August 3, 2001


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Pritish Nandy

In Search Of Mogambo

We are a nation in search of villains. So obsessive is this search at times that, when we are unable to find a big enough villain in real life, we create one. That is why Ramesh Sippy created Gabbar Singh and Shekar Kapur, Mogambo. That is why Subhash Ghai took a dopey Sanjay Dutt and gave him a villainous makeover in Khalnayak. In more recent times, Ashutosh Gowariker took a British actor, made him spew Hindi lines from the corner of his mouth and created Major Andrew Russell, the latest addition to our demonology. Call it the Ramlila mindset. We need a Ravana to burn from time to time.

Our politics also throws up its own baddies. From Sanjay Gandhi to Sukh
Ram to Laloo Prasad to Jayalalithaa, there has been a steady flow of colourful villains. Most of them get monstrous media coverage and thus emerge much larger than life, at least during the days they hijack the headlines. In between, we had Billa and Ranga, Raman Raghav, Veerappan, Dawood Ibrahim and Tiger Memon. Now, Chhota Shakeel and Abu Salem have joined the ranks. Each era has its own fears, its own compulsions, its own Ramlila. Liberalisation has now created its own pantheon: Harshad Mehta, Ketan Parekh and P S Subramanyam, Unit Trust of India's former chairman.

But before we talk of Subramanyam, let us step back a little from our national obsession for scams and examine what UTI is all about. UTI is a fund. It manages the money of millions of small investors as well as many big corporates who, till recently, parked their surplus cash out there. It is like many other funds in India, run by the world's most respected fund managers, except that most funds declare their net asset value on a regular basis while UTI has no tradition of doing so. But that in no way detracts from its role as a fund. When Subramanyam was handpicked and given charge of UTI some years ago, the fund was in a total mess. His mandate was to set things right.

That he did so very successfully in the beginning is well known. What is not so well known is how he managed to do so. He set things right by taking advantage of the Internet and technology wave and investing in some very lucrative ICE -- Infotech, Communications, Entertainment -- stocks. Whether he did so in tandem with Ketan Parekh, as his detractors claim, is not really the point. Parekh was, at that time, the country's top broker. Kerry Packer was wooing him. Politicians were hanging around him. Millions of investors were blindly following him. If UTI took Parekh's advice and made money, good for Subramanyam. Good for his investors. The fact is that UTI took a strong position in ICE stocks, which enhanced its assets and its profits. However, when the dotcom bust took place some months later and ICE stocks tumbled globally, UTI also took a hit. A big hit, since UTI is a big investor.

There were two other reasons as well. One: UTI, being a big investor and the Indian stock market being so shallow, could not quickly dispose of its ICE stocks without further tanking the market and, thus, damaging its own portfolio. Two: When the technology meltdown occurred, everyone panicked and there were just not enough takers for ICE stocks. Of course, there may have been another reason. Stocks move in a cyclical manner and most fund managers believe that what goes down always comes up again. So Subramanyam may have actually believed that if he held on to the stocks long enough, they would regain their true value.

Is this a scam? Or was this, simply, a bad business decision? To give Subramanyam his due, he was not the only one to take this decision. Almost all the equity-based mutual funds in India, particularly those specialising in new economy and technology stocks, have gone the same way. They are not run by government nominees. They are run by the best fund managers in the country. Yet, they have performed as poorly as UTI. In fact, some have done much worse. In other words, Subramanyam committed the same mistakes the others did. So why single him out? UTI may be a state-backed fund, but that does not make its managers any less fallible.

What are we doing in effect? By turning Subramanyam into a monstrous villain and the tragic UTI debacle into a stinking scam, we are destroying the confidence of global investors in our bourses, in our corporates, in our financial institutions and, ultimately, in India. As it is, Foreign Direct Investment is now down to a trickle because we are unable to push ahead with reforms. By beating our breasts and telling the whole world we are all crooks, we have also successfully stopped the inflow of foreign funds into our stocks and shares. In fact, we are destroying value every day as the share prices keep dropping in response to this hysterical and ill-informed outcry over UTI.

As for Subramanyam and who he spoke to, whose advice he sought before taking investment decisions, I see nothing wrong in a fund manager who talks to everyone and then takes his own decision. What is wrong in listening to anyone who calls you and offers you advice on what to invest in? It is just another source of information. Private fund managers do the same. They talk to promoters, brokers, investment bankers, media people, politicians, bureaucrats, anybody and everyone who has a point of view. It assists them to arrive at a decision. That is the way it ought to be. Tracing Subramanyam's calls to the finance ministry and the prime minister's office is no shining example of journalism. It is easy and convenient witch-hunting. Apart from raising serious concerns about individual privacy, it deflects attention from the real issue.

The real issue is that UTI's woes have little to do with its losses in ICE stocks. Or, for that matter, its investment in Cyberspace. The whole world has lost money in ICE stocks, but there has been no witch-hunt anywhere. Everyone knows that an equity-based fund is risk prone. If the value of the stocks it holds rises, you make money. If it falls, you lose. That is what funds are all about. UTI has only lost only a fraction of its money in ICE stocks. Most of its losses have actually come from ill-advised investment in old economy projects. In setting up plants that never worked at optimum capacity. In investing in factories that were never viable. In backing sick public sector units. In supporting the big and the powerful to grow even bigger and more powerful. It is these big corporate houses who are now lighting Subramanyam's pyre, hoping that he will burn with the evidence.

Yes, Subramanyam may have made some wrong choices, taken some false steps. Every fund manager does. But, by targeting him, we are allowing those who are actually guilty to escape. This is the problem with larger-than-life villains. They tend to steal the limelight away from the real picture. The invisible termites are the ones who do the maximum damage.

It is these termites we have to kill. They are eating into the system and destroying India. For years they controlled the political system and it brought them vast returns, which were out of all proportion to the business they actually did. These returns are now dying out. So they do not want to see the new India flourish. They do not want to see the new economy come into being, creating new entrepreneurs, new challenges. They do not want to see the control slipping out of their hands. That is why they want to railroad reforms. And that is why they want Yashwant Sinha out.

You might also like to read:
The complete coverage: The UTI scam

Pritish Nandy

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