For want of any recruitment policies (20 May 2001)  

When Sebi chairman D R Mehta briefed the Joint Parliamentary Committee (JPC) last week, he asserted for the umpteenth time that regulator did not have adequate powers to supervise the capital market effectively. What he did not say was that even if Sebi had had all the powers that it desired, it would have been hobbled in its efforts by its other frequent complaint—that it does not have adequate human resources. In fact, the surveillance and supervision department, which produced the preliminary investigation report for the Finance Minister, had only 18 persons working with it.

In the last couple of months thing have got even worse. Three executive directors (EDs) who have completed their deputation term and left the organisation, have not been replaced. Two of these were senior EDs, the last to leave being L K Singhvi who headed the investigation and surveillance functions. A fourth ED is scheduled to leave by July-end and a couple of divisional chiefs will make their exit soon after. Also, Prof J R Varma who was barely appointed as a member a year ago, has chosen to return to IIM Ahmedabad in June. This means that bang in the middle of a massive financial scandal, which is deemed serious enough to warrant a JPC investigation, Sebi does not even have a surveillance chief to head the short-staffed department. Finding a replacement is not going to be easy either. Sebi cannot simply uproot another income-tax officer and assign him to supervision, not if it wants a glitch-free investigation.

Why does Sebi find itself in such a mess? If asked the question, Sebi would probably blame it on the finance ministry’s decision not to grant extensions to its EDs and senior officers on deputation. The ministry in turn would probably blame it on the fact that Sebi has no recruitment policies and has made no efforts to find replacements even though it knew that the terms of several EDs were coming to an end. The ministry would find strong support from Sebi’s now weakened officers association, which has been conducting a low-key internal agitation to protest against ad hoc recruitment and promotion policies for a long time. They have complained about, the lack of promotional avenues and the tendency to fill up senior appointments with influential officers on deputation. It would also be revealed that Sebi has ignored the Comptroller and Auditor General’s remark asking it to put in place a proper HR policy.

Sebi insiders say that the chairman made no effort to find replacements because he was hoping to wrangle extensions for all of them. But why blame Sebi? The government did exactly the same when it came to the chairman’s appointment. When D R Mehta’s term came to an end, the two candidates who would have been eminently eligible for the post were quickly shunted to the Election Commission and the TRAI respectively. One of them was bluntly told that the post was not available and when the time came, a magnanimous Prime Minister’s Office converted the Finance Minister’s recommendation of a one- year extension to Mehta into a two-year extension. That itself established an HR policy of sort—if you make no attempt to find a replacement to an existing deputationist, the finance ministry can always be scared and arm-twisted into granting an extension. This time the finance ministry had very rightly decided to act tough and refused to succumb—the problem is its timing.

Though the JPC will ostensibly investigate the scam of 2001, it members are unlikely to understand the technicalities of capital market operations or be able to establish price manipulation by following complex audit trails. In 1992 (though the JPC hardly gave it any credit), it was the six reports of the Janakiraman Committee, which formed the basis of the JPC investigation. The committee comprised of officials from the RBI, income-tax department and the CBI. This time there is no equivalent of the Janakiraman Committee. Sebi has produced a preliminary investigation and the CBI is pursuing its own inquiries. In case of Bank of Madura and Global Trust, among others, both agencies have separately found out same links and connections, but there has been little effort to share information and avoid duplication.

Clearly, Sebi needs to put in place a comprehensive HR policy including eligibility rules for various posts. Top jobs at the regulator simply cannot be bagged on the basis of who has the best connections and lobbyists. At the same time, the finance ministry and the Sebi board will have to find a way to expedite appointments. In fact, finding a replacement for Prof. Varma is clearly in the finance ministry’s domain, but it has made little headway in finding the right person. Similarly, if Kumaramangalam Birla finds it difficult to attend Sebi meetings, he too should be requested to make way for someone who will participate more effectively.

But all these decisions have to be taken now – before the JPC hearings begin in earnest. Otherwise, the entire investigation could well dissipate and an opportunity to clean up the system will be lost again. Worse still, the probe may end up being lop sided, superficial and could easily dwindle into a witch hunt which is orchestrated by the many lobbyists and advisors who have already sprung up to advise the JPC.