The Money Special/ Yashwant Sinha

My Cabinet colleague (Law Minister) Arun Jaitley has said leaders of the Investors Grievances Forum are clever and lay traps for ministers: First they raise the ministers to the skies and then compel them to announce measures that support the investor's cause.

The only trap that I am going to fall in is the trap which has been laid for me on February 28 (presentation of the Union Budget).

The announcements, if I have to make, will be made there. In fact, if I could share a secret with you: there comes a time, just before the Budget, when we hold back many announcements because we feel that many of these beneficial and important announcements should rather be made in the Budget than before the Budget.

If this is the advice I give to my colleagues in government, surely I am bound to follow it per se.

I am very happy that the Jaago Investor Abhiyaan has been launched. I remember, when I was in Bombay in October 2000, and I was attending a function organised by Kirit Somaiya, that's when he discussed the contours of this abhiyaan (movement) with me. Now we can see the obvious results of the groundwork, the preparation that has gone into this abhiyaan.

Whenever I come to this (Bombay Stock) Exchange, I remind myself… I was telling Anand Rathi (the BSE president) that this is my fourth visit to the BSE, three in the last three years, one of which is unforgettable. The first visit was as a member of the then Joint Parliamentary Committee which was looking into the scam of 1992. This hall was the trading hall then, and I remember many of us stood there in the balcony, and looked down on what is going on inside the hall. We were objects of curiosity for a while….

Today we are dealing with a dynamic situation. Therefore, nobody can say that we have all the arrangements, all the laws, all the regulations in place and that they are valid for all times to come.

It is very important that we continuously review what is going on and make adequate arrangements to deal with developing situations. Therefore, empowering SEBI for instance, will have to be a continuous process as newer challenges emerge.

The government has done a great deal. But this is not the end. We will have to carry on. We will have to ensure that we put in place the entire arrangement in such a manner that what happened in 1992 will not happen again.

Now here, I would like to make a distinction between an investor and a depositor, though I don't know if Kirit Somaiya would agree with me. An investor is a person who takes risks. A depositor is assured of returns, whether he is depositing money in a bank, or an NBFC, or a debt instrument. He is assured a return.

One of the other things that we discovered in the 1992 scam was that there were equity funds that were assuring a return. You can't assure a return if you run an equity fund. So, if you make this distinction (between an investor and a depositor) -- I'm not saying the depositor does not need to be protected; the depositor needs to be protected, the investor also needs to be protected -- but this distinction will enable us to tell the investor that his protection will extend to protecting them against the loss of his investment in a situation where the companies vanish.

But protection will not extend to protection of the profits; the returns are not protected because he is taking a risk. He might make gains, he might make losses; whereas the depositor knows what he is going to get if he is putting his money in a bank or an NBFC. There the responsibility of the institutions that take the money, the deposit, is to assure the return on that deposit.

Now you will be find there are number of sides to this whole business.

We have the government which through Parliament will lay down laws and policies; we have the regulator, in this case the Securities and Exchange Board of India, in certain other case, the Reserve Bank of India, and now the National Housing Bank, which, through the latest amendment, has been given regulatory powers as far as regulation of companies dealing in housing finance is concerned. So this is one side of the picture.

Then we have the institutions like the stock exchanges, the financial institutions like the NBFCs, where and through which he will make investments. But people will not make investment in a vacuum. When they come to a stock exchange, they make investment in the equity of a company as a corporate entity. This is another side of the picture.

As far as the corporate sector is concerned, there was much left to be desired. We are now trying to ensure that the corporate sector also fulfils its responsibilities in this whole arrangement.

And the entire emphasis on corporate governance is on account of this concern. SEBI has set up a committee on corporate governance. It has given its report. It is being implemented. As a result of that, I'd announced in my Budget speech of, I think, 1999, that we will institute an award system.

P Subramanyam, UTI chairman, was very kind to take up that offer and institute an award for the best corporate governance. I'm happy now that the ministry of law and company affairs is setting up the Centre of Corporate Excellence.

I think we have reached a stage in our country where this must be repeatedly emphasised that corporates must achieve excellence in their overall functioning.

We are moving towards board-managed companies. The number of family-managed companies is getting smaller day-by-day. Even in the public sector, the movement is towards board-managed companies.

Professionalism must become the order of the day. Transparency must become the order of the day. Therefore, if we ensure a transparent system of corporate governance, I'm sure the kind of experience that we have had in the past, can be easily avoided.

The stock exchanges have a very important role to play in this. Because we are aware of the fact, because it's part of human nature, that if you see a loophole, you tend to use and misuse it.

We have to make sure that all the loopholes are plugged.

SEBI chairman D R Mehta told us about the margining requirements that they have imposed, and how the markets are safe. It is very reassuring to hear that. But it is equally important to ensure that nobody is taken for a ride in these markets, that the markets are not manipulated by a handful of people. In their functioning also, the markets have to be transparent.

We have put in place systems which will enable us to bring to book those who take to wrong-doing. This is what will create or re-create the faith of the small investor.

We cannot blame the small investor if he is disappointed, if he is disillusioned. I remember, in those days, I was traveling once by train between two places. My co-passenger in that compartment was someone in the television industry. I remember asking him how he was doing in his business. He said business was very dull. I asked why. He said people are not buying television sets even in the marriage season because everyone was rushing to the Bombay Stock Exchange and investing their money there. That was 1991 or 1992.

That kind of situation has evaporated. It has evaporated not because the investor has no money to invest. It has evaporated because we have not been fair to the investor. The investor has burnt his fingers and therefore he will be very careful in future.

The investor's education, his awareness is the key. There is a saying that eternal vigilance is the price of liberty. And I'd always believed that the same eternal vigilance is the price of investor safety. He must be vigilant. He must not allow himself to be taken for a ride. Therefore, he must be made aware. Transparency will be demanded of the corporates; SEBI will ensure that all the required disclosures are made at a time offers are invited.

But after that, it is the responsibility of the investor to exercise his judgement with the best possible and maximum amount of information. As far as the government is concerned, we will ensure a regulatory playing field.

It will not be possible for the government to prevent individual cases of cheating. So some investors might still be defrauded. Therefore, we will have to put in place systems that will ensure that he gets the entire amount of his investment or at least a significant part of it.

But if he is properly educated, made aware, then the chances are that he will not make such mistakes. My information is that investment even in as volatile a thing as the stock markets is a very scientific, very methodical thing to do.

It is not a game which amateurs can play. It is a game for professionals. And if the professionals play the game properly, then they get the returns they deserve. It is the amateurs who lose the money.

The investor must be able to go to the truly professional person who is going to give him the right kind of advice and ensure that his money is properly invested. This must be considered a long-term game. It is not for short-term gains. There are people in the market for a fast buck. But those who make a fast buck will also lose it. It's those who are in this business for the long term who will end up happier than those who come for short-term gains.

This is the message that must go out to the investor. He should not be expected to come to the stock market today, make some investment, double his money and go out of the stock market tomorrow.

This is the kind of advice that only a professional will be able to give him. The advice I would like to give to the IGF is that they should get the assistance and help of as many professionals as possible so that they can in turn advise the investor properly.

Apart from what the stock exchanges are doing, apart from what SEBI is doing by way of financial support, the Investor's Protection Fund will be crafted in such a manner that it will be another window through which we will be helping well-known non-governmental organisations in this field, who will perform the task of investor education and investor awareness.

Resources will not be a constraint. What I would suggest to the IGF is that they should prepare an ambitious programme of investor education and spread the message throughout the country. People from faraway places like Moradabad, Jalandhar, from all over India, are making investments in the stock market. They are not getting any help when they need.

The NBFC Bill is already before the standing committee of finance. Hopefully, we will get the report soon and we will take it to both Houses of Parliament to get is passed. There is already the committee which we have set up for this purpose which is going to look at how the investor's protection can be strengthened.

I'm happy a new beginning to the investor's protection has been made through Jaago Investor Abhiyaan awareness campaign of the IGF. At the same time, let me add that it is also very important to ensure that the Jaago Investor Abhiyaan (Movement for Waking Up the Investor) does not become a Bhaago Investor Abhiyaan (Movement for Making the Investor Run Away).

All these concerns that we are expressing should not make the investor so afraid, so apprehensive that he will not come to the market and make investment. I would like to remind the people, myself, everyone of the steps SEBI has taken to ensure that the markets function properly.

So, through the Jaago Investor Abhiyan, let us also have a campaign of Aawo Investor Abhiyan (Movement for Welcoming the Investor to the Stock Market). Come, investor. The markets are safer today than they were in the past.

The article is based on Finance Minister Yashwant Sinha's speech at the inauguration of the Investors Grievances Forum's Jaago Investor Abhiyaan campaign at the Bombay Stock Exchange on January 18, 2001

Design: Lynette Menezes

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