JPC - lifeline for a stalemated Lok Sabha?

By S. Swaminathan

The Tehelka.com revelations, apart from causing grievous injury to the Vajpayee Government's moral credibility, have also brought the 13th Lok Sabha to a log-jam. However hard the Government tried to defuse the orchestrated demand of the Opposition for its hara kiri, , it was evident that the Opposition and principally the Congress seemed bent on paralysing Parliament and declaring a street-war against the Vajpayee Government.

Meanwhile, a benign recess has intervened and there are hopes that when Parliament reconvenes on April 15, a semblance of orderly behaviour can be restored. The Finance Minister, Mr. Yashwant Sinha, has even sounded a note of optimism that when the different parliamentary committees looking into the sectoral dimensions of the Union budget present the reports, everything will be normal in that even the process of the second generation reforms will be back on the rails. This sab teek ho jayega refrain will perhaps help the so-called Sinha doctrine of ``the feel-good factor'' return to the markets!

For those who have been dismayed beyond words by the ruckus in Parliament ever since the Tehelka.com bombshell, perhaps there is some good news. According to the Minister for Parliamentary Affairs, Mr. Pramod Mahajan, the NDA Government is readying itself to agree to a Joint Parliamentary Committee probe into the why's and wherefore's of the stock market crash following the presentation of the Union budget. The Congress also seems to believe that a JPC is the need of the hour, in the light of the many shady affairs relating to the stock exchanges that have come to the surface. The position, therefore, is that if the Congress makes a demand for a JPC, the Government will respond positively.

In all probability when the Government accepts the demand for a JPC probe, the Prime Minister will make the conventional statement in Parliament that his Government is determined to get to the bottom of the truth and the whole truth in the latest incarnation of the stock market scandals and that the Government would request the Speaker of the Lok Sabha to set up a JPC and give it appropriate terms of reference. After all, should not the supremacy of Parliament be upheld, even if many MPs do not seem to consider indecorous behaviour inside Parliament has been inconsistent with the doctrine of parliamentary supremacy?

It was almost ten years ago that a Joint Parliamentary Committee submitted a comprehensive, if not all-embracing report on the securities scam of 1991-92. The JPC that was set up by the 10th Lok Sabha in August 1992 submitted its report in December 1993. The report is in two volumes. The Government came out with an Action Taken Report in July 1994. For any one who has had access to these documents, it would be an intriguing question as to how another JPC could study the dynamics of the scam given the fact that the institutions involved and the modalities of transactions have not changed much.

In fact, the JPC of 1992-93 examined the systemic failure as well as the aberrant conduct of many personalities involved in the nationalised banks, public sector enterprises, non-banking subsidiaries of some nationalised banks, the stock exchanges and so on and made as many as 273 observations/conclusions/recommendations. It would not be an exaggeration to say that although Parliament was surcharged with tension and a certain degree of moral indignation over the security scam, the proceedings of the JPC and the conclusions arrived at, in the main, were issue-based rather than personality-directed. Even if the manner in which the JPC questioned some VIP functionaries in the financial system tended to be intemperate rather than judicial in tone, the report as a whole cannot be faulted for the very constructive and futuristic orientation which it provided for the policymakers.

The central finding of the JPC that in many segments of the financial sector there was ample evidence of lack of accountability with corresponding laxity in supervision is perhaps as valid today after ten years of financial sector reforms as it was when the report was written. That is the real tragedy of the contemporary situation. The nexus between nationalised banks and stock brokers who continue to regard the stock exchanges as circuitous casinos has not become a thing of the past. Stock exchange managements seem to care less for ordinary honest small investors than for ``influential bulls'' and ``unscrupulous bears''.

With all the talk about dematerialisation of stocks, screen trading and surveillance over suspicious trading trends on the bourses and with all the paraphernalia of the Securities and Exchange Board of India, the stock markets continue to be the ``danger zones'' for savers in the middle-class. A new JPC could perhaps usefully take the subject of fraudulent activities in the securities market from where the earlier JPC left it. That is to say that instead of traversing the whole ground again, the new JPC should focus on any new systemic failure that has developed around SEBI and perhaps the ominous new trend of cooperative banks joining the fraud brigades that operate on the stock exchanges.

Who would have imagined ten years ago that a cooperative bank in the name and style of Madhavpura Mercantile Cooperative Bank (MMCB) would function as a conduit for a high profile stock broker like Mr. Ketan Parikh, handling crores of rupees in the process? If the 1991-92 security scam established that many non- banking arms of nationalised banks (such as merchant banking and home financing) had transformed themselves into financial partners of unscrupulous stock brokers, it now appears as if many low profile cooperative banks have become the haven for enormous speculative capital (usually unaccounted money) handled by free- floating stock brokers with access to the funds of nationalised banks and the new generation private sector banks as well.

Need to ``re-visit'' co-op. banks

The recent bear-dominated securities scam has perhaps brought out a relatively obscure dimension of the systemic deficiency in the financial sector - of the cooperative banks - to the fore. The popular conception of cooperative banks is that they are agencies meant to facilitate small depositors, traders, merchants, artisans and so forth and help them meet their borrowing needs, against collateral securities, mostly gold and jewellery. It is this notion of cooperative banks that has led to the Reserve Bank of India treating State level cooperative banks on a par with scheduled banks for the purpose of re-financing.

Cooperative banks, other than State level banks, evidently are functioning with little or no accountability. The RBI has no control over them. The State governments that are supposed to have jurisdiction over them have also little or no effective supervisory control over them. The mechanism of cooperative audit, in difference States, is notoriously archaic. And in most States, there are no elected boards of directors for cooperative banks, there are only political appointees and executives appointed by the State governments from the ranks of the cooperative departments. The system is obviously full of irregularities apart from the danger that the cooperative banks are used by tax evaders and black money magnates, leave alone speculators on the stock exchanges.

Can a new JPC probe the interface between cooperative banks and the stock exchanges when it is known that these banks come within the purview of the State governments? If and when the Lok Sabha appoints a JPC, this question will need to be addressed. Even if for a Parliament suffering from ``disguised unemployment'' now a JPC would be an elixir, the opportunity should be converted into a constructive contribution to the strengthening of the financial system.

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