People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 03

January 19, 2003

JPC  Report: Accountability Is Not Vajpayee Govt's Forte

Nilotpal Basu

THE Joint Parliamentary Committee (JPC) enquiring into the share market scam and the subsequent crisis in the UTI submitted its report to the two houses of parliament on December 19, 2002 - almost at the fag end of the winter session. Obviously, the discussion on the report and the subsequent action taken report will take place at a later point in time. However, the different political parties have come out with their respective responses to the report. The Communist Party of India (Marxist) for its part - and rightly so, underlined the question of responsibility and accountability of the central government on its complete failure to anticipate and prevent the scam. Naturally, the questions of taking moral responsibility and quitting the office by the minister who had presided over the finance ministry do arise. But accountability, transparency, and probity (by which BJP used to swear day in and day out when it was in the opposition) are alien ideas, so far as the Vajpayee regime is concerned. And in responding to the findings of the JPC, the government and the BJP reenacted and reinforced their past track record of bluff and doublespeak.


But the most shocking aspect of the current efforts of the BJP and the government in its post JPC report - 'operation cover-up' - is that it has been triggered off by an observation by the JPC chairman (who is a BJP Lok Sabha member) before the media on December 19 itself to the effect that the JPC report has not directly indicted the erstwhile finance minister, Yashwant Sinha. Taking the cue from its member - the chairman of the JPC - the BJP spokesperson went a step further by actually claiming that the JPC had given a clean chit to the former finance minister.

The JPC chairman's contention was not only factually incorrect, but it was contrary and outrageously so, to the conclusions of the JPC report. "The committee recalls that the 1992 JPC had drawn attention in paragraph 2.8 of its Report to the very damaging approach (which) seems to pervade, that of transferring responsibility downwards.  This distressing lack of fibre in the apparatus of governance can only debilitate the state. Regrettably, notwithstanding the passage of nearly a decade since that Report, nothing seems to have changed. The culture of governance continues to be pervaded by attempts at transferring responsibility elsewhere. Therefore, the committee recommends that there must be a clear demarcation of responsibilities between the Regulators and the executive so that there is transparency in the system of accountability". (Para - 13.47)

And we will revisit the role of Yashwant Sinha time and again in the context of the scam and the UTI crisis and the completely bizarre and irresponsible manner in which the government generally has dealt with these on basis of the JPC findings.

The same approach of deceit and doublespeak inform the agenda of the present government. Otherwise, how do Jaswant Singhs, Yashwant Sinhas and George Fernandezs, who authored the first JPC report, could reject the demand of taking moral responsibility for acts which led to defrauding of millions of small investors in the share market and the US-64 of UTI.

'Constitutional jurisprudence' in a parliamentary democracy like that of ours demands that Yashwant Sinha, the then finance minister who presided over the process of financial calamity with public funds, should go.


But shocking as it may be, a section of the media has fallen for the BJP bait. Instead of asking the government and making it answerable for the financial mess it has created, they have indulged in finding fault with the JPC report. The JPC has observed "The period of the scam, the main players involved, and its intensity have been examined by the committee. The present scam includes the role of banks, stock exchanges, brokers, the Unit Trust of India (UTI), corporate bodies and chartered accountants. Regulatory authorities like SEBI, RBI and the Department of Company Affairs (DCA) should have been able to lay down and implement guidelines and procedures that could prevent such a scam or at least activate red alerts that could lead to early detection, investigation and action against fraud as well as the rectification of any systemic deficiencies discovered.  Equally, supervisory authorities and coordinating bodies, such as the Ministry of Finance and HLCC, should have been more pro-active and vigilant in recognising that liberalisation requires strong and effective regulation. Greater autonomy for regulators must go hand-in-hand with the accountability of regulators to the country through the Ministry of Finance which, in our scheme of constitutional jurisprudence, is responsible to parliament for the financial health of the economy, including sectors regulated by statutory and other regulators. Moreover, the Ministry of Finance, the regulators and all others concerned had the benefit of the voluminous and detailed Action Taken Reports (ATRs) submitted by the government to parliament on the numerous recommendations of the 1993 Report of the Joint Committee on irregularities in securities and banking transactions.  Concerted mutual interaction between government and the regulators, especially through the institutional mechanism of HLCC, could have signalled effective, pre-emptive and corrective action to forestall the scam by the early detection of wrong-doing". (Para - 2.8)

Without forcing the government to respond to this observation, some friends in the media question the JPC's failure to indict Yashwant Sinha by name.


It is patently clear that this line of thinking betrays a total ignorance of the facts and recommendations as laid out by the JPC. Almost all chapters of the report bring out the inept and adverse contribution of the finance minister, particularly those dealing with the payment crisis in the Kolkata Stock Exchange, the Mauritius route and the UTI crisis. These chapters have specifically pointed the finance minister's role, or lack of it, in paving the way for the scam.

For example, in Para 8.97 it was stated: "The committee regrets that although Indian concerns about the Mauritius route had been formulated soon after the establishment of MOBAA resulted in substantial financial inflows into India, including money laundering by Indian companies making illegitimate use of the Mauritius route, once the India-Mauritius Joint Commission in February 1997 had endorsed the JWG decision of December 1996, virtually no action was taken to raise and pursue these concerns with the Mauritius authorities although foreign financial inflows into India from Mauritius rose to over Rs 15000 crore, constituting nearly a third  of all foreign investment in the country.  The committee are particularly disturbed to note that notwithstanding finance minister’s instructions to his Ministry officials after his meeting with the Mauritius minister in September 1998, and the offer made to the Indian finance minister by the Mauritius minister in March 2000 to address Indian concerns of recent origin, little or nothing was done in the Ministry or by the minister to raise these issues with Mauritius. The committee are of the view that although the inflow from Mauritius was in principle welcome, due care also needed to be exercised about possible misuse of this route.  Instances of such misuse have come to light and misuse of the route appears to have been significantly responsible for market manipulations during the boom of 1999-2000, which led to the bust of 2001.  The committee commends the steps taken in July 2002 to amend the DTAA. Continued vigilance on this front will be necessary to prevent scams of the kind that occurred in 1999-2001 when due attention was not being paid to the dangers inherent in the virtually unregulated Mauritius route".

On precipitating the crisis in UTI, in paras 17.19,17.20 and 17.21, it was stated: “Chairman, UTI’s letter of May 18, 2001 was not examined by the Ministry, the officers concerned having merely put up the letter to the minister as an 'FR' (Fresh Receipt) for information without analysing its contents on file either before or after submission to FM. There also appears to be no evidence to suggest that there was any meeting or consultation between Chairman UTI and Ministry of Finance officials between his letters of 18.5.2001 and 29.6.2001 Therefore, while UTI chairman did keep the ministry in the dark up to June 29, 2001, the committee finds that despite repeated directive from finance ministry officials, from April 2001 to find out what was happening in UTI, the officials, as they have informed the committee, limited their interaction with UTI to its chairman’s letters of May 18 and June 30, 2001.  No analysis was made in the ministry on the chairman's letter of May 18, 2001 and the letter itself was treated as an 'FR' (Fresh Receipt) requiring no more than perusal without analysis or follow up. The minister told the committee that he was concerned about the impact on UTI of various adverse developments in capital markets and had instructed his officials to find out the facts from UTI. The report the ministry got from the UTI chairman was that everything was under control. Even if chairman, UTI did indeed keep everybody in the track, as FM told the Rajya Sabha, the committee finds the ministry did little to bring itself out of the darkness, as it had not instituted any formal mechanism to keep itself informed about the health of US-64 scheme.  Autonomy in day-to-day management of UTI cannot absolve the Ministry of its statutory responsibility and accountability to parliament” (Para 17.22);

On the payment crisis in Calcutta Stock Exchange (CSE) it was stated in Para 6.18: "Although the media and public opinion in general were exercised about CSE, SEBI, as the secondary but statutory regulator, failed to query and part of the proceedings of the CSE committee on March 12, 2001 shows it also failed to anticipate the continuation of the payments problem in CSE beyond its Settlement no. 148 as well as the ultimate magnitude of payment  problem, as reflected in the interventions of the finance minister in the Rajya Sabha on March 13, 2001.  The Executive Director's report on how pay-in/pay-out was effected in Settlement No. 2001148 and the CSE committee's expectation of a smooth pay-in/pay-out in the next settlement was accepted at face value and passed on as such to the finance minister.”

The quote from the earlier JPC report as referred in Para 13.47 of the present JPC was authored by the likes of Jaswant Singh, Yashwant Sinha and George Fernandes. But today, times have changed. Therefore the same gentlemen are game to the possibility of 'transferring responsibility downwards'  nonchalant   of the implicit 'distressing lack of fibre in the apparatus of governance' which do ‘debilitate the state’.

Thus having stated the facts, it is crystal clear that the JPC has indeed indicted the finance minister, as and when his personal involvement has been noticed. Apart from these, there are umpteen references in the JPC report where the finance ministry has been firmly castigated. Can we, therefore, think of an army standing thoroughly condemned but its Commander coming out unscathed? It is for Yashwant Sinha and the BJP to answer this question.

 (To be continued)