People's Democracy

THE current share market crash is not merely a disaster that was waiting to happen. This is the naked manifestation of the character of manipulative capitalism of "free market". This is a system that ruins the lifetime savings of crores of small investors while the "higher-ups" in the system make super profits. The "higher-ups" are a network that involves virtually everyone unscrupulous: share brokers, banks, dubious corporate signboards, the regulators -- Securities and Exchange Board of India (SEBI) and Reserve Bank of India – presided over by the Finance Ministry.

Less than ten years ago, in 1992, the securities scam had alerted the country of how the common small investor is looted. Some heads rolled then, after the Joint Parliamentary Committee investigations. Nothing, however, seems to have changed in this system. Only the players have changed. Instead of Harshad Mehta in 1992, there is Ketan Parekh. Instead of the Stanchart and Grindlays Banks, it is the Bank of India and Madhavpura Co-operative Bank now. The then Finance Minister Mr. Manmohan Singh atleast offered to resign. Mr. Yashwant Sinha now, true to the moral character of this Vajpayee government, is virtually washing his hands of the worst loot of the small investor in the country. The estimated loss, in terms of market capitalisation as a result of this manipulated price crash, runs into lakhs of crores of rupees. More than the country’s fiscal deficit estimated in the 2001-02 budget! One estimate of loss, in Infotech companies alone, is a whopping Rs. 1,84,000 crores (The Indian Express, April 2, 2001)

In a deliberate attempt to cover-up, officials are seeking to explain away this crash as a consequence of the crash in the international stock markets. It is true that both the Nasdaq (index of mainly Bluechip Infotech companies) and the Dow Jones (index of the Wall Street) registered their lowest levels for 29 months. This, in itself however, does not wholly explain the crashes in Bombay’s Dalal street and Kolkatta.

Several instances of price rigging have been brought to notice by the media, particularly since 1998. Companies like BPL, Videocon and Sterlite (to which this Vajpayee government has sold Balco at a throw away price) were under a cloud then. But the government, for reasons that are not far to seek, chose not to proceed against them.

The current crisis goes back to late 1999 when price rigging in Infotech and Telecom stocks started. Stocks of companies like Himachal Futuristic Co-operative Ltd (HFCL) (which gained notoriety in connection with Sukh Ram’s corruption)which were quoting below Rs. 100 skyrocketed to Rs. 2,500 by the first quarter of 2000. Another company DSQ Software zoomed from Rs. 97 to Rs. 1,740 last year. This has now crashed to below Rs. 100.

Pushing the prices up was one Mr. Ketan Parekh who unscrupulously borrowed from the banking and the financial system. The lifetime savings of working people deposited in the banks was put at the disposal of such stock market operators who would then buy shares of select companies and push their prices up. They would then be sold garnering super profits. The crisis came when the payments had to be made for these purchases. However, more than two years of such manipulation continued till the crisis hit the ceiling. At one point of time, in March 2000, it was reported that a minimum of Rs. 12,000 crores was being lent by the banks to finance such transactions.

All through this period, the SEBI remained not only a silent spectator but was open to allegations of encouraging such unscrupulous speculation. The President of the Mumbai Stock Exchange himself is now charged with leaking sensitive inside information to key market manipulators. The RBI failed in its duty as a regulator of the banking system as revealed by the huge overdrafts that the Madhavpura Mercantile Cooperative Bank (MMCB) and the Bank of India (BoI) have allowed Ketan Parekh to manipulate the share market.

What is worse is the fact that the Finance Ministry-controlled Unit Trust of India (UTI) was negotiating the takeover of the Global Trust Bank (GTB) whose valuation, as has been proved now, was hiked up to get a better deal the merger. In fact, the SEBI itself, in an interim report on GTB price rigging, had hinted at the bank’s links with Ketan Parekh. While the GTB officially claims an exposure of only Rs. 91 crores to Ketan Parekh’s companies, reports reveal that it is over at least Rs. 300 crores.

The regulators meant to control market manipulation themselves are guilty. The Finance Ministry’s refusal to make these regulators accountable for failing to investigate, supervise and punish those guilty of such massive loot itself exposes its culpability. On this score alone, the Finance Minister, if he retains any qualms of morality, should quit. The Vajpayee government must bring to book all the players who have, by now, been named. Its refusal or inability to do so is yet another reason for this government to quit.