It’s high time we strengthened our institutions

The judgment in the 2G scam is a wake-up call for the government to spruce up its machinery to strengthen its institutions. The judge who tried the 2G case, acquitting the 22 accused, said that he had to decide it on the basis of the evidence presented. It can thus be concluded that the evidence had not been convincingly presented.

We have seen similar verdicts where improper presentation of evidence leads to acquittals. As Pratap Bhanu Mehta, in his opinion piece in the Indian Express concludes, unless there is strengthening of our institutions, be they the courts, investigative agencies, law enforcement agencies, or bureaucracy, and unless there is stricter accountability, we would see more such decisions. The first big one would be the case against Vijay Mallya. Should he also be allowed to remain in Britain (perhaps on the ground that the prison system in India is abysmal, as his defence has claimed), it would make a dent in the government’s claims of rooting out corruption.

The verdict in the 2G scam is leading to other consequences; one of those whose licences were cancelled and fees forfeited, C Sivasankaran, is seeking to get a refund of ₹3,400 crore paid by S Tel, his company. Others may follow.

The government must also work to clear the perception that whilst the larger fish escape scot free, the smaller ones are pursued with great vigour. Thus, SEBI did not take any action against FTIL in the NSEL scam, on the grounds of jurisdiction, maintaining that NSEL came under the Forward Markets Commission (FMC). Even after FMC was merged into it, SEBI did not take any serious action. Yet, last week, it fined 63 Moons, the new name for FTIL, ₹1 lakh, for failure to inform the name change. A mere rap on the knuckles for a transgression, but little action on a scam involving 13,000 investors.

As these columns have been pointing out, the judicial system, and its cohorts, the lawyers, also need a review and reform. Just last week, the lawyer to Martin Shkreli was convicted by a federal jury of helping Shkreli commit securities and wire fraud. Shkreli had acquired notoriety by hiking prices of a drug called Deraprim, to $750 a tablet from $13.50. It is difficult to foresee a time when this could happen in India.

The attempt to clean up the banking system of bad loans by establishing the National Company Law Tribunal seems to be faring better. Threats of referring companies which have defaulted to lenders or to trade creditors, is leading to asset sales on a significant scale. Once balance sheets of banks are fairly well cleared up, the government plans to merge them in clusters, to create four or five large PSU banks, with a view to create large banks of global scale.

It is the structural reforms such as GST and the Bankruptcy Code, and the favourable demographics of India, that are leading institutions such as Centre for Economics & Business Research to conclude that India will overtake the UK and France in economic size. But for this to happen, we must strengthen our institutions, make them more independent and accountable.

(The writer is India Head — Finance Asia/Haymarket. The views are personal.)