Bimal Jalan report ensures NSE monopoly

The Bimal Jalan committee on stock exchanges has delivered a set of ridiculous recommendations...

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Profit is a dirty word for Bimal Jalan committee — provided it means what it says!

The report of the Jalan committee, packed with regulatory officials, is a throwback to the days of licence-control raj. The hidden agenda: put off new entrants and favour the current monopolist

The Bimal Jalan committee set up to 'Review Ownership and Governance of Market Infrastructure Institutions' (MIIs) believes that stock exchanges and other institutions should not be making money more than a few percentage points above the RBI bond rate. MIIs are organisations that are core to the stock market system, such as stock exchanges and depositories. This extraordinary idea of capping profits will immediately remind people of the late '80s when Indian industry was subjected to price controls through the Bureau of Industrial Costs and Prices (BICP). Electricity companies were governed by a law that put a cap on their returns at 16% of capital employed. Such stifling policies discouraged business enterprise and kept the private sector stunted between independence and the early '90s.

India has long moved forward. Almost all products and services are free from such mindless control. There are hardly any caps on profit in any business. But a group of bureaucrats and two odd choices from the private sector, who were part of the Bimal Jalan committee, felt that MIIs should not make more money than a prefixed level.

"The MII being a public utility should endeavor to earn only reasonable profits at par with average earnings of the corporate sector in India. Therefore, it is recommended that a cap may be fixed on the maximum return that can be earned by MII on its net worth and can be distributed/ allocated to the shareholders of MII out of the total returns earned by MII. Any return/ profits above such maximum attributable amount would be transferred to IPF or SGF as the case may be and the same would not form part of shareholders funds/ net worth for the purposes of determining returns and book value of the shares. This would strengthen the MII to withstand shocks, make them robust and may lead to reduction of the charges levied by MIIs on the users." IPF refers to investor protection funds in which hundreds of crores are lying and are often misused by the exchanges. SGF refers to the settlement guarantee fund.

The committee felt that the cap should be based on the yield on a 10-year government bond and a 'risk premium' to account for the risks faced by MIIs, including equity risk premium and liquidity risk due to non-listing of MIIs. It would also take into account the "differential tax rate applicable to unlisted entities as the Committee has recommended that the MIIs should not be permitted to list." The committee also helpfully pointed out that "the rate of return may be reset by SEBI considering the change in risk-free rate of return, inflation, etc."

There are no explanations why exchanges have to be seen as public utilities, and if they are, why should they be headed by managing directors earning salaries of Rs7 crores per annum-more than many profitable private sector companies-and not by officers from, say, Indian Audit and Accounts Service earning 1% of that figure. It also does not explain whether Goldman Sachs and New York Stock Exchange bought stakes in National Stock Exchange (NSE) thinking that they are buying into a public utility.

So, why did the Jalan committee members come up with this thought? In India, nothing can be taken at face value.

The fact is that the Jalan committee's characterisation of Indian exchanges as public utilities has nothing to do with any belief. It is a design to make the exchange space totally unattractive. Who in his right mind would take the lead to set up an exchange if returns are capped? Who else would invest in an exchange like that? And if no new exchange comes, who is the beneficiary? It is the stock exchange that is running a monopoly today, with 94% of daily volumes.

What is remarkable is that a bunch of government officials and a couple of opportunists from the private sector have sat for months and come out with a devious plan such as this.

Our earlier report on the Jalan committee today, listed many ways in which the committee is out to protect NSE's monopoly. This report shows another aspect of the intrigue. It is remarkable that almost five days after the report has been released, the media has not bothered to delve into various aspects of this half-baked piece of work.




6 years ago

In an undated speech as recorded in the RBI Monthly Bulletin, June 12 1998, Bimal Jalan had quoted Schumpeter as:

12. What is the process through which these technological innovations get transmitted to higher growth trajectory? Let me turn to Schumpeter once more. Schumpeter describes this process as one of creative destruction; in his own words,

"The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new…goods, the new methods of production or transportation, the new markets, the new form of industrial organization the capitalist enterprise create…(These) illustrate the same process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly, destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism."

As can be understood from the above, creating and nurturing monopolies is antithesis of the above philosophy. Monopolies resist any change, more so a disruptive change. One will wonder why has Jalan ideologically converted into a nehruvian and fabian socialist? Had he joined old congess of 70's? Or is it BJP's new manthra for success in Bihar elections?



In Reply to santdaveed 6 years ago

If I remember right, Mr. Jalan had authored a book which covered issues such as good governance and our politics. santdaveed has also pointed out Mr. Jalan's views on capitalism. Yet when the time comes to bring in real change, most of our leaders have failed us.


6 years ago

Right now the so-called market forces help speculators. No ordinary investor gets much benefit. The share prices except in few cases like Infosys ,SBI etc have nothing to do with performance of the concerned company. Who is getting the profit? Evidently the speculator. Why should they get profit ? The solution lies in linking the share price to the performance of the company. This will act as incentive to improve the performance. Heavens are not going to fall if speculators do not make windfall gains. The present concept which suits only vestedinterests is lopsided. License permit raj is flourishing now with examples like 2G scam.


6 years ago

All the business channels seem to be indulge in a mutual back scratching game. Have any one of them discussed anything controversial in detail. Any investor who has basic knowledge of balance sheets and P & L statements, knows that many managements of not so well known companies is in cahoots with operators. Yet, all the channels seem to say that INDIA IS SHINING. Sadly, there is no good watchdog for our markets except for a few fighters like Ms. Dalal and Mr. Basu. Investors should realise that a clean markets is always rated higher. That is why Infosys commands a better PE than stocks like Satyam.


6 years ago

what is the need for these committee? when demutualisation scheme approved by sebi , based on that approval investor invested / subscribed to equity shares of Stock exchanges, the scheme allows self listing. Now if listing is nnot allowed then how the investor gets exit? liquidity ?

why sebi came out with corporatisation and demutualisation policy/guidelines and why forced the rse(regional stock exchanges) and bse to opt / implement the demutualisation scheme with 5% ceiling for one entity.

Self listing was part of scheme
trusting sebi guidelines citizens invested in shares of RSE's and BSE, now what made sebi to think of bimal jalan committee and change in earlier scheme.

Will sebi come out / spell how the investor who subscribed to shares of stock exchanges (demutualisation) will get exit or liquidity to its investment during demutualisation as per sebi directives

Sebi permitted / allowed nse and otcei to 15% ceiling where as it directed other RSE for 5% ceiling to other stock exchanges, why these difference?

It is well established that a person retiring / or directed/ forced/asked to go , shall be given benefits like retirement / compensation but exit policy / demutualisation scheme for forcefully implemented by sebi though it was not ready with exit policy (dated 29-12-2008) delayed by more then one year, why ? who is responsible for serious lapse on their part, is any one accountable / responsible ?
what is status of derecognised Stock Exchange, why exit order not issued inspite of more then 3 year from the date of derecognition ?
Madam, will you take some step to bring facts out and fix accountability?


6 years ago

The media persons and the journalist are trained only to run after the politician and filmy celebraties...collection of masala..


6 years ago

I am surprised that the media is totally silent about it. I wonder why



In Reply to Rakesh 6 years ago

Nothing to be surprised about. The majority of journalists neither understands nor is bothered about these issues.

Friday’s Market Preview: Cautious opening expected

The local market is likely to witness a cautious opening on unimpressive cues from the Asian region and in the absence of triggers from the US markets, which were closed for the Thanksgiving Day holiday. The Asian pack was mostly lower in early trade today on reports that the South Korean defence minister has quit in response to shelling by North Korea and on concerns over the pace of the global recovery. The SGX Nifty was down 15 points at 5,842 over its previous close of 5,857.

The initial public offer of MOIL Ltd opens today, which may lead to funds being diverted for investing in the offer.

The market opened on a firm note yesterday tracking its Asian peers that were trading with modest gains. Choppiness, associated with the expiry of the November futures and options (F&O) contract, made its presence felt since the opening bell. The indices slipped lower in the noon session despite a fall in the weekly food inflation numbers, but bounced back a short while later. However, a downward revision in ratings of some PSU banks that were in the news on account of the housing loan scam dragged the indices sharply lower in the late session. The bellwether Sensex closed at 19,318.16, down 141.69 points (0.73%). The Nifty stood at 5,799.75, a decline of 66 points (1.13%) over its previous close.

Markets in Asia were mostly lower as tensions continued in the Korean peninsula after South Korean defence minister quit in response to the shelling by North Korea earlier this week. A debate on whether the European Union should increase the size of the 40 million euro bailout fund for Euro zone governments, also weighed on investors’ minds.

The Shanghai Composite shrank 1.03%, the Hang Seng was down 0.08%, the KLSE Composite shed 0.01%, the Straits Times fell 0.05%, the Seoul Composite was down 0.47% and the Taiwan Weighted declined 0.20%. On the other hand, the Jakarta Composite was up 0.07% and the Nikkei 225 gained 0.09% in earl trade. The SGX Nifty was down 15 points at 5,842 over its previous close of 5,857.

Back home, A Group of Ministers (GoM) will meet next Monday to consider partially freeing urea prices with the aim of attracting fresh investment in the fertiliser sector.

“The GoM, headed by finance minister Pranab Mukherjee, will consider freeing the price of urea at the November 29 meeting,” a source in the fertiliser ministry said.

As urea is the fertiliser most widely used by Indian farmers, the UPA-led government intends to free the price in a “calibrated” way, without going for total decontrol at one go, the source said.


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