, that these worthies met last week to insert a new clause in the rules, to allow them to suspend trading in US-64 (see this newspaper of July 5 for more details).

So could it be that Subramanyam was sacked because he ran down the fund, and because of the allegations of UTI pumping in huge sums of money to buy certain shares in order to bail out Ketan Parekh? If so, Sinha’s certainly done the right thing, but it must be pointed out that these allegations have been doing the rounds for many months now — UTI’s purchase of several dud shares like Cyberspace Infosys at astronomical prices has been well known for a long time. So why didn’t Sinha take some action all these months — or did he buy Subramanyam’s explanation for why UTI was continuing to buy shares like Zee Telefilms when almost every analyst had put ‘‘sell’’ recommendations on the share? Well if he bought what Subramanyam had to say then, why is he painting Subramanyam as the villain of the piece now?

Sacking Subramanyam, and pretending ignorance about the shadowy goings-on in the country’s largest mutual fund, essentially helps gloss over all the inconvenient questions about the role of the finance ministry and of sundry politicians in asking financial institutions to pick up shares of favoured corporates, to dump the scrips of those who have fallen out of favour, and so on. Sinha can keep denying it till he’s blue in the face, but the fact is financial institutions are abused like this regularly — this newspaper has carried series of news stories on its front page on the various bailouts organised for steel firms and others. Subramanyam, incidentally, will be in a position to shed light on such matters, but since he’s got the shadow of a possible CBI inquiry and prosecution over his head, it pays to be discreet —he’ll now practice the kind
of omerta that even the mafia’ll be proud of.

When announcing US-64’s disastrous results, Subramanyam offered a way out. He said UTI held huge chunks of shares of corporates, and he’d ask the corporates to buy these back at a premium — otherwise, he held the threat — he’d dump these shares in the market, or maybe sell them to other strategic investors. Almost immediately, once Subramanyam was sacked, the ministry of finance told UTI there was no question of such strategic sales. Why? Because some favoured corporates obviously complained that they could stand to lose control of their empires. And Sinha’ll have us believe there’s no political interference in the running of financial institutions.

Sinha’s culpability gets even worse when you consider the fact that he made taxpayers shell out more than Rs 3,000 crore to bail out UTI just two years ago. He knew at that time certainly, even if you assume he didn’t before, that there was a lot wrong at UTI. So when he gave them the money, what did he do to ensure a tight vigil was kept? This, by the way, is why the mantra of the small investor is being invoked so religiously while setting the grounds for UTI being bailed out once again — that way, it can be done in a hurry, without paying too much attention first to ensuring these funds are not misused again. Once UTI is flush with funds, and public attention moves elsewhere at it invariably does, it will have recovered enough to be freshly assaulted, in a manner that’ll make rape look like a minor traffic offence.

And in case you think I’m vastly over-stating the case, just compare the actions taken by the government to safeguard public money with the energy it has shown in diverting more money into the stock markets. First, banks were exhorted to lend more money against shares. Then, a report was commissioned to examine the country’s pension market and this study, headed by S.A. Dave (coincidentally, another ex-UTI chief), recommended that pension funds put in more of their money in the stock market! Imagine the windfall for corporates if this had happened — it was the dogged objection of the labour ministry, not the finance ministry, that ensured the scheme never took off. And imagine the havoc that would have been caused with our politicians now in charge of yet another cash-trove to provide funds for their favourites.

The buck very clearly stops with Sinha, and it’s high time he admits it. But then, when no one really senior took responsibility for what happened at Kargil, maybe it is a bit unrealistic to be so harsh with poor Sinha.

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