Concern on India system of paid news

An effort by the Indian regulator to clamp down on a practice in the country’s media of providing advertising and news coverage to publicly listed companies in exchange for shares, bonds and warrants is unlikely to curb the business, industry insiders say.

The Securities and Exchange Board of India has notified the Press Council of India, the watchdog, about what has become one of Indian media’s biggest businesses amid concern that it could be used to influence the price of shares.

“Needless to say, biased and motivated dissemination of information, guided by commercial considerations, can potentially mislead investors in the securities market,” Sebi said.

Sebi ordered that newspapers and television stations put into effect recommendations from the Press Council, including a requirement to disclose any stakes they might have in a company they are reporting on and to publish their portfolio of investments on their websites.

Known as “private treaties”, the business of selling news coverage for shares was pioneered by the Times of India a few years ago, and is now widespread in India’s national and regional press.

The system is seen by some critics as one of the greatest threats to media ethics in India, the world’s biggest democracy.

“The phenomenon of paid news has acquired serious dimensions,” the Press Council said in a report that also looked at how political parties pay media outlets for coverage.

“Today it goes beyond the corruption of individual journalists and media companies and has become pervasive, structured and highly organised.

“In the process, it is undermining democracy in India.”

However, the Press Council’s chairman, Justice Ganendra Narayan Ray, admitted that the body’s only power was to censure an offending journalist or outlet if they violated the guidelines.

An executive at Sebi told the Financial Times that in spite of placing the Press Council order on its website, it had virtually no powers to act on the matter.

Sandeep Parekh, a corporate lawyer and former executive director at Sebi, said the move was toothless.

“I don’t think anybody’s serious about enforcing it, and without enforcement, I don’t think anybody’s going to move,” he said.

It is the stock market that has put the biggest brake on the practice.

The private treaties business boomed when India’s stock market was rising before the global economic crisis struck.

But many of the small and medium-sized companies that listed their shares during this period were hardest hit by the crisis, causing media companies that had entered private treaties with them to suffer losses.