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Manmohan wants independent probe into US-64 fiasco

Fakir Chand in Bangalore

Dr Manmohan Singh, the architect of Indian economic reforms and former Union finance minister, on Wednesday called for an independent and thorough inquiry into the crisis gripping the Unit Trust of India in the wake of suspending the sale and repurchase of its US-64 mutual fund scheme by its board early this month.

Holding the Union finance ministry as well as the UTI solely responsible for the mess in which the UTI finds itself today, Manmohan Singh regretted that the largest mutual fund in the country did not apply its mind to implement the Deepak Parekh committee recommendations for stemming the rot in its working.

"What is happening in the UTI is a very sad affair. Everyone knows that UTI plays a very important role in our financial system, and it has not been handled properly since long," the former finance minister told the media in Bangalore.

The government should immediately order an independent and thorough probe into the entire functioning of the UTI to get to the bottom of what went wrong and how, Singh stated.

"The problems plaguing UTI were identified by the Parekh committee, and if only its management had implemented the panel's recommendations by now, the crisis situation would not have risen.

There has been negligence on the in implementing those recommendations by the UTI board."

Asked whether present Union Finance Minister Yashwant Sinha should own responsibility for the UTI fiasco and resign thereby, Singh said it would not be proper for him to comment on the functioning of his successor finance minister as it was up to the government to decide what has to be done now.

"The government cannot wash its hands off what's been going on in the UTI. A mechanism has to be found quickly to restore the confidence of its small investors, as they have been shaken by the latest developments in the largest mutual fund in the country," he said.

"All these years, we have been telling small investors that they shouldn't go the stock market directly but invest their hard-earned money in mutual funds. If the biggest mutual fund goes this way, it will shake the entire mutual fund industry and will have far-reaching implications on the stock markets. The government as well as the UTI will have to find a way out of the mess soon," he added.

Asked whether he too suspects a nexus between brokers and the UTI management for investing heavily in dud stocks dubbed K-10 scrips, Singh said something had obviously certainly gone wrong and it would be premature on his part to comment pending a detailed inquiry into the whole episode.

Singh also advocated that the entire working of UTI, including the US-64 scheme should be brought under the supervisory authority of the Securities Exchange Board of India for proper regulation.

"The Union finance minister has himself raised the issue of insider trading in the US-64 scheme. Now it is for the government to find out how it could take place, enabling large number of corporates to get out of the scheme with their invested funds," he said.

"As most of the mutual funds floated by private as well as public players are already under the jurisdiction of Sebi, there is no reason why UTI should not be treated similarly. The UTI Act of 1964 should be amended for greater scrutiny of its investment decisions," he added.

Commenting on the dismal state of the Indian economy, Singh told rediff.com that he was sorry to note that the economy was not in a good shape.

"The finance minister had stated while presenting the budget for the current fiscal year that the economy would grow by over 6 per cent, but the projections had been revised downwards to 5.2 per cent as projected tax collections were no where near the targeted figures.

"Even tax collections during the first three months (April-June) of the current fiscal year are reported to be lower than what they were during the corresponding period of the previous financial year. This has never happened," he said.

"So the first thing for the government to do is to come out with a clear statement of admission that things were not as they were presented. It is only then there would be a sensible prescription for curing the ills of the economy, as there is an urgent need for sensible diagnosis," he added.

"But my gut feeling is that the government was bent upon pushing its failures under the carpet. This is not the way to manage a complex economy like ours. It will be unfortunate for the country if the government thinks that it could get away with it," Singh thundered.

Though the government had presented the Union Budget on February 28 of this year, Singh said there was no official account of the tax realization for the last fiscal year till date.

Only media have been reporting that the tax revenues were Rs 100 billion lower than what had been presented in the revised estimates for the fiscal 2000-01.

"So how can such things happen. Obviously some thing is wrong some where," he claimed.

Asked whether he saw any co-relation between the Congress being out of power during the last five years and the downswing in the economy over the last couple of years, Singh said: "Obviously! The facts show it."

"During the last four years, the growth rate of the economy has slipped; investment rates which reached the peak in 1995-96 have gone down drastically; savings rates have been declining after reaching a peak during the then Congress rule, and the industrial growth rate that was in double digits has dropped steeply," he stated.

Singh accused the government of not having clarity in reviving the economy, as there was lack of purposefulness and poor governance.

"If you make a comparative study of the state of economy then and now, you can draw your own conclusions and infer how the economy has backfired since then," he asserted.

Singh, who is on a two-day visit to Bangalore for reviewing the performance of Karnataka, ruled by the Congress, has inaugurated a two-day national seminar on 'Public finances in Indian state: The emerging scenario', organised by the Karnataka Tax Reforms Commission.

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