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From N.C.’s Writings

So, the fat is at last in the fire.

The concern over the blatant speculation in the share-market which has shaken the country had to come over our Finance Minister only in driblets and that too after tremendous pressure in Parliament.

Our Finance Minister did know that the Bombay Stock Exchange Sensex began to shoot up instantly with his Budget, to the great applause of the brokers and their colluding bankers. That was the time when the Chairman of the National Housing Bank, Pherwani, had hailed that “the present boom in the market is the beginning of an economic miracle”. It was the same Pherwani who earlier had to quit the Unit Trust stewardship because of his record of irregularities, to put it mildly, but was brought back by the present dispensation to head the National Housing Bank, whose corrupt practices have now come to light, and Pherwani had to be sacked. In a few days, the poor thing collapsed and died, overburdened he obviously was with the dimension of the scandal.

Our Finance Minister is made of sterner stuff. He was excited at having liberated the stock market and exclaimed that “the market had to be freed from too much policing and a daddy-knows-best attitude”. So, he proudly took the credit for having liberated the market from “too much policing”. He seemed to take the credit that the stock market was looking up because of his economic reforms, knowing fully well that this was largely the outcome of unrestrained speculation in which the nationalised banks under the government’s control actively colluded. But the Finance Minister seemed to be innocent of that great deception.

On May 4, the Finance Minister coyly said: “I do not frankly know what determines the share prices. I also do not lose my sleep because of the fluctuations in the market.” Of course, he did not lose his sleep even when Harshad Mehta was hitting the headlines as the big bull of the scam. He turned down the demand for an instant CBI probe, saying that the Reserve Bank was good enough for the job. Presumably, he had hopes of saving friends in high places.

Within two days, the stink rose to high heavens, as it became known that the National Housing Bank was involved neck-deep in the scandal. That led to the downfall and end of Pherwani. By May 11, the Finance Minister had no option but to let the CBI join the probe. What is interesting is that even at that stage, Manmohan Singh had a word of praise for the Chairman of the State Bank of India, who is now forced to step down for his involvement in the scandal. The Finance Minister tried to give the impression that there was really no scandal but just “a systems failure”—as he put it.

The Members of Parliament wanted a Joint Parliamentary Committee probe, but the Finance Minister was ready with his reply—no, such a probe would come in the way of the CBI enquiry. He defended the Governor of the Reserve Bank with all his might. And this he repeated right uptil the eve of the arrival of the CBI report, claiming that the RBI Governor enjoyed his confidence. Obviously.

On June 2, the bubble burst. The interim report of the Jankiraman Committee—the RBI panel to which the CBI had been included—found that there was fraud exceeding Rs 3000 crores, and open collusion between bankers and brokers. This is just the tip of the iceberg, as this is only the interim report.

Since then has followed arrests of some of those directly involved like Harshad Mehta and his gang apart from some of the culprits from the State Bank of India and the National Housing Bank—and their assets attached. Maybe a few more will be nabbed in the process. And it is quite possible that the probe panel documents would bring to light the dirty nexus between some political figures and the stock exchange brokers.

Many more skeletons are tumbling out of the cupboard. For instance, it is now disclosed that in the last six months a huge amount of over Rs 10,000 crores raised by public sector undertakings through bonds and debentures had been diverted to manipulate the capital market by a handful of brokers, through the much-publicised portfolio management scheme. The brokers and some of the top banks, including some foreign ones, have made good money.

What was the role of the Reserve Bank in this shocking scandal? The Reserve Bank is supposed to be the monitor-cum-guardian of the banking system in the country. It is not that the Reserve Bank bosses were taken unawares by this racket. It is now disclosed that the Reserve Bank Deputy Governor, Amitava Ghosh, had sent a circular as early as July 26, 1991 in which he had alerted the Chairman of all banks about certain irregular transactions “which they should not be under-taking”. And yet there was no stopping such reckless and illegal acts committed by a direct subsidiary of the RBI itself, namely, the National Housing Bank apart from the other banks, big and small. Even when the Sensex figures were shooting up, the Reserve Bank bosses appeared to be unconcerned.

It is important to pinpoint the responsibility for the Reserve Bank’s lapses on its Governor, Venkitaramanan. With a record by no means overloaded with integrity, he got the plum post under the Manmohan dispensation, as he had already earned his reputation as a high-level quick-fixer when he was the Finance Secretary,. Venkitaramanan seemed to have turned the Nelson’s eye to the dirty dealings under his very nose. Would it not be proper to demand—as it has already been done by a number of political leaders—that he should have stepped down, or been sent off on leave, during the course of their investigation? There was good reason why the media reported on the possibility of Venkita-ramanan’s resignation which Manmohan Singh promptly scotched—making it all the more apparent that the Finance Minister is yet holding out the fond of hope of saving his trusted RBI Governor.

And what about Dr Manmohan Singh himself? He canot get away by his prattle of a mere “systems failure”. Our parliamentary system has no doubt many infirmities. But even within its constraints and shortcomings, accountability is still a watchword. More than thirty years ago, there was the scandal of a deal that a business-man of dubious character pulled off with the LIC; for that a probe was ordered by the government and on the ground that the Finance Minister was found to have orally winked at it he quit his post, though it was known that he personally made no money out of it. Times have changed, and certainly Manmohan Singh would vehemently disown any resemblance of his ethical standards with those of T.T. Krishnamachari. TTK had rebuffed a World Bank diktat, Manmohan Singh has been slavishly carrying out a whole lot of them. And yet, there is good ground for a parliamentary probe into this scandal as has been demanded and the government would be well advised to order it if it does not want to lower itself in the public eye.

Dr Manmohan Singh can hardly claim that he had not been warned. The entire parliamentary proceedings of the last two months bear out the warnings of the scam scandal he had received from all sections of both Houses of Parliament. Even some of his party members wanted him to quit office on this count. Today as thousands of innocent small-income share-holders have lost thier savings, would not this at least disturb the Finance Minister’s sleep? One can leave this to be sorted out by him with his conscience.

But the parliamentary system insists ministerial accountability. Can the Narasimha Rao Government afford to flout public opinion on this score? The coming weeks will decide.

(Mainstream, June 13, 1992)