The monetary penalties provided are grossly inadequate, and provide no deterrent to would-be offenders. These facts are well-known, and have been addressed by the Dhanuka committee, which recommended substantial augmentation of SEBI's powers. The adoption of the new Companies Bill will also go some way in giving it the necessary powers.

Regulation, however, does not take place in a political vacuum. The course of regulation is determined by the relative strengths of various market participants. In a financial system where markets dominate, for example the US, the market regulator hassweeping powers. But India is far from being a market-dominated financial system.

In fact, till recently, banks and term-lending institutions were the main intermediaries between savers and investors. Under such circumstances, where the bulk of financial intermediaries are government-owned, there is no real incentive to wield power on behalf of investors. UTI, for instance, has hardly taken any initiative on investors' behalf. Contrast this with the attitude of funds in the US, in particular, pension funds' pro-active stance.

It is the clout of these bodies coupled with a tradition of dominance by the financial market which has led to the strong regulatory capabilities of the Securities & Exchange Commission in the US. Contrast this with the German bank-dominated financial system, where it was only in April this year the market regulator BAWe obtained the powers of access to documents, and the powers to examine a prospectus.

India is in the process of transition from a bank-dominated to amarket-dominated system. In the absence of pressure from the markets, Indian corporate managements have bothered little about shareholders. But there are signs that all that is changing. During the recent US-64 problem, FIIs holding shares in companies called corporate managements to try and force them to sell their units. The threat of takeovers will force companies to pay attention to their stock prices. This process needs to be speeded up, if only because the cost of intermediation by the market, especially now that book-building is possible, will be far lower than intermediation by our inefficient banks. And the process of switching to a market-based system must be accompanied by empowering SEBI.