The current debate on corporate governance has in my view totally lost sight of the biggest participant in corporate governance, namely the middle class investor. It is fast getting reduced to a chest-thumping exercise by the two constituencies who are in reality the cause of the problem.

A controversial statement like the above needs some buttressing and for this one needs to examine the manner in which corporate India funds itself. The debt component is funded by term-lending institutions and banks. The former have long been funded by the taxpayers money which wasdoled out by the socialist government of those days. After Manmohan Singh changed the system, the middle class investor become the direct financier of these financial institutions and today has become the backbone of the entire FI funding. These FIs have also raised huge amounts of equity capital at attractive premia from the public (it is another matter that investors have lost crores in the bargain). So the long-term debt which constitutes the major chunk of the corporate balance sheets has been contributed by the middle class investor; and how much voice does he have in this whole tamasha of corporate governance: Zero.

That brings me to the equity capital raised by Indian companies. Unlike multinational companies which bring money from the owners, Indian groups have long stopped doing so for the simple reason there is no money left. If the net worth of an Indian company is Rs 100 crore, it is most likely that out of this, about a tenth is the money that has been brought in by the family and thebalance nine-tenth is brought in by UTI, GIC, LIC, mutual funds and the public at large. The institutional investors mentioned above are totally working on public money. Even their capital has been brought in the government using taxpayers money. The direct investment done through public and rights issues is also public money. The last piece of this corporate finance jigsaw puzzle is the money brought in by commercial banks. Here again the funds come from the householder.

Even a cursory analysis reveals that out of Rs 100 that corporate India uses to run its business more than Rs 95 has been brought in by the middle class investor in some form or another and it is one of the most cruel ironies of the system that he does not even get to participate in corporate governance.

That brings me to the participants of the ongoing debate; namely the owners and the lenders. The owners who are well-healed, well-funded and well-organised have taken the initiative and understandably wish to write the rule book. In thisprocess they quote - mostly out of context - gurus from the west. The money bureaucracy led by the UTIs and the IDBIs not to be outdone are pushing their own ideas and their world-view. What is wrong with that you may ask? There is something very wrong because these are the two entities that have actually created the mess that we see in corporate India.

Is it such a great mess? Yes indeed and I cannot think of a greater financial nightmare than the thousands of family-run companies that represent corporate India. The opening up of the economy has exposed how vulnerable these entities are to global competition. Most of the balance sheets are splashed in red and there is major surgery going on. Much of the time and effort in domestic industry is now taken up in amputating the infected parts - read unviable business - and somehow surviving. This is also accompanied by feverish pleas to the powers-that-be to rollback reforms so that there will be better protection from global competition. The financialinstitutions are no better. They would all be totally in the red and have their net worth wiped out if they honestly provide for their bad loans and stopped cooking up rehabilitation plans which are mere efforts at window-dressing their own balance sheets. So we have the weird situation of corporate governance being sponsored by the very two entities which created the mess and obviously all their efforts will be directed at bailing themselves out; at whose cost? No surprises. At the cost of the middle class investor who we found has actually paid for the whole party and should be sending the invitations.