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Journalism of Courage
Don8217;t reward SEBI chairman D.R. Mehta by making him the chief of the new Disinvestment Commission after his retirement in February, runs one segment of popular opinion, as his track record as the country8217;s top stock market regulator is quite pathetic. In case after case, it is argued, SEBI has acted too late, and generally too little 8212; in the case of the famous price rigging in the shares of BPL, Videocon and Sterlite last year in June, for instance, it took SEBI well over a year to complete its inquiry.
Put this to Mehta8217;s well-wishers, and they8217;ll point out that this is unfair. In the price rigging case, for example, it is pointed out that SEBI had to go through 17,000 pages of evidence and statements, before it could reach a verdict in any case, what great pace has been exhibited by either the CBI or the courts in prosecuting Harshad Mehta in the securities scam case? In this rigging case, eventually, SEBI did fire the President of the BSE for his role and banned him from holding office in any capitalmarket-related public institution for three years. Other statistical data, comparing Mehta8217;s predecessors also shows Mehta in good light in terms of the number of investigations launched, the prosecution ordered, or even the inspections of stock exchanges and brokers last year, for instance, 64 brokers were suspended and licenses of 8 merchant bankers were cancelled.
Probably not, if you go by the investigating machinery that SEBI has at its disposal, andthe powers that it enjoys. As was demonstrated during the Unit 64 disaster, SEBI does not even have the powers to inspect the accounts of the country8217;s largest mutual fund. At a time when scamsters are getting a lot more sophisticated, and operate through a complex network of brokers, SEBI has a total of around 30 investigators against 2,000 in the case of its US counterpart, the Securities Exchange Commission. It does not have the powers to confiscate ill-gotten wealth through stock frauds, and if companies choose not to file even annual reports, all that stock exchanges can do is to fine them Rs 1,000 or delist them 8212; that helps promoters since they are that much less accountable.
This problem of under-equipped and under-powered regulators, sadly, is not confined to SEBI alone. The sad case of the telecom regulator, the TRAI, is well known 8212; the TRAI doesn8217;t have any jurisdiction over license issues 8212; and it8217;s more than a year since the government has promised to empower it. How sincere this is can beseen from the fact that it is the government8217;s own organisation 8212; the DoT 8212; which keeps challenging TRAI8217;s authority.
Similarly, the government has set up various regulatory authorities in the power sector but the powers available to them are still unclear. Again, let8217;s forget for the time being that the politician-bureaucrat nexus has ensured that these regulators are dependent upon them for finances and can be over-ruled if necessary. The important point, as Prof S.L. Rao who heads the Cental Electricity Regulatory Commission keeps pointing out, the real test of the power of the regulators is yet to come. Will the government allow the CERC, for instance, to shut off the power from NTPC to the Haryana State Electricity Board, if it continues to default on its payments? Or, if states continue to violate the grid code, what kind of penalties can be levied on them? CERC, for instance, is coming out with a paper on availability based tariff8217; next fortnight. Essentially, as in the rest of the world, energycharges should be based on principles of demand and supply if there is excess supply of power in the morning, surely the price should fall? Now, once this comes into place, the state-owned NTPC will show a sharp fall in profits. Will the government allow CERC to do this?
At a discussion on the role of regulators at a CII conference a few days ago, S.C. Mahalik who heads the power regulatory body in Orissa, added to these doubts. The current level of theft and dacoity8217; losses in the Orissa power sector is currently 50 percent, and that means that consumers in Orissa have to pay for this. Now, Mahalik asked, if the regulator says that none of this can be recovered from customers, will the Orissa government actually crack down on thieves? To repeat Rao8217;s point: will it allow the regulator to simply shut off power to certain colonies, or areas in Orissa?
This is the real issue which needs to be honestly addressed 8212; instead of the Prime Minister8217;s empty and periodic statements that regulators will bestrengthened. Needless to say, without real powers, regulators will always have valid excuses for not doing their job. Today, even if you think DR Mehta has not done a good job, you can8217;t really hold him responsible. Responsibility is a function of empowerment.
