Two JPCs — Identical reference but contrasting approach

The report of the Joint Parliamentary Committee presented to Parliament on December 19 has not created the ripples that are routinely expected. Set up in late April 2001, the committee in the 20 months sought four extensions and held 105 sittings. Its two-volume report is comprehensive in its details but circumspect in either making sensational allegations or recommending drastic action. Inevitably the latest JPC Report on the stock scam (JPC 2001) will be compared and contrasted with the report of the earlier JPC (1992) that submitted its report in December 1993.While there are striking similarities there are major differences as well.

The agenda for the latest one has been similar to that of the earlier one. Even the identification of the scam is nearly identical. The recent report like the earlier one discusses "scam'' as a manipulation of the capital market to benefit market operators, brokers, corporate entities and their promoters.

Both the committees dealt with financial sector scam which in India has come to refer overwhelmingly to stock market shennanigans, although other constituents of the financial sector, notably, the banks as well as the financial sector regulators, have been faulted (to a lesser degree).

There are ample reasons (though not enough justification) as to why the stock market should figure so prominently in the list of misdeeds. Unlike, say, the banks, those outside it much less understand the share market's workings. And regulation over the capital market is of recent origin, with the Securities and Exchange Board of India coming into being only in the late 1980s. It acquired a legal status only in 1992 after the serious irregularities in the stock markets became apparent necessitating strong regulation. Although the capital market consists of a number of intermediaries, it is only the brokers who have been in constant public eye. Nearly always for the wrong reasons.

The fact that they have played a vital role in the capital market structure has often been overlooked. Most stock exchanges in India are still run by brokers. The perceived deficiencies in trading and in the management of the exchanges were consequently attributed to the brokers. Demutualisation of stock exchanges, that is, converting them into corporate bodies with a clear-cut demarcation of management trading and ownership functions is going to happen now.

It is therefore not surprising at all to fix most of the blame on brokers, in fact, just one broker. This time it is Ketan Parekh. He has taken the place occupied by Harshad Mehta in the JPC Report (1993). However, it will be incorrect to call the latest one as a Ketan Parekh scam. For although "named'' he is not going to be the subject of morbid fascination as Harshad Mehta was. The principal reason for this of course lies in the approach of the latest JPC. In crucial aspects, notably in fixing blame and calling for stringent action, the JPC 2001 has avoided the overbearing manner of the previous one. The last report (of the JPC 1992), by coming down heavily on all and sundry, aimed at (and succeeded) in producing a sensational document. Unfortunately the utility of such a high level body's report lies in its being practicable. Besides it is difficult to keep everyone's interest indefinitely.

Sweeping condemnation, however newsworthy, can damage the institutions. Last time the government owned institutions received the maximum flak, even though foreign banks were identified as the principal perpetuators.

It would have been relevant and timely if the recent JPC had reported on the lack of level playing field between the public and private sectors in dealing with the stock market.

Significantly, the latest report is balanced, even when dealing with brokers. Even Ketan Parekh appears to have received a fair treatment, considering the charges levelled against him. The JPC only wants the departments/agencies concerned to wrap up the cases expeditiously. In another context the JPC merely wants delinquent auditors to be reported to the Institute of Chartered Accountants of India. In many other cases involving the SEBI, the JPC advocates further investigations before reaching conclusions.

At the same time the SEBI and other regulators have not been spared, but the criticism this time is tempered with the need to make the recommendations practicable.

One last point. The JPC (2001) has taken the view that many recommendations of the earlier JPC report have not been implemented. To illustrate that an annexure showing a list of common recommendations has been prepared. Since those are repeated, the argument is that they were not acted upon the first time. Elsewhere however the JPC has admitted that the proceedings were a catalyst bringing about important changes.

This, in fact, ought to be recognised as the major contribution of the JPC. The previous one did bring about significant changes in the entire capital market structure — in trading, settlements, technology adoption, imparting professionalism among market players. It is immaterial whether it made specific recommendations whose implementation worked for all-round betterment.

The same ought to be said of the recent report. Additionally, its approach by deliberately desensationalising has helped in drawing up a blueprint.

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