Corruption Subverts Regulation, Oversight and Lokpal Bill.

M K Venu, Managing Editor of Financial Express, weighed in on the functioning of regulatory bodies like Comptroller & Auditor General (CAG- is not really a regulator as it doesn’t have quasi-judicial powers), Securities & Exchange Board of India (SEBI), Competition Commission of India (CCI), or Telecom Regulatory Authority of India in his column, “The Regulators Strike Back”. This title gives a pejorative flavor to regulatory bodies because of the archetype it subconsciously suggests, “The Empire Strikes Back”. The empire striking back is an act of revenge by mighty, and that is the inchoate feeling the heading invokes whether the author meant it that way or not.

Venu begins by comparing the activities of the regulators in recent years to their functioning in the past, and the kind of incessant attention in the media they get now a days. When he comments on some regulators, Venu is very positive, such as TRAI; but not so with others, such as CAG. At times he is ambivalent as one can see in the case of SEBI, when this appreciative comment “In the past, the chairman of the Securities and Exchange Board of India (Sebi) had to keep the powerful corporate houses and brokers of Mumbai in good humour. Otherwise, these well-connected businessmen would constantly give negative feedback about Sebi’s top brass to the finance ministry”, is immediately, without a pause, paraphrased with, “Recently, one member of its board wrote to the prime minister directly requesting that *anonymous complaints against Sebi* from corporate houses be filtered through the Central Vigilance Commission (CVC) before the finance ministry decides to send them to the market regulator for an inquiry. It would have been difficult to imagine a Sebi board member writing directly to the PM some years ago. In recent times, Sebi has also passed bold punitive orders against politically well-connected business houses, the latest one being against the Sahara Group (SEBI Interim order/ Final Order)”. This paraphrasing could be a neutral comment, or may be even appreciative. But, it is difficult to concede such a benefit of doubt because of his preceding remarks about CAG.

In case of CAG he notes, “But today every word of the CAG is lapped up by the media and opposition alike, even when the former gets into *uncharted territory, advising the government on policy matters*. A decade ago, when the consensus was to push economic reforms vigorously, the general discourse in policy-making circles was that public sector units must be insulated from the CAG’s “petty accounting interpretations” so that they could function more autonomously in the marketplace”. He has not made clear by example like in case of SEBI he does by citing Sahara case as to what he means by *advise on policy matters*. CAG would fail in its duty if it doesn’t suggest measures to avoid lapses, corrupt practices, or even suggest alternate and superior methods of bidding or of say evaluations of bids. That is its job, and in any case it ends with reporting to parliament its findings. CAG has no other executive powers to enforce its advice or recommendations. It reports its findings, tenders its advice and then has to quietly disappear from the scene leaving his findings to the *good sense* of parliament. Coming to the second point, everyone knows why Public Sector could not or would not function autonomously. It is obviously not because of *petty accounting interpretations*, in any case CAG interprets on the basis of Government’s policy and all that government had to do is to change its policy to make it attuned to *vigorous economic reforms* & thereby force CAG to work in consonance with new economic regime in place, but because of tendency of politicians in charge of Administrative ministries having oversight of PSUs to use them as milch cows. This political interference was & is the root cause of ailing public sector, and not petty accounting interpretations by CAG.

Coming to TRAI Venu commnets, “especially in the initial years of reforms, tone o wrest much needed autonomy from the neta-babu complex. Experience showed the bureaucrat-politician combination would try to undermine the regulator by encouraging the public sector units to lodge complaints of favouritism to private players. This happened particularly with the Telecom Regulatory Authority of India (Trai) which was initially seen as forcing PSU behemoths like VSNL and MTNL to compete on a level playing field with private players. This led to ugly battles between the government and the regulators, with the entire Trai board being replaced summarily on one occasion. In due course, the government made some peace with the regulators by creating another tier of appellate authority where judicial appeals could be made against the regulator’s orders. This was a successful model, and implemented with most regulators, including the CCI”.  Here he is all praise for TRAI that *battled to wrest autonomy from the Neta-Babu complex*. Is there a pattern or logic behind the choices Venu makes in criticizing a (Non) regulator like CAG while praising a regulator like TRAI? The intervention of TRAI has been massively beneficial to the private sector that has ballooned into a behemoth in the telecom industry in last decade while the public sector has been systematically undermined. Yes, the 2G spectrum scam currently in news belongs to this sector. On the other hand, CAG has unearthed the possible scam of private sector’s biggest player, Reliance Industries, where Director General of Hydrocarbon has showed undue favour to it by allowing *much bloated Capital expenditure (CAPEX)* for KG gas fields than what was earlier agreed in total disregard to stated norms & policy. This *inflation* in CAPEX was permitted even before the money was spent or will be spent. This makes it possible for RIL to claim far greater share in the revenues earned through sell of gas – a national & natural asset just like the telecom spectrum – as claim on revenue is directly proportional to CAPEX.  Is there a story underneath here?

There is one comment of Venu’s that is absolutely a gem : “Interestingly, the Indian Administrative Service (IAS) initially saw the regulatory authorities in various sectors as a threat to its own existence. But the IAS’s cockroach-like survival instinct eventually converted into an opportunity the proliferation of regulatory authorities in various sectors. Today, these regulatory bodies are largely populated with the IAS lot”. Supreme Court while quashing the appointment of tainted civil servant Thomas to the post of Central Vigilance Commissioner (CVC) had observed that “the CVC’s office shall not be *restricted to civil servants*”. Yet all candidates shortlisted by government “are, or have been, civil servants – former Home Secretary G K Pillai, Defence Secretary Pradeep Kumar, retired IAS officer Naresh Dayal and Railway Board member A P Mishra (http://tiny.tw/7QL)”. Therefore, Venu is absolutely correct in his observation in this case. Moreover, civil service retirement age is 60 years, whereas appointment to posts of regulator allows the retirees another lease of life for 5 years or so. And what a second life it is with all the perks of high office that *naturally* come with it.

Venu’s article invited such close scrutiny because of an email that came in after I had finished reading it. The email was from one Arun Agrawal, author of a book – * Reliance: The Real Natwar*, and provided a link to his post, “Ministers in the Lokpal panel involved in Sahara Scam?” Now, this is explosive stuff. It brings us to the matters that the heading of this post hoped to capture. The very panel involved in drafting Lokpal Bill –a jumbo Anti-Corruption measure- of which now two (2) versions will probably be put before the parliament; has *tainted ministers* on the panel. It talks of a favourite of Financed Minister but without relevant qualifications meddling in the affairs of regulators – specifically SEBI – with intent to emasculate it.

“And of course, the omnipresent and the all powerful Omita Paul, the super secretary of the Finance Minister, appointed without merit and only because she is a favourite of the Finance Minister, too is involved. Her educational qualification are in Chemistry (MSc), Social Science (M Phil) and Journalism (BA). Bereft of any knowledge of finance, she lords over key appointments. For SEBI she has a mission to get rid of all the competent and honest senior officials and replace them with pliable persons who will be amenable to corporate lobbyists. She tried to intimidate the officer in SEBI who was to pass the order on the Sahara issue by initiating income tax inquiry on anonymous complaint”.

Now make connection to what Venu said in his article, * Recently, one member of its board wrote to the prime minister directly requesting that *anonymous complaints against Sebi* from corporate houses be filtered through the Central Vigilance Commission (CVC)*. This clearly is an attempt by the SEBI board member to hopefully thwart the meddlesome Paul by filtering out complaints against SEBI first through CVC on the premise that latter will be objective and without an agenda. This would take away the power from Paul to intimidate the regulator through agencies like Income Tax, Enforcement Directorate that are under Finance Ministry’s control. The balance part of the foregoing sentence supposedly from the letter written by a SEBI member reads, “…before the finance ministry decides to send them to the *market regulator for an inquiry*”, doesn’t make sense and is either misquoted or quoted out of context. Why would *a complaint against SEBI – the accused* be sent to SEBI for enquiry? One normally doesn’t ask an accused to enquire accusations levelled against him. One would ask for explanation from the accused. Venu is obviously in the know of *anonymous complaint* and the *income tax enquiry* initiated on it at the behest of Omita Paul. Why didn’t he disclose this when discussing SEBI?

Agrawal says at one place, “Sixty-five lakh people therefore will lose over Rs 15,000 crores deposited in Sahara, because the politicians did not do their job and allowed the company to keep on collecting money from the poor people despite RBI having banned Sahara from collecting deposits. For most of these depositors it represents their entire savings and a large number of poor people are the victims of the scam”. Agrawal shows involvement of three ministers in the Sahara Scam, Pranab Mukherjee through his adviser Omita Paul as we have already seen; Veerappa Moily who as minister for law gave “a legal opinion in favour of the company that the deposit/debenture were not under SEBI and to give the opinion he went shopping for legal opinions and chose the one which was convenient to him (that is to Sahara group)”; and Salman Khurshid who as Minister for Corporate Affairs protected Sahara. Agrawal’s article is worth reading in detail.

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Tags: 2G, CAG, CCI, Corruption, Financial Express, Indian Express, Lokpal Bill, Sahara Group, Scams, SEBI, TRAI