The Securities and Exchange Board of India (Sebi) wants to teach the entities it controls some lessons on geography. But teaching geography with a political map can be misleading. One should also take into account the topography. Then there is biology, anthropology, behavioral finance… the list seems endless.
As the regulator seeks to push people into new regions, it should not ignore the conditions that have led to the current state of affairs and also be aware of the conditions these people pushed to the new areas may encounter.
According to a 2010 McKinsey study, Mumbai accounts for 25 per cent of the industrial output and 70 per cent of the capital transactions in the Indian economy. It is the corporate capital of India and houses most of its billionaires. Is it not natural then that 40-odd per cent of the country’s mutual fund assets come from Mumbai?
Given these numbers, to me, the latest moves are akin to saying “Mumbai is too crowded and congested. So, let us move 30 per cent of the people living there to Jaisalmer district in Rajasthan or Ladakh, which have many times the space but a fraction of the population.” People going into these newer geographies should also be aware of the birds and animals they may encounter on the way.
A flightless Australian bird has been making waves in the South. An enterprising businessman based in Perundurai in Tamil Nadu’s Erode district was imaginative enough to spin a collective investment scheme around it. Soon others followed suit taking Emu to such heights in the investment world that none of its sister species, despite their amazing flying abilities, have managed to reach. Hundreds of crores were riding on the two-legged. Today, owners have taken flight, the birds look set to go under the state government’s oversight and the investors stare at a long fight.
Then there are shape-shifting dinosaurs in the North. Recently, this enterprising businessman from the Northern hinterlands announced an ambitious project to sell a wide range of products. There is no regulation or regulator in this field of activity. This new business will use a million strong network of people who were largely trained aggregators of daily and weekly savings from paan chewing, KYC-hating small towners. One of his sidekicks told me that they already have 7.5 crore ‘customers’ on day one. This network of aggregators has run in to troubles with at least two financial sector regulators in the past.
In the East, there is a different problem. A friend in one of the Eastern states tells me that agriculturists in his area take little care for the company or the instrument when they float it in the post-harvest cash flood. “Regulated ya unregulated to door ki baat hai. Nobody has even heard of Sebi here,” he said. Most businesses in these places get done on ‘face’ value of the agent, who is often a friend or a relative. Armed with commissions and incentives that often go up to nearly half of their collections, these agents are the proverbial lions in Tier-II and III dens.
These anecdotes show how Sebi itself, a roaring lion in Mumbai, becomes a lamb outside it. If mutual funds have to survive alien conditions and beat such formidable competition, they need more than these 30 basis points from Sebi. The regulator first needs to make its presence felt in these areas. It should make the environment in these locations outside the top 15 cities hospitable for regulated products. If the geographical spread was just an excuse to help the funds rip the investors a bit more, then it’s fine. Just the status quo will do.
