COMMENTARY
INTERVIEWS
SPECIALS
CHAT
ARCHIVES

Parliamentary panel takes stock of finance scene

A 40-member parliamentary standing committee on finance, led by Murli Deora (Congress), which is on a two-day visit to Bombay, today held two-hour-long discussions with top Reserve Bank officials at the RBI headquarters.

The committee comprises among others former finance minister Manmohan Singh, R Kumar, Gurudas Dasgupta, R Jalappa and S Jaipal Reddy.

The delegation inquired about various facets of the ongoing financial sector reforms, implementation of the Narasimham Committee recommendations and issues related to the performance of the non-bank finance companies.

The closed-door meeting also discussed the role of the RBI in the changing environment particularly in the areas of regulatory framework and supervisory norms.

Earlier, the committee members continued their dialogue with the top officials of the Life Insurance Corporation and the General Insurance Corporation. Former finance minister Manmohan Singh (Congress) and Gurudas Dasgupta (Communist Party of India-Marxist) were not seen among the committee members on the second day today.

Although there was no official word on the outcome of the two-day meeting that the committee held with banks, financial institutions and industry leaders, sources said that the members were keen to gather comments, suggestions and thought processes from various experts which could help the MPs to formulate a direction on the future economic and industrial growth of the country.

On Monday, industry bigwigs urged the committee to initiate measures for the revival of the economy.

They even went to the extent of suggesting measures themselves. There was consensus that political parties should be one on the need for a common economic programme.

Corporate luminaries said flexible labour laws and better co-ordination between various ministries could also help revive investors's sagging spirits.

Among the celebrity business figures were Tata group head Ratan Tata, Bajaj Auto Chairman Rahul Bajaj, Reliance Industries Vice-Chairman Mukesh Ambani, Mahindra & Mahindra chief Anand Mahindra, HDFC Chairman Deepak Parekh and Confederation of Indian Industry chief Rajesh Shah.

Ambani called for a new green revolution as only agricultural growth could solve the problem of employment and the quality of living. He too called for bringing back the small investor by offering PSU shares at a "sensible price". This is the only way the Rs 2.5 trillion worth of domestic savings can be channelised into the markets, he said.

Shah said that PSU divestment could raise Rs 100 billion if the shares were offered to Indian subscribers at attractive prices.

Tata said that the last one year has seen plummeting of confidence in the Indian industry. "While the economic fundamentals may have remained strong during the period, the psychological fundamentals have not," he said.

He said the the situation cannot be improved by helping select sectors. Withdrawal from the infrastructure scene by the government was early, leaving a huge demand for funds for this sector which the industry alone cannot meet, he remarked.

Mahindra observed that the manufacturing sector is suffering and pointed out that cuts in infrastructure expenditure are bad for economy. Proceeds from the Resurgent India Bonds should go into financing infrastructure projects, he added.

He went on to explain that the worst-hit due to a decline in investments in the infrastructure sector were Indian companies like the Tatas and the Mahindras who have found it difficult to sell their vehicles owing to a fall in demand. "This shows that domestic companies do not get hurt if foreign direct investment is channelled into certain areas like infrastructure," he said.

Parekh underlined the sharp fall in mobilisation through the primary markets and the 30 per cent fall in the secondary market over the past year, which led to an erosion of market capitalisation to the extent of Rs 1.85 trillion, all of which was borne by the investors.

He said that the first 20 per cent of the PSU divestment should be offered to the domestic small investors so that the markets could be revived, failing which manufacturing companies are going to find it exceedingly difficult to raise funds in the future.

He felt insurance companies would invest about 40-50 per cent of their corpus in equity markets as against the current levels of 4-5 per cent, once the sector was thrown open to the private sector.

He added that even small countries like Bangladesh and Sri Lanka had been able to privatise the insurance sector and there was no reason why India cannot do it.

Parekh pointed out that investment in infrastructure was held up due to a delay in decision-making owing to differences between various departments of the government. One classical example of this was the telecom sector, where reforms are at a standstill. Telecom companies are not able to pay their licence fees as they find the terms too steep and because of this, banks are finding it hard to finance these projects.

Parekh opined that investor confidence could be restored by bringing to book some of the offenders. Currently, none of them has been brought to book. Bajaj said that the health of the capital market was dependent on the economic fundamentals and also on political uncertainty.

Committee members sought to know the role of Harshad Mehta in the recent price rise in select securities which ultimately led to the payment crisis at the Bombay Stock Exchange.

The committee also met the top brass of the Securities and Exchange Board of India, the National Stock Exchange and the BSE and grilled them on several issues pertaining to the development of the markets and the recent turbulence witnessed.

Apparently, SEBI told the committee that there was a payment crisis and that the regulator was investigating the role of Harshad Mehta and will submit its report.

The BSE in its reply to the committee said that there was no payment crisis at the exchange.

The exchange has also stated that it was not involved in the bail-out exercise of some of its members but admitted that some governing board members of the exchange were involved in the operation, which according to the exchange was done in accordance with the rules.

It has maintained that the exchange had sufficient liquid assets of the members in its possession far in excess of such members' liability at the time of declaring the pay-out.

As regards the bail-out of some brokers, BSE told the committee that the exchange was not involved in any broker bail-out. Due to violent fluctuations in some securities, a few members did face temporary liquidity problems on account of their large positions in some scrips.

These members were helped by some other fellow brokers, including elected directors of the governing board who were able to find buyers or financiers to reduce their market outstanding positions.

On whether mutual funds had also participated in the bail-out, thereby incurring losses for the unit-holders, the BSE clarified that transactions in the exchange are done by its members and the exchange does not normally have details of the clients on whose behalf the members do transactions, unless such details are called for arising out of scrutiny needs.

In the current case no such scrutiny was warranted and, therefore, client details were not called for. The stock exchange was also not involved in any bail-out operation but a few brokers had financial problems and they did make efforts to raise money to pay the stock exchange dues.

"In this process it is possible that some shares were picked up by a mutual fund. We are, however, not in a position to comment on the terms on which such transactions may have taken place," the BSE reportedly told the committee.

Additional reportage: UNI