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Business News/ Opinion / Views/  Private firms disclose too little information

Private firms disclose too little information

The government must make a bolder push for business transparency. The MCA’s database should host data that casts timely light on unlisted firms and reveals who really owns what

Photo: iStockPremium
Photo: iStock

Every company has the right to keep information confidential that does not mandatorily have to be disclosed and could hurt its interests, should rivals and others get hold of it. Widely-held companies whose shares are listed for public trading, though, can face a negative market response if they stop revealing numbers they usually do, as Reliance saw this week. Its share price fell after it withheld its gross refining margin in its quarterly results. If markets are disclosure-sensitive for good reason, so are regulators tasked with watching out for anything that might hurt providers of capital or threaten the stability of our financial system. Transparency is the price a business pays for the privilege of limited liability. It is thus a good sign that the government has made it harder for promoters to take public limited companies private—a move often aimed at reducing the data that needs to be disclosed. On Monday, among other rule tweaks, India’s ministry of corporate affairs (MCA) withdrew a provision for automatic approval of such an application in case it elicits no official response within 30 days. The Centre is also reportedly keen to tighten a few laws so that auditors and company secretaries are pushed to exercise their fiduciary duties in proper alignment with all norms and rules. The more closely business operations are watched, the less scandal-prone they are likely to be.

Disclosure requirements vary quite a bit, depending on their ease of access to funds and the general responsibility they bear, as it should be. Listed public firms must reveal the most, as they have minority shareholders who need to be kept in the loop of operational matters that go beyond mere results. But these form only a tiny fraction of all Indian firms in operation. There are unlisted public companies, too, though the majority are closely-held private businesses that are required to reveal the least. While our Companies Act of 2013 narrowed the gap between what public and private entities must disclose, today’s circumstances of business stress in the wake of the covid pandemic, a phenomenon that could add up across thousands of firms to spring nasty surprises (upon creditors, say), would argue for a stricter approach to the latter. Private firms above a specified size with debt higher than a certain level could qualify for enhanced disclosures. They need not offer us a fishbowl view, but just enough to allow aggregate analyses that are more meaningful than what we can perform on data drawn from the MCA’s database. This trove of information was meant to serve as an open resource for descriptors, financial numbers and other data fields filed by firms with the ministry, but has failed to be of much help. Not only is its data updated much too slowly, it is very hard to navigate and make use of. It needs both a design overhaul to make it user-friendly and a revised input protocol to avoid data staleness. Also, this database should never throw up discrepancies of the sort alleged in 2019 that cast in doubt its utility for calculations of gross value addition.

Higher standards of disclosure for private entities would enable superior supervision and also incentivize better internal governance. Business ownership, in particular, should not be easy to obfuscate. In a country given to one maze after another of equity cross-holdings, some of them designed as smokescreens, we require clear disclosures on the beneficial ownership of businesses. What we need to know has evolved. So must regulation.

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Published: 27 Jan 2021, 10:03 PM IST
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