June 29, 1998

Evolve a consensus on the norms for imposing President's rule

It says much for contemporary India that a political party's relative proximity to power at the Centre determines its attitude towards Article 356. As part of the United Front (UF) coalition, the CPI(M) put pressure for the motivated dismissal of BJP regimes in Gujarat in 1996 and Uttar Pradesh earlier this year. Today, the CPI(M) labels Article 356 undemocratic. On their part, BJP leaders or their allies threaten to sack opposition regimes in Bihar, Tamil Nadu and West Bengal. The transformation from victim to oppressor -- or the other way round -- is as complete as it is recurrent. In the years when it ruled India virtually unchallenged, the Congress' instinctive reaction to an opposition state government was to turn to Article 356.

India is no more a single-party dominated polity -- but the itch to misuse Article 356 remains. Those allies of the BJP who want inconvenient state regimes removed seem to overlook that Article 356 is the ultimate two-edged sword. A future Congress or UF government could as well use it against them, should the opportunity arise. Such extreme views on Centre-state relations fly in the face of India's federalised nature. If Article 356 is to truly be what the Constitution's framers sought to make it -- the Centre's weapon of last resort -- the assessment of a state's law and order situation has to be entirely depoliticised. More than promises by individual ministers and sundry ruling party members, this process needs an institutional mechanism. The Sarkaria Commission's recommendations and court judgments on the issue can set the parameters of debate. The debate itself should take place in the Inter-State Council -- and the process for the imposition of President's rule made watertight and transparent. rather than despatching investigative teams to a variety of adversary-governed states, this is the response expected of Home Minister L.K. Advani. Only then can India square up to the vicious circle spawned by Article 356.

Stock Market or Casino?

SEBI has to rescue Dalal Street from itself

While it is nobody's argument that stock indices are a mirror to the health of a nation's economy, investors can at least expect the markets to behave rationally. A capricious market on an unending roller-coaster ride shatters investor confidence. It dissociates risks from rewards and turns the bourse into a casino. That's exactly what the Indian bourses have become in recent weeks, with the 30-scrip sensex of the Bombay Stock Exchange (BSE) shedding nearly 12 per cent in a single trading cycle. The steep fall has little to do with corporate performance because the 100 richest companies listed with the BSE, representing 14 per cent of total market capitalisation, have finished 1997-98 with a 22 per cent growth in sales and 27 per cent rise in net profit. That the market is not overbought is obvious from the fact that in early June, when the drop began, the composite market price of the listed shares was only 1.7 times their average book value, or the net worth. The landslide was caused not by any logic of the marketplace but due to the efforts of a leading bull operator of the 1992 securities scandal to drive up the prices of a few select scrips. Bear operators wanted to play him short. The ensuing regulatory action threatened to engulf the BSE in a payment crisis.

The "June holocaust" at the stock exchanges shows that the piecemeal efforts by the Securities and Exchange Board of India (SEBI) are pitifully inadequate to reform the capital market. In developed economies, the stock markets are overcoming imperfections by introducing more transparency and by using an iron hand to curb insider traders. A good market should not allow a player with a criminal record to manipulate it, nor should it allow operators with insufficient capital to tinker with stocks. The rules of the market need to be rewritten now and applied stringently later.

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