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Journalism of Courage
Last Friday the government provided parliamentary assurance that SEBI8217;s corrective actions in the IPO scam will lead to reallocation of shares to 8220;victims8221;. This would have seemed comforting to many, including MPs. But it is worrisome from the point of view of economic logic and policy. SEBI had defined the IPO scam as a ploy by several individuals and institutions to corner shares in new issues by sending in fake multiple applications. These applications were aimed at grabbing the portion of the issues earmarked for small investors. That this is not quite the regular thing given the rules is not in doubt. But there is a doubt, explained in these columns before, whether the rule about rationing shares to various kinds of applications makes too much sense.
Rationing is a favourite choice of government authorities in dealing with certain excess demand situations. Almost always, it leads to various players trying to subvert the system 8212; the incentive to do so is in-built in the system. That is why the Delhi Development Authority-organised lotteries for its real estate creations produce so much inventive crookedness. But when a proposal was made that DDA should arrange an auction, various local politicians in the Capital scuttled the plan in the name of giving persons of modest means a fair chance. They of course missed the point and their hope that more strict identity requirements will make fake applications impossible is likely to be as over-optimistic as SEBI8217;s is vis-a-vis IPO share allocations.
