Letters: Case against control

This refers to the article “Ownership and governance of MIIs” by Jaimini Bhagwati (January 21). It is surprising that the views of Mr Bhagwati, who is India’s ambassador to the European Union, have undertones of ideas belonging to a socialist and controlled era.

• Mr Bhagwati says market infrastructure institutions (MIIs) are natural monopolies similar to public utilities, so multiple entities may not be commercially viable. This argument doesn’t hold true since similar belief was once held in the case of airlines and telecom companies. But the multiplicity of airlines and telecom operators has enhanced penetration, reduced costs and is profitable for all new operators except the change-resistant old monopolies like Indian Airlines, Bharat Sanchar Nigam Ltd and so on. 
   
• Mr Bhagwati rightly believes that regulators cannot keep up fully with market innovation, which is best understood by MIIs and, therefore, recommends self-regulation. But breeding inefficiency in MIIs by curtailing their power to raise money for development, innovation and better governance cannot solve the problem. Either the Securities and Exchange Board of India (Sebi) will have to upgrade itself like the Reserve Bank of India, which oversees all the operations of banks, or it may have to trust an insulated regulatory outfit like the Financial Industry Regulatory Authority (FINRA), which the US Securities and Exchange Commission trusts. Carving out FINRA-like organisations from the exchanges and staffing them with professionals from Sebi will be a cost-effective and proactive solution for the Indian market. 
   
• It is shocking to know that Mr Bhagwati attributes the global meltdown to MIIs not being proactive in ensuring adequate risk capital. This is the approach of a controlled-era bureaucracy, which believes everyone other than public servants is wrong. The global financial crisis was a symptom of prolonged excess liquidity further leveraged through over-the-counter derivative products. No exchanges in the world suffered during the financial crisis or caused the financial crisis. Expecting MIIs to suggest policy changes on issues that are also being overseen by the regulator and entrusting them with protecting and developing the market is asking for too much. This approach has dented our growth in the past. 
   
• The author has caused his personal confusion to creep into the issue of listing MIIs by attributing unconnected reasons to justify monopoly and prevent listing MIIs, which is crucial for growth and development of MIIs. Profit maximisation does not result from listing or non-listing but is a natural business effort of all corporate enterprises. It is the monopolistic approach that is bad for an economy, since it breeds abnormal profits and inefficient enterprises.

The Indian government must send the right signals to the eurozone, or else our bureaucracy may build a case for protectionism, thus hurting Indian economy.

Anirudh Sen, New Delhi