Lost in lobbying

Focus on the telecoms licenses scam needs to shift to how reforms in the interest of investors are being stalled

If 2010 ended on a note of cynicism, 2011 will be the year of uncertainty for investors, with global markets being pulled by divergent forces instead of acting in concert as at the beginning of the last bull-run. Disappointment with all the four pillars of our constitution — executive, legislature, judiciary and the fourth estate — will provoke investors to ask: Who is the last man standing? The anger over the whos and whats and whys of phone tapping, cronyism in awarding spectrum, bribes for loans, and rigging of stock prices will eventually dissolve into hurt and acceptance, the three classical stages undergone by typical trauma survivors. Hopefully, this should result in some soul-searching: Is our outrage fake? In ancient Rome, the emperors conducted gladiator spectacles as diversions for the pent-up frustration of their bored and disgruntled subjects. The history of pre World War II is full of instances of fascist rulers creating hate objects to take the blame for their nations’ misery. Our voyeuristic pleasure is not satiated with being privy to rhetorical chatter that could be thrown out of any respectable court if presented as evidence of the crime. It extends to deriving satisfaction from seeing on primetime television a glum Niira Radia and a defiant A Raja emerging from CBI grilling. In our self-righteous smugness, we brush aside concerns on the discretionary power of eavesdropping. We tend to ignore the plain fact that most of the parties in India are one-man/one-woman/one-family shows and allotment of ministries is the result of hard bargaining for their potential to generate revenue not for the economy but for the party to fight elections. Appointment of specific individuals to these posts vests with the head of the party.

We suppress suspicion that the dissemination of selected tapes could be an extension of the turf war between powerful industrialists to carve out the Indian economy as their fiefdoms. In the pre reforms period, these skirmishes were restricted to the corridors of North Block. Today, the stakes are much more higher, particularly in the emerging sectors, which present a first-mover advantage. The battle is not only to win the bidding round but for public perception. The high cost of entry is recovered from investors with richly priced IPOs and in the case of the real estate sector with bubble prices. Till a few years ago, reasonably priced IPOs were considered as means to gain an exposure to coveted companies. No longer. The investment horizon has shrunk not to a few months, but to the day of listing. To subscribe or go short on the debuting stock is based not on assumptions of forward earning but on subscription trends, grey market buzz and borrowings from organized and unorganised channels. Sebi has tried to bring about some order by tweaking rules for institutional investors, responsible for creating hype through inflated applications, by insisting on upfront payment. Another set of institutional investors too was disciplined: mutual funds, which, along with insurance companies, should top any ranking of mis-sellers of financial products. Entry loads were banned as well as commission to distributors and floating of new funds similar to those already in their basket of products frowned upon.

Leave alone being supportive of some of these investor-friendly actions, outgoing chairman C B Bhave has been demonized for not accommoding issuers and intermediates. Instead of giving him credit for spurring the overhaul of Ulips, the government’s decision to vest their supervision with Irda has been painted as a snub to him. Influential investment bankers have stalled another reform that tries to level the field for retail investors: a revised takeover code that mandates an open offer to all the minority shareholders instead of capping it at 20% on the specious plea that this step would favour moneybag multinationals. So a measure that would have unlocked value for investors is stuck. Other instances of lobbying derailing investors’ interest is the stalemate over decontrol of the sugar and retail sectors and the watering down of the Direct Taxes Code. All this raises the question: is the uproar over lobbying restricted to those who are caught in the act and are merely representatives (lobbyists or ministers) of those (companies and party chiefs) who deploy them? How is the work done by PR consultants different from that of industry bodies Nasscom, Assocham, Ficci and CII? The New Year is likely to present investors with many such contradictory choices as the government would be tempted to boost earmarks for welfare schemes, widening the fiscal deficit and draining liquidity by its market borrowings. The bill would eventually be passed on to the taxpayers (higher taxes) and investors (higher interest rates). Don’t be surprised if there are more installments of leaks of pitter-patter of irrelevant players to keep investors hooked.