When it is obviously the UTI's troubles which have been stirring the markets it would be churlish to make the FIIs the scapegoat. For now India should consider itself lucky just as in the case of the Asian and now the global economic crisis in the short run to be able to call the market to heel.

The UTI is helped by the fact that it can threaten to offload the stock of corporates who would get rid of their US-64 investments, even if in the normal course this is as pernicious a practice as any that comes to mind. The Finance Minister is right to try to talk upthe markets and to declare that there is no question of bailing out the UTI which apparently is in good shape! So is the Reserve Bank right to make it known that cash support from it is available to the UTI if needed. None of which means that the UTI management should get away with it unpunished. But this linen will have to be washed privately, and only after the fire-fighting is over.

The UTI, never mind that it has been brought to its present pass by lack of transparency and a refusal to be subjected to SEBI's scrutiny, cannot be allowed to fail. The reason is not only its size but the fate of millions of small investors whose fault it is not that it has not been made accountable.

Then there is the stock market, skittish FIIs, the discouraging economic situation factors which could quickly converge to set off a huge stock market collapse at the first sign of a false move and, who knows, mark the beginning of India's very own version of a severe economic crisis in these nervous times. That said, itcannot be stressed too much that all this effort would have been pointless if reforms are not simultaneously forced through. Suggestions are right that in its present shape the US-64 scheme is unviable. It must be taken out of the UTI's hands and run by another fund with the assurance that investors would not lose their savings.

But, in the long run and if this particular crisis is overcome without disaster, the happenings at UTI could be a good thing if they serve as a wake-up call now. Throughout the Asian crisis it has been apparent and yet never fully accepted just how vulnerable the Indian financial system is.

If India has got away relatively unscathed so far it is because of a capital-controls policy, which can sensibly be maintained only for a short time until the reform of the financial sector is complete. It cannot become the shield for a failure to undertake these reforms. Unless the UTI and others like it are forced to comply fully with the norms of prudent behaviour and are adequatelyscrutinised, India is dangerously susceptible to an internal collapse even if it remains relatively immune to an externally-generated crisis because of its still insular policies.