Doda Killings

Date: 
Sunday, August 5, 2001

Press Hand-Out

* The near collapse of the Unit Trust of India (UTI) flagship scheme US-64 is a gigantic fraud - unprecedented in independent India.

* A merciless loot of the Indian people has taken place, nearly to the tune of Rs. 6000 crores. The manner in which this has happened displays the worst type of crony capitalism.

* This crisis is not confined to UTI's US-64 alone. The crisis has engulfed many financial institutions (FIs) (Eg: IDBI; IFCI), banks (Eg: Madhavpura) and LIC, GIC. This is symptomatic of a much larger malaise.

* Since the process of liberalisation began two major stock market scams took place wiping out market capitalisation worth lakhs of crores of rupees.

* In these operations of market manipulation, the FIs are deeply involved. The UTI had to be bailed out earlier in 1998 by the government injecting Rs. 3,300 crores.

* Despite recommendations, the UTI and other FIs continued to place funds in the equity market rather than debt. In the latest stock market scam, the UTI is alleged to have collaborated with market manipulators. That these were substantive is proven by the fact that the proposed merger of the Global Trust Bank (GTB) with UTI bank had to be abandoned. Out of the 1,426 companies that UTI has invested in, only 81 have shown appreciation, 654 are non-traceable or not tradable.

* This clearly shows the following:

1. Departing from the objective of stimulating the growth of domestic savings and putting them at the disposal of industrial capital, the UTI (which was established by an act of Parliament for this express purpose) chose to place huge funds in speculative stock market transactions.
2. In the process, the UTI and other financial institutions developed -- both under political pressure and personal gain -- a nexus with unscrupulous stock market brokers.

* There is a third dimension as well -- the Mauritius route. The CPI(M) had argued earlier that the Mauritius Double Taxation Avoidance Treaty is being used by FIIs, Indian Corporate houses and other speculators to avoid paying taxes in the country. It was at the instance of the Finance Minister that the Mauritius route was kept open, even though the Income Tax authorities had given notice to a number of FIIs for using this route fraudulently to avoid paying legitimate taxes in India. Not only did the Finance Ministry protect the tax dodging FIIs, it also "clarified" further this would apply to all investments routed through Mauritius. It is now clear Mauritius is emerging as a vital hub in the speculative activities in the Indian Stock markets and the Finance Minister is an active accomplice. There is now clear evidence that Ketan Parekh used certain Overseas Corporate Bodies (OCBs) -- Brentfield Holding, Kensington Investments, Wakefield Holdings, European Investments, Far East Investments located in Mauritius -- to siphon the funds out of the country. The money came in and went out through the Mauritius route – the net difference between the inflows and the outflows being of the order of Rs.2,900 crore. The paid up capital of all these companies is a paltry total of $16,720.

* All this put together means:

1. The aggregate savings of millions of Indians instead of being utilised for economic and industrial development is being put at the disposal of speculators for quick super profits.
2. The consequent unholy nexus of corrupt bureaucrat-politician-businessman is mercilessly looting and impoverishing the majority of Indian people.
3. This has seriously derailed the growth of the Indian economy. Negative growth in agriculture, stagnation, at best, of industry, growing unemployment, distress suicides and starvation deaths are the consequence.

* Instead of hiding behind others’ misdeeds, Finance Minister Yashwant Sinha needs to answer the following questions:

1. Why did UTI increase its equity holdings to 74%, from 66% when the Deepak Parekh Committee, set up in the wake of the earlier scam, had explicitly recommended that it be brought down to less than 40% within 3 years?
2. Why did the Finance Ministry sleep for the last two years over this curious reversal of government directives to UTI?
3. Did the government ask the UTI to shore up the share market in order to make Yashwant Sinha’s budget of 2001 look good?
4. How did the UTI continue with private placement of shares, particularly shares of companies such as Cyberspace Infosys?
5. Did the political establishment – key RSS functionaries involvement have been noted in the Cyberspace fraud – not play any role in reversal of UTI’s decision to invest in ventures of Johri brothers.
6. How did UTI build up such large holdings in companies such as Ispat, Essar, etc?
7. Why did the Finance Ministry not ask the UTI to freeze redemption of units when the stock market fell sharply in March? It is now reported that major corporate houses – Reliance, Tatas, Birlas etc. redeemed their units worth Rs.4,000 crore at a price of Rs.14.55 per unit in April and June. Contrast this with the Rs.10.00 that the small investors are getting today, that too on their first 3,000 units.
8. Why has the Finance Ministry made no attempt to plug the Mauritius route, which has become a constant source of speculation and tax evasion? Compensating Mauritius for its loss would be a small price to pay compared to the losses that the Indian economy is suffering currently.
9. Is it an accident that a major section of the promoters of the K10 companies have close links with the BJP?

CPI(M) Demands:

1. The presiding deity of such a system, that institutionalises the loot of gigantic proportions, is the Finance Minister. There is no way he can absolve himself of the responsibility for creating this crisis and ruining the lives of millions. He must quit.
2. The Mauritius route must be plugged immediately.
3. The guilty men in the Financial Institutions, PMO and the Finance Ministry must be brought to book.
4. SEBI must be provided with adequate staff and have penalties that are effective. Its procedures must also be transparent and its reports public. SEBI needs to be revamped to be an effective regulatory agency. At present, it is both toothless and spineless.
5. The stock exchanges must be run professionally and freed from the stranglehold of the brokers.
6. US-64 must be re-oriented as a debt instrument and primarily for the small investors.
7. All funding for Independent Power Producers (IPPs) from FIs should be stopped till their current exposure is properly evaluated.
8. A nominal transaction tax on all stock exchange transactions must be imposed.