Minister and the Market

The investigative journalist8217;s instinct in Union Disinvestment Minister Arun Shourie is programmed to smell a rat even when it is buried deep in the ground. But in crying foul over the initial lacklustre performance of public sector enterprise scrips involving companies that went in for a public issue was Shourie really smelling a rat, or was he just rattled? The fact that the market turned around the day after Shourie had meetings with the head of the Intelligence Bureau, the chairman of the Stock Exchange Board of India SEBI and an assortment of financial sector chiefs suggests that there was something wrong in the way the market initially responded to the PSU scrips.

Shourie has alleged that the market was manipulated. If this is correct, he should share the information with SEBI and the public at large and punish the manipulators. However, if it was a normal market operation in which brokers were doing their job, one should not read too much into conspiracy theories. The public have a right to information and hopefully the government and the market regulator will share such information. One cannot rule out the possibility of some mischief, but one should also not get carried away by rumours. The fact is that the present round of disinvestment was deeply flawed and Shourie cannot be blamed for some decisions imposed on him. First the decision to go for public issue, rather than opt for the strategic sale option was wrong in the case of petroleum companies. Second, the bunching of public issues, that too in the run up to an election, was wrong. Finally, linking the Union finance ministry8217;s deficit reduction strategy to this round of public issue was also wrong. Three wrong decisions and a situation was waiting to happen.

The government8217;s response to the affair has been along expected lines. First, a brandishing of the stick. It seems that was enough to get the 8220;market manipulators8221; to fall in line. Second, a signal to public sector financial institutions to help. The market is back on track! The more things change, the more they remain the same. While investors will thank Shourie for blowing the whistle and the Union finance minister should thank him for turning the market around and helping in raising the resources required, the question remains as to who exactly these manipulators are. Admittedly, this 8220;nipped in the bud8221; scam may have taken the shine off the markets. While the correction in the Sensex may be a good thing, the sentiment in the market can be revived if the government gets back to the business of doing the right thing as far as economic policy is concerned. Starting with the IIM affair and the Rudy sideshow, too many ministers have been doing too many things wrong in the run up to an election. The prime minister should crack the whip and get his ministers on the reform track so that India continues to shine.