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COVER STORY: UTI CRISIS
An Irresponsible Act
But Ramesh, who
was officer on special duty in the Finance Ministry between 1996 and 1997,
also admits that successive governments have used UTI to intervene in
the stock markets. "The temptation to call up UTI whenever the stock
markets fall is very strong," he says. "At least on two or three
occasions when the markets fell significantly, the first reaction in North
Block was to call UTI and ask: what is happening? That was a subtle way
to call for intervention."
An ingenious management at the UTI could use
the call for such intervention as an excuse to tread into riskier investments.
And nothing proves this as effectively as the manner in which the fund
invested Rs 32 crore of public money through private placement in a company
that had changed its name as also its business three times. No prizes
for guessing it was Cyberspace. Or UTI's investments in a slew of companies
with dubious business plans but well-connected promoters.
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ONLY RELIANCE: Parliamentary discussions focused on the Ambanis
for one full day
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Sure, private placements are not something the
NDA invented. But in the past two years UTI increased the traffic on the
route and is estimated to have put through over 50 such private placements-largely
in the media, technology and dotcom companies-of well-connected promoters.
In fact, the route was invented and used most effectively during the Congress
regime when UTI under S.A. Dave invested in as many as nine companies
through private placements, including the much-discussed investment in
RIL shares and convertible debentures at a cost of Rs 1,073 crore.
Subramanyam's
Cross Connections
Promoters, politicians and other bigwigs
were in constant touch with him |
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 PROMOTERS:
Between February 12 and March 13, the UTI chief received 12
calls (nearly 22 minutes) from the Reliance group. The Zee Group
was another frequent caller, with nine calls (over 17 minutes) from
Zee chief Subhash Chandra between March 6 and 16.
POLITICIANS: Politicians of all
hues were also in touch. Among them: Pritish Nandy of the Shiv Sena,
S.S. Ahluwalia of the BJP and T. Subbirami Reddy of the Congress.
OTHERS: Many others also spoke to
the UTI chief in March. Among them: Vajpayee's son-in-law Ranjan
Bhattacharya and former PMO secretary
N.K. Singh.
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Subtle methods were also employed for achieving
ends. One of the fears expressed in the debate of 1963 when the proposal
to set up UTI was being debated was the likely emergence of quid pro quo.
Swatantra Party leader Minoo R. Masani said UTI would be used to reward
companies who helped fill the coffers of the ruling political elite of
the day. So if in the 1980s the Congress was alleged to have engineered
a tacit plan with Manohar Pherwani at UTI's helm to part with shares of
L&T to enable the Reliance Group to take over the engineering outfit,
the V.P. Singh regime forced a reversal and a pullback by the Ambanis.
The nudge though is not always subtle. Not when
the Government is struggling to make disinvestment happen. So when Manmohan
Singh needed buyers for PSU stocks in the Congress' first essay at disinvestment,
it was UTI (and other bank funds) which picked up PSU stocks worth over
Rs 6,222 crore. By 1998 this had translated into a loss of over Rs 4,000
crore for the trust.
Once the political slanging match over UTI ends,
parties across the spectrum have to decide whether they want the trust
to continue to be used as a political bank. A fund that is on the Finance
Ministry hotline to perk up share prices whenever desired, a coffer to
be used for granting favours, an institution whose heads are to be appointed
to please political allies. Only when UTI is distanced from these compulsions
and obligations can a lasting rebuilding of the institution be possible.
So far, Sinha has been sounding brave. He has
resolved, one hears, to act decisively and quickly to stem the rot, fix
responsibilities for the wrongdoings, hang the guilty and professionalise
the institution. There are sections in both the Congress and the BJP who
are not opposed to the privatisation of UTI and possibly breaking it up
into smaller and manageable units. It is time to discuss such convergence
of views on solutions, rather than deflect the blame for failures to each
other's acts of commission or omission.
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