Finance Minister’s Resignation Casts Pall Over Business Realm in India : Scandal: Respected economist is accused of failing to adequately oversee stock transactions. Prime minister has yet to accept his departure.

Manmohan Singh may now wish he was a lighter sleeper.

Singh, India’s finance minister, has submitted his resignation in the biggest financial scandal in his country’s history--a move that plunged business and industrial circles into gloom Saturday over the possible departure of the placid, turbaned former professor, dubbed the “messiah” of Indian economic reform.

“It will be an utter disaster for India if the resignation is really accepted by the prime minister,” warned Keshub Mahindra, chairman of a leading Indian automobile company, Mahindra & Mahindra. “It will put India back by at least 50 years.”

The 61-year-old economist’s bombshell decision, submitted Thursday to Prime Minister P. V. Narasimha Rao, capped a bitter, partisan debate sparked by a parliamentary investigation of illegal activities on the Bombay stock exchange.

After a 16-month probe, a panel of legislators accused Singh’s ministry last Tuesday of failing to ride herd while banks colluded to funnel huge sums to stockbrokers so they could speculate on the market, an act Indian law forbids.

Four foreign banks were among those implicated as “initiators” and “major players” in the scam: Bank of America of San Francisco, Citibank of New York, Standard Chartered Bank of Britain and Australia’s ANZ Grindlays.

After the scandal was bared in April, 1992, the artificial bull market crashed and millions of middle-class Indian investors lost an estimated $1.5 billion.

In a celebrated quip that he must rue today, the Cambridge- and Oxford-educated Singh told India’s Parliament in the spring of 1992 that he wasn’t going to let a stock market boom trouble his nights.

“It is good to have a finance minister who does not lose his sleep easily, but one would wish that when such cataclysmic changes take place some alarm would ring to disturb his slumber,” the 30-member Joint Parliamentary Committee shot back in its scathing report.

The panel, although not accusing Singh personally of misdeeds, said his ministry failed to anticipate the scam, to react to it once it was public knowledge and to move to punish those behind it. “The committee feels that the responsibility and accountability of the FM (finance minister) to Parliament cannot be denied,” it said.

The mud splattered by the scandal reached Rao himself when Harshad Mehta--the No. 1 suspect, a highflying Bombay stock wizard--claimed this summer that he had handed the prime minister a valise packed with cash as a political donation. Mehta never backed up his allegation, but Rao’s reputation suffered and the opposition forced no-confidence votes in India’s Parliament in an unsuccessful bid to oust him.

Rao must now decide whether to replace the man who is probably the single most respected member of his government both at home and abroad. “I will continue to do my normal work until the prime minister accepts my resignation,” Singh said Friday.

Singh, a former professor at the Delhi School of Economics, was summoned to head the Finance Ministry when Rao became prime minister in June, 1991. His daunting assignment was the transformation of India’s highly regulated and centrally planned economy into a freer market.

He brought inflation down from double-digit levels to around 8%, built up $10 billion in foreign exchange reserves, courted foreign investment and restored the confidence of international creditors in India’s economy.

But the bearded Sikh, born in what is now Pakistan, cautioned this month that the “harder” part of the economic transformation is yet to come. “The prime minister is the architect of the reforms, and I am only a small fry,” Singh told reporters Friday, when he had a one-on-one meeting with Rao. “No individual is indispensable.”

Numerous business and industrial leaders demurred. “If the prime minister does accept the resignation, it will be a major setback, a catastrophe for India,’K. Firodia, chairman of the Kinetic Group, said.

Rao is expected to make a decision on Singh’s fate by Wednesday, when Parliament reconvenes. After the initial shock, many stockbrokers were predicting Saturday that Rao will keep his finance minister, and prices of key shares staged a dramatic rally.

In its voluminous report, the parliamentary panel recommended that the American and other non-Indian banks implicated in the scandal have their licenses suspended for at least one year.