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Shaji Vikraman

THE celebrated economist, John Kenneth Galbraith, once wrote that there could be few fields of human endeavour in which history counts for so little as in the world of finance. In his book "A short history of financial euphoria'', Galbraith had said that, normally, it takes 20 years for the recollection of one disaster to be erased and for some variant on previous dementia to come forward to capture the financial mind. In the US, there was a superb regularity in the 20-year cycle from illusion to disillusion and back to illusion, as he put it so well. There are, however, exceptions to the rule.

One need not look beyond India for this. For the 20-year cycle he talked of could well be a four-year one or, perhaps, much less in this country. Seven years ago, when the Unit Trust of India faced a crisis following the controversial private placement of equity with Reliance Industries Ltd, the Finance Ministry wrote to the management of the Trust to firm up a proposal for restructuring.

A presentation was then made to the bosses in North Block who were fondly referred to by the pink papers as the "A team''.

The presentation finalised by the then Executive Trustee of UTI, Dr P. J. Nayak envisaged the UTI being converted into a holding company and the setting up of an Asset Management Company. However, one of the much- acclaimed secretaries in this "A team'' wrote on the file containing the proposal that the time was not appropriate for carrying out a restructuring exercise at UTI.

The cost of that "inappropriateness'' has indeed been quite high for the country. Less than four years later, the first bail-out of the UTI took place. At that time also, it was written on files that this was the last bail-out for the UTI.

Again, in less than four years, towards the fag end of 2001, Cabinet approval was secured for another bail-out for the UTI. In less than a year later, the Government has announced another bail-out which will cover liabilities of the Trust, aggregating Rs 14,561crore for US 64 and other assured return schemes.

In just a matter of a couple of months, all the bravado exhibited earlier by the bosses in North Block has disappeared. For a good part of the year, Finance Ministry officials had talked of not writing out anymore cheques and also of the unfairness of taxpayers yet again bailing out a section of investors.

In June this year, when the informal group on the financial sector had a meeting to discuss the UTI, a senior Government official suggested to Mr Yashwant Sinha that it would be better to first tackle the Monthly Income Plans which were up for redemption in July and August, rather than get into future liabilities. Mr Sinha then retorted that he had got enough of a hammering from the press on the UTI and wanted a complete restructuring. But, then, even he would not have imagined that a Group of Ministers, which included a Minister like Mr Arun Shourie, who views any state-owned enterprise as a bleeding ulcer would back such a major bail-out package.

During those days when old files of the UTI were being dusted in North Block, a senior official once remarked that there was enough (evidence) in one room of the Ministry which could kill many people. He must have been joking.

For, almost close to a decade, despite there being enough explosive material in one room of North Block, life has been good for almost all those who led the Unit Trust of India.

When the MIPs were stopped at one point of time, the UTI Chairman, with the backing of India's capital markets regulator, managed to persuade the Finance Ministry to launch more MIPs in the interest of a level-playing field vis-a-vis the private sector. The money so raised, this gentleman wrote, would be invested only in AAA-rated securities. Thus was born the MIPs in 1997 for which the Government is now writing out a cheque for protecting the capital of investors.

As over Rs 20,000 crore of tax-payers money is shelled out for protecting the interests of one class of investors in the name of avoiding a systemic risk and to boost the market, there is no effort to take a look at fixing accountability on those responsible for this mess created over the last eight years or so. A former IFCI Chairman, known in Delhi as "Mr. Three Per cent" now must be chuckling as the Government readies to write out another generous cheque.

Till date, there has not been any effort to nail down this gentleman who was in a tearing hurry during his tenure to go one up on the IDBI and the ICICI. Those high-cost borrowings he contracted without batting an eyelid have dragged the institution down along with those corporates to whom he lend happily.

In the view of the top bosses in the Ministry now, the IFCI cannot be allowed to die. Nor can it be allowed to default on its repayment obligations to even commercial borrowers. Oh well, IFCI is seen as a quasi-sovereign entity, goes the argument. It is difficult to spot a overseas lender who would admit to sharing the government's perception of the IFCI's perception

as a quasi-sovereign entity. It is the same story in the IDBI. When the institution floated its IPO in 1995, a rival financial institution, which was the darling of the media and the market, was busy dumping the shares of the FI in the post -issue phase. One call from New Delhi would have put an end to this. However, the `A' team in the Ministry was hardly bothered as the IDBI was state-owned. So why lose sleep?

Again, three years ago, when the IDBI came calling to Delhi to seek clearance for a package to help revive its fortunes, the response was indifference. Those were the glory days of ESOPS and so on. Having seen the cream of its officers moving out, the management wanted the approval of the government for an attractive package to retain young officers on the lines of its much hyped up rival, ICICI.

One of the babus sitting in the banking division would not have anything of this. There is no such need, this man decreed. The package has been in the deep freeze for the last three years.

Well, as for the babu, is anyone talking of the opportunity cost to the nation and the damage done by his notings? Not all. For it is a safe bet that he would around to be a pall bearer for many of these institutions.

So, after the IFCI's package, a relatively modest of tax-payers money would be provided to the IDBI also.

There is a promise of the capital requirement being only Rs 500 crore which is small change after over Rs 20,000 crore doled out to the UTI over the last few years.

Nobody now talks even fleetingly of the SUS 99 scheme floated in 1999 to bailout the UTI by separating the dud stocks of US 64. There is no mention now of the monthly reports that the Trust is supposed to send the Finance Ministry on the performance of the scheme. "Don't worry old boy, we can always have a SUS 99 II,'' says a Ministry official. He is right.

For as Galbraith said only in the financial world is there such an efficient design for concealing what, with the passage of time, will be revealed as self- and general delusion.

So, next time, when the government writes out a cheque for an entity in the financial sector, it can be reassured about this efficient design.

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