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February 17, 1999


The sacking of Guruswamy -- II

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Part I

This was not the first time the finance ministry appeared to have got its wires crossed. On the issue of counter-guarantees to foreign capital investing in India -- specifically Enron -- even while a debate was still going on in the ministry, even committed liberalisers like Manmohan Singh and P Chidambaram had, during their tenure as finance ministers, opposed open-ended counter-guarantees. And yet, there were reports in the newspapers that the finance ministry had agreed to Enron's demands.

Reports also began appearing about a 'clash' between the finance ministry and the FIs on the issue of the credibility of GE Caps, an arm of General Electric, one of world's biggest multinational corporations. The finance ministry was reportedly 'unhappy' at the functioning of GE Caps because its "aggressive lending practices" were hurting Indian (swadeshi) non-banking financial companies.

The central issue was the 'letters of comfort' or credit, which were non-enforceable in India's courts. The finance ministry told newspapers that it wanted FIs not to buy any of the paper issued by GE Caps because it was too risky.

The fact is Yashwant Sinha was as surprised to read this in the newspapers as the CEOs of financial institutions. While the FIs conceded that about ten per cent of the asset base of the GE Caps' Indian subsidiary was loaned by UTI and ICICI, this could scarcely become the reason to hold the corporation to ransom over its lending practices. Especially when the Indian branch was assured support from the parent body by way of additional equity of US $ 200 million to meet its financial obligations.

But there it was, in black and white: reports which said the government had told FIs not to put any money into GE Caps. The FIs, who thought the government was going to leave them alone, told themselves bitterly that this government was as intrusive as all the others. They had no means of knowing that this was not a government decision, but in fact the view of an Officer on Special Duty.

The issue of UTI and ITC showed a similar confusion. BAT (formerly British American Tobacco) holds less than 40 per cent share in ITC. UTI and other financial institutions also hold a percentage of shares. The company is under Indian control. If BAT bought shares from UTI, the control of the company would slip into foreign hands.

The finance ministry was said to be of the view that this shouldn't be allowed to happen. So UTI should not be allowed to sell its shares to BAT -- if it did, the Securities and Exchanges Board of India must be told, so that the takeover code can be tightened.

But wouldn't that amount to curtailing the autonomy of UTI? The minister held one view while his ministry appeared to be having another.

Wherever he would go, Yashwant Sinha would be asked to clarify what his policy really was. It was as if the finance ministry had suddenly sprouted two heads, each viewing the same issue in radically different ways. FI chiefs would go home after a discussion with the minister, and find, when they opened the newspaper with their morning tea, that the report said the opposite of what they'd agreed on.

However, this was happening only in issues relating to the capital markets. No reports appeared about the finance ministry's position on employment, or the dovetailing between industry and environment, or rural development, or infrastructure. In fact, those announcements came from the PMO, when they ought to have come from the finance ministry.

Sinha did a little sleuthing. The OSD to the minister was reported to be holding his own little durbar in the finance ministry. Reporters tended to gravitate to his room: here you could get information with ease in a ministry noted for its opaqueness. What Pramod Mahajan had been to the government in his incarnation as the Prime Minister's political adviser, Guruswamy appeared to be to the finance minister. The only difference was Mahajan could be faulted for being indiscreet, but was never inaccurate. Guruswamy was both indiscreet and inaccurate.

Take for instance the report that the finance ministry was considering disinvesting its stake in Maruti-Suzuki. Guruswamy and the finance secretary were returning after a visit to the industries ministry and were credited with the view that this was a serious option.

In fact, it was just a thought which was tossed up in casual conversation between the finance minister, the finance secretary and the officer on special duty. Sinha knew no such proposal existed. The finance secretary was confused because he understood that it was wasn't even a proposal. So only one person could have announced it as a decision of the government. And coming from him, it would also have been credible: Mohan Guruswamy.

The story, which appeared in at least two national dailies, had to be denied by the finance ministry.

How Guruswamy was shown the door

Courtesy: Sunday magazine

Mystery shrouds Guruswamy's exit from finance ministry


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