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Indian Economic Policy

Notes form of investment which was safe, which brought in steady income and which was liquid enough.
“Two crore investors come to UTI with safety and income expectations”, stated the last CMD of UTI.
The whole edifice of UTI, however, crumbled in September-October 1998 when the prestigious Unit
Scheme 1964 called US 64 came under serious trouble because of a serious depression in the Indian
Stock market.
UTI finally collapsed during 2001-02. An institution built on the confidence and faith of crores of
savers from lower and middle income groups was been callously ruined by scheming and petty
politicians colluding with incompetent and corrupt bureaucrats on the one side and unscrupulous
business houses and stock exchange brokers on the other. There were many reasons for the failure
and collapse of UTI.
(a) UTI was forced—top officials of UTI and of the finance ministry were heavily bribed - to invest
in the shares of scheming business houses and fly-by-night operators. These shares lost their
value or, some cases, they became worthless pieces of paper. UTI was made to lose thousands
of crores of rupees in this way.
(b) The management of UTI was again bribed heavily by leading business houses to extend loans
to them or to their subsidiaries; these loans were not repaid and became NPAs.
(c) While the basic purpose of UTI was to mobilise the savings of the poor and the middle classes,
the Finance Ministry used these funds it as an instrument to support and influence the stock
exchange. The UTI funds were extensively borrowed by unscrupulous stock brokers—Ketan
Parekh was one-to manipulate the stock exchange, often against the interests of UTI itself.
(d) Finally, the former Finance Minister, Mr. Yashwant Sinha and the Finance Ministry officials,
killed public confidence in UTI through their wrong and misleading statements about the
ownership and management of UTI. They allowed large corporate members to withdraw their
investments in US-64 units at high prices, when they had the secret information that UTI was
about to collapse.
The complete failure of UTI was yet another glaring example of the interference and
mismanagement of financial institutions by ill-qualified and corrupt Finance Ministry officials
of the Government of India.
LIC and GIC
Apart from the Unit Trust of India which mobilises the savings of the public to specifically invest in
the industrial securities, there are two other, investment institutions in the country—the Life Insurance
Corporation of India (LIC) and the General Insurance Corporation of India (GIC). These two institutions
specially LIC collect large amounts of funds from the general public to provide insurance cover but
they use part of their funds to give long term loans to the corporate sector or to acquire industrial
securities (shares and debentures) from the market. Because of the large funds they are able to mobilise,
these two institutions have become powerful operators in the stock exchange.
During 2006-07, LIC had disbursed term finance and other financial assistance amounting to ` 27,000
crores to the corporate sector.
DFIs and the Corporate Sector

It is useful to remember that the public sector financial institutions, specially IDBI, ICICI and IFCI
sanctioned direct financial assistance to newly established companies to meet their block capital
requirements. In the case of existing companies, direct financial assistance was made available on
account of expansion of existing capacities, modernisation plans, etc.
Apart from the fact that there was considerable increase in the volume of loans sanctioned and the
amount disbursed by the term-lending institutions, till 2000-01 there was a noticeable rising scale of
financial assistance rendered by them to the small-scale industries, to projects in backward districts
and to new/small entrepreneurs. For example, in case of projects located in backward districts,
sanctions and disbursements by term-lending institutions had increased substantially in recent years.
The DFIs were set up and developed to meet specifically the requirements of industry for term finance
and equity capital and foreign currency resources. They were expected to overcome the inadequately

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