Executive indecision

In due course, the government will present its action taken report. That would be the appropriate stage to go into the technicalities. The immediate issue is the constitutional one of fixing responsibility in and within the government for all that went wrong. And it did go humongously wrong. Market capitalisation has stagnated at half the peak boom level for the past two years. Even the Karachi stock exchange has recovered from the global downturn in new economy stocks. Ours have not. Foreign institutional investment is still shying away, unpersuaded that our government knows how to ensure the integrity of the markets. So capital formation has turned sluggish. Hindutva has returned the nation to the Hindu rate of growth. It has cost the nation Rs 15,000 crore to put US-64 back on its feet — with the aim only of closing it down as quickly as possible. Such is the fate of the single most important instrument for mobilising household savings over the last 40 years. Such has been the combination of impotence and incompetence which has characterised the NDA government’s handling of the economy.

“Individual cases of financial fraud in themselves may not constitute a scam,” says the JPC. A scam occurs when repeated fraud is accompanied by “persistent and pervasive failure” on “issues involving good governance”. In this scam, “there can be no escaping government’s responsibility to Parliament and the country” because “regulators are responsible to the Ministry of Finance (MoF) which, in turn, is responsible to Parliament”. The scam occurred as the “regulatory authorities were not able to foresee the situation leading to the scam. Nor was adequate attention paid in government circles, particularly the MoF”. The JPC further found: “The events that culminated in the exposure of the scam in March 2001 started approximately 18 months earlier.” The NDA government took office in March 1998. Therefore, the entire period of the scam is covered by their term of office.

This unanimous JPC report hones in on the MoF, the department of company affairs (DCA) and CBI in highlighting the failures of governance. The MoF is indicted in at least 52 paragraphs. Its sins of omission and commission are written into virtually every dimension of both the scams, stockmarket and UTI. Can a ministry be so negligent and the minister himself blameless?

When, in the first flush of liberalisation, the office of the Controller of Capital Issues was abolished, the responsibility for regulating corporate entities under the Companies Act fell to DCA, which functioned as both a department of government and regulator. Yet, for its entire gamut of regulatory responsibilities involving lakhs of corporate entities, the minister was content to staff it with “only about 18 inspectors in the whole country”. Little wonder then that corporate fraud had a field day — 229 companies collected crores upon crores from investors, then vanished into thin air “and are not available now at their registered offices”.

Not only was the quality of DCA inspections “admittedly” poor, it failed to take “timely action” against the “promoters and corporate entities” who were “playing a significant role” in the scam. Secretary, DCA, confessed to the JPC that it was the amendment to section 327-A made by Arun Jaitley in 1999 that was “the major reason for huge transfers of money from companies to Ketan Parekh”, which lay at the heart of the scam. Moreover, DCA failed to act on legislative proposals pending for years from the Institute of Chartered Accountants seeking enhanced powers to discipline delinquent auditors. In sum, “a liberalised regime should have been accompanied with effective regulatory provisions, but these are clearly missing in the Companies Act.”

As for the minister in charge of CBI, aka PM, it “is really shocking”, says the JPC, that of the 72 cases registered by CBI in the wake of the previous scam, the CBI, a decade later, is still to even file chargesheets in as many as 25 of these cases. And of the 47 cases where chargesheets have been filed, only six have been adjudicated to a conclusion. Thanks to the Kumbakarna-like somnolence of the prime minister, “there being no fear that swift and effective action will be forthcoming, the players in the financial world ignore the laid down rules, regulations and procedures without any fear of punishment”. Hence the scam.

As for the absurd argument that the JPC has not “named” any ministers, the fact is that it has, specifically Yashwant Sinha with regard to misuse of the Mauritius route. Second, the doctrine of ministerial responsibility, adumbrated by the earlier JPC and endorsed by this one, clearly holds the minister responsible for the “work of the ministry” and for the “administrative failures” and “management deficiencies” of those who report to the minister. Third, officials, government-owned financial institutions, government agencies and regulators are responsible to the minister, not Parliament. It is the minister alone who is answerable to Parliament. The JPC has presented its findings. It is now for Parliament to fix parliamentary responsibility. The guilty ministers — in this case, particularly Yashwant Sinha — must be punished.

E-mail the Author