For several years now, US investor T.RowePrice (TRP)\u2014it holds a 26% stake in UTI\u2014has been fighting a pitched battle with UTI\u2019s PSU shareholders over the need to run the mutual fund in a professional manner. Even Sebi regulations make it clear the PSUs\u2014SBI, LIC, Punjab National Bank (PNB) and Bank of Baroda (BoB)\u2014can\u2019t be behaving in the manner they are. Indeed, the rules talk of them needing to dramatically lower their stake by next March, but the finance ministry refuses to step in to resolve the issue\u2014at stake are the interests of 11 million shareholders, lakhs of pensioners, Rs 3.6 lakh crore of UTI\u2019s corpus and India\u2019s reputation as a safe place for global investors. The treatment meted out to Cairn Energy, which should infact be feted for its efforts in finding new oil\u2014it now produces a fourth of India\u2019s oil output\u2014is even worse. After Pranab Mukherjee\u2019s infamous retrospective tax, the UPA government hit it with a $1.6 billion tax demand. Though the BJP\u2019s election campaign focused on the UPA\u2019s tax terrorism, it didn\u2019t remove the law when it came to power; as a face-saver, finance minister Arun Jaitley said he would respect what various courts of law ruled on individual cases. Even if you ignore the fact that the government tried to delay the global arbitration, the taxman has seized Rs 1,106 crore of dividends due to Cairn Energy from Vedanta, it didn\u2019t allow Rs 1,594 crore of capital gains tax refunds and, after seizing $1 billion worth of Cairn\u2019s shares, it sold off 40% of these and is now planning to sell off the rest, even as the arbitration is going on. Why the government is behaving in this manner is not clear, but this is hardly any way to welcome investors or even reassure them of the government\u2019s good intentions. Hardly surprising then, that India has not seen too many really big foreign investments in the manufacturing sector since Narendra Modi was sworn in; the biggest ones are in e-commerce which, interestingly, are technically illegal since the government does not allow foreign investment in the retail consumer space. Should the government want to woo FDI in a serious manner, this approach cannot possibly carry on. The UTI story began in 2003 when, in order to bolster confidence after the US-64 collapse, the government brought in LIC, SBI, PNB and BoB as shareholders. Since each one ran their own mutual funds, the Joint Parliamentary Committee (JPC) set up to inquire into US-64 was against this, but said that, if there was no other option, the \u201cinherent conflict of interest as regards these institutions\u201d had to be taken care of. Sebi then came out with various rules and regulations to ensure this. Among others, it said the PSU firms couldn\u2019t nominate their employees as directors on the Asset Management Company\u2019s (AMC) or the trustees\u2019 board\u2014the trustees are ultimately responsible for the mutual fund\u2019s running\u2014and that there had to be Chinese walls between the sponsors and the AMC. And, earlier this year, Sebi came out with even stronger rules preventing anyone running a mutual fund from owning more than 10% in another\u2014each of the four PSUs own 18.25% in UTI\u2014and the rules have to be complied with by next March. What\u2019s happened despite these rules, however, has been the exact opposite. In 2011, the finance ministry, under Pranab Mukherjee, tried to foist its nominee as the head of UTI. While this was foiled, LIC has since tried to take over UTI and, at one point, as FE reported, both LIC and SBI wrote to the board of the UTI AMC asking it to allow the term of the current MD and CEO, Leo Puri, to expire and to appoint a non-executive Chairman from among the \u201cindependent directors\u201d\u2014only the nominees of the PSUs are considered \u201cindependent\u201d since TRP\u2019s nominees clearly do not fall in this category. While writing to the AMC\u2019s board is enough to make it clear LIC and SBI have the \u201cinherent conflict of interest\u201d the JPC warned against, TRP has written to Sebi citing proof that LIC\u2019s nominated director had a financial relationship with it and was, therefore, not \u201cindependent\u201d as was required by the law. But, even if you ignore TRP\u2019s allegations, which LIC has denied, surely it is in the interests of everyone if there is a broad-based IPO since this will allow market-discovery of UTI\u2019s worth, based on which, LIC, or anyone else, can make a bid to take over it. Yet, for a long time, the finance ministry was pushing for a small IPO\u2014this would allow the government to install its CMD since, with a stake below 26%, TRP couldn\u2019t oppose this under Indian law! By the way, if the PSUs continue to vote together even after they lower their stake to 10% each, UTI will never become a professionally run firm. When the government knows Parliament\u2014as represented by the JPC\u2014was against LIC\/SBI\/PNB\/BoB buying into UTI because of the \u201cinherent conflict of interest\u201d and when Sebi has made it clear they have to reduce their stake to below 10% each, how can the government sit by and allow these board-room games to continue? Indeed, the trustees\u2019 board, which is responsible for the running of the mutual fund\u2014even a cursory reading of Sebi\u2019s mutual fund regulations makes this clear\u2014has reiterated the need for the PSUs to lower their stake and pointed to the fact that not having a CEO\/MD will adversely affect the proposed IPO. The government may have won Parliament\u2019s trust vote due to its numbers, but winning the trust of investors will need some genuine action.