Limited role of government in finance now: Swaminathan Gurumurthy

Global rating agencies and index providers such as S&P Global Ratings and MSCI have already swung into action, are our financial market regulators moving too fast in dealing with the Adani crisis?

What is not remembered is that the financial system has institutionalized rating and investment research agencies, and all Adani companies and securities are appropriately rated as creditworthy. A Corporate Finance Institute (CFI) statement on the role of rating agencies: “Rating agencies play an important role in assessing the creditworthiness of any corporation or country. Ratings are important because of the existence of imperfect markets and asymmetric information where The company knows better than the investor whether it will be in a position to meet its commitments.”

If something goes wrong, the rating agencies should be the first to respond. But they are the ones who have started asking questions.

S&P Global Ratings and MSCI are hiding their mistakes behind so called quick actions. RBI and SEBI (Reserve Bank of India and Securities and Exchange Board of India) stand on a different plane and cannot be clubbed with them.

SEBI relies on the work of agencies such as S&P Global Ratings, and the Indian financial system relies on MSCI to include Adani Securities in its index.

The Hindenburg charges relating to governance, audit and valuation ratios are within available market information, and should be known to all institutional investors. When institutional investors, who are well informed, invest, retail investors follow. This is how top-down markets work. Those who have achieved such a huge milestone in such a short time like Adani will have a lot to answer for. He has to be investigated. But the manner in which it happened should also be probed, because in future, any group can be targeted by bear cartel at crucial times like IPO etc.

The Supreme Court said it would appoint an inquiry committee on the regulatory framework, rejecting the Centre’s sealed cover proposal. Your thoughts

I don’t think the Supreme Court is doing the right thing by having a super committee above SEBI. It should trust SEBI. The action of the Supreme Court is in fact tantamount to expressing lack of confidence in SEBI, which will seriously damage the image of the Indian regulatory system in the global market. Only in politically sensitive cases like the Hawala case and Gujarat cases did the court directly or indirectly supervise the investigation. The Hindenburg report says Adani manipulated the market, misled companies and violated promoter-holding rules. These are not issues for the SC to attend to.

To the best of my knowledge, the only case where it is suspected of political patronage is in Adani’s port capacity building, in which only two ports were awarded directly by governments to bid – one in 1994 by the Congress government in Gujarat and the other in 2015 in Kerala In by the Congress Govt. Other ports were bought by the Adani group from private operators. This means that the current political system has little to do with Adani port capacity building.

SC may direct that concerned agencies SEBI, RBI and ED should investigate the matter within a time limit. If a court-appointed committee starts directing and supervising all three agencies, it would be setting a very wrong precedent.

The sealed cover model was not a good model. This was to avert the wrongful consequences of the bad precedent of interference of the court by obstructing the investigation. Whichever agency investigates a case, it begins collecting prima facie evidence, forming hypotheses about what happened, and when it finds prima facie wrongdoing, it begins to exercise its tremendous powers. Makes it Till then, the investigation should not be in the public domain. Especially when it pertains to the market, the regulator has to be careful not to create panic, unless it is clearly doing wrong. Keeping this process transparent and in an open court would defeat the very purpose of security checks which are sensitive. Just as wrongdoing can harm public investors, so too can wrongdoing. It is expected that the Supreme Court will follow the sealed cover model and not allow weekly briefings to the media in the name of transparency till the investigation is over and ready for disclosure.

No regulatory mechanism or legal forum expressed concern when the shares started trading at higher valuations amid modest profitability at the group level…

They are all on the run because of the wisdom gained from an adverse turn of events. In Adani’s case, everyone, from rating and investment agencies to regulator SEBI and stock exchanges, must share the responsibility for not overseeing the unprecedented rise in share prices. Rating and investment agencies downgraded the entire US financial system, leading to the 2008 crisis. In the words of Alan Greenspan, when everyone is lacking [whom I don’t admire much]There was apparently “irrational enthusiasm” in Adani shares.

The group’s high level of foreign debt has attracted views from global investors that may be unfavorable to the political dispensation. Has the government’s response been adequate?

In a market economy, the fundamental principle is that the government trusts the market and its operators, rating agencies, investment trustees and mutual checks and balances between the players. If it does not, it should bring in controls that restrict the economic forces and players of the market. The mutual checks and balances of the market mechanism seem to have failed in Adani’s case. The government’s response can only be to ensure that regulators do their job and, if they are inadequate, to amend regulations for the future. and to investigate whether any wrongdoing is motivated by crime and initiate action. That would be the last. Today there is a qualitative change in the character of the financial market and in the role of the government as compared to the 1980s when it was governing the financial system. We cannot ask such questions as if the government is playing a role which it did earlier. Although the rules have changed and the government has been stripped of its power of control, the public and even judicial psychology continues to hold the government accountable just as it did in the 1980s.

Is there an allegation in some quarters of a foreign hand behind Adani’s allegations?

Given the open hostility of some financial sharks like George Soros to India and the Prime Minister—Soros specifically mentioned the Adani issue in the context of the Prime Minister—I would not deny some converging and powerful forces at work. Adani’s incredible growth may have provided him with an opportunity to attack the Indian market in hopes of damaging it. This also needs to be investigated.

This crisis has brought Vinod Adani’s name to the fore. How do we ensure that regulators and governments can extract the required information from tax havens at such times?

At the 2015 G-20 summit, India, France and Germany spearheaded an agenda for greater transparency and greater disclosure from tax havens, but ironically it was opposed by the US, which, according to a 2015 report As of now, there was an estimated investment of $4-5. trillion from tax havens. However, since that summit, there has been more disclosure and exchange of information between tax havens and other jurisdictions, leading to improved transparency and accountability, tax avoidance and more opportunities for potential violators seeking financial privacy. became difficult But, this is a global problem and work is underway.

The issue is even when structures or funds are operated from tax havens, once there is a loss of name for an entity that raises money from the public, the ability to do business is significantly affected, as is being seen currently. . Such problems exist everywhere. But no one will compel you to provide the information unless there is an arrangement or treaty available between jurisdictions for the exchange of financial information, such as a double taxation avoidance agreement.