May 17, 2013

Deposit and despair - Frontline

TROUBLE does not seem to end for the Mamata Banerjee-led Trinamool Congress government in West Bengal.

The collapse of the chit fund company Saradha Group is one of the biggest financial scandals to hit the State and may well be the ultimate undoing of Mamata Banerjee’s government. The Trinamool Congress, which completes two years in power in May, will find it next to impossible to disown its close ties with the tainted organisation or provide a plausible answer to the righteous indignation of lakhs of gullible investors, including a sizable section of urban and rural poor, who constitute much of the party’s support base. Though the extent of loss to the investors is not known, some estimates state that the group may have collected more than Rs.20,000 crore through its various deposit-collection schemes in West Bengal, Assam, Odisha, Tripura, Jharkhand and Bihar run through its 160 companies.........

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May 12, 2013

Once Again a Ponzi Lays Waste

EPW, Vol - XLVIII No. 19, May 11, 2013


A toxic cocktail of power, politics and rampant finance underlies Saradha's growth and collapse.

The implosion of West Bengal’s Saradha Group – real estate company, chit fund enterprise or a straightforward Ponzi operation, Saradha defies definition – has led to the familiar blame game. Was it the state government (the present or the previous one?) which turned a blind eye to Saradha’s dizzying growth built on sand? Were the Reserve Bank of India and the Securities and Exchange Board of India guilty of ignoring the flashing signals? Are the regulations of the financial sector perennially behind market avarice? Each time a highly “successful” finance company collapses, the questions posed are the same. Only for the concerns to gradually subside before the next collapse occurs. But the next time is never different.

The financialisation of household savings in India can be traced back to the late 1970s with a shift in the policy preference of the state. Indira Gandhi, in her address to the Federation of Indian Chambers of Commerce and Industry on 25 April 1975 wondered “if industrialists, even those who command the confidence of the investing public, have done all that they can to tap private savings”. This call to tap private savings of the investing public uncannily coincided with the rise of new enterprises that then became the stuff of business lore in the 1980s. Many business groups tapped into private household savings using money circulation schemes and some of these went bust, the most infamous being Sanchayita Investments in the early 1980s. The same period saw a proliferation of chit fund schemes, many of which too collapsed. These became national issues leading to the banning of money circulation schemes in 1978 and the promulgation of the Chit Fund Act in 1982.

A market in primary equities was promoted in the “zone of non-intervention” by the state along with deposit mobilisation. The nationalisation of banks in 1969 set limits on the accumulating possibilities for big players in finance. But with the dilution of equity by companies covered by the then Foreign Exchange Regulations Act in the late 1970s, the stock market came into its own followed by the first speculative boom of the early 1980s. This collection of private savings was the basis of development of private non-banking finance from the late 1970s.

It is a similar historical conjuncture of proliferation of what today is called multi-level marketing (MLM) schemes that saw the rise of new entrepreneurs many of whom collapsed in their Ponzi bids. But some managed to successfully launder their way to build mammoth empires spanning public deposit mobilisation, infrastructure and housing, media and entertainment, aviation, consumer products, information technology, hospitals, agro-business, mutual funds, housing finance, and hospitality. The accompanying shift towards patron-client relationships between sections of aspiring capitalists and ruling parties became a characteristic feature of Indian political economy since the late 1970s.

So it is no surprise that this much-traversed path would open up in West Bengal sooner or later as part of the rise of such MLM schemes in eastern India spanning Bihar, Jharkhand, Odisha and West Bengal. The spurt of robberies in Bihar in the early 2000s coincided with the collapse of three of the largest Ponzi schemes in Bihar that had proliferated since the 1990s. Hence, Saradha and its partners in crime are part of a larger structural phenomenon of finding an effective way to milch household savings.

Each story has its own particular “innovation” (from Ponzi in 1920 to Madoff in 2008). In West Bengal, it was parivartanwhich promised not only quick fixes to deep-rooted political problems, but also sold the “get-rich-quick” neo-liberal dream in a state where unemployment was close to 11%. This parivartan dream had powerful vendors criss-crossing glamour, political control and lumpenised power, all of which were used to command an organised patron-client structure between the film, media and political glitterati aligned to the ruling party and economic scamsters and fraudsters. This alliance appealed to the lower-middle class and working class base of political parivartan by promising economic quick fixes. It is no coincidence that the chief minister of West Bengal claimed that she had created two lakh jobs in her first year of power. That number is close to the number of MLM agents who signed up for Saradha and its competitors in crime. The same larger-than-life leader who was going to “Save Bengal” as a political messiah was also going to deliver freedom from the inter-generational mass economic hardships through small investments in private enterprises like Saradha, which had on its official payroll leading politicians of the ruling party and sponsorships spanning media, real estate and exports, not to mention fraudulent manufacturing enterprises. Reminiscent of Mackay: “Men…go mad in herds, while they only recover their senses slowly, and one by one…”, the landscape had been painted with the parivartan dream’s diffusion into the reality of fascism.

While the (occasional) irrationality of financial markets is now widely accepted in perceptions of such scams, an ahistorical analysis that focuses on the behaviour of small investors does not permit any structural understanding. The laws against money laundering have been in place since the late 1970s. But those are not preventive in nature. Twenty years of deregulation of the financial sector in India has made these laws toothless. On the one hand, it has paved the way for asset-stripping of the state and financialisation of household assets and on the other, compounded by the global crisis, it has slowed the growth of corporate savings and investments. The regime of accumulation is thus geared towards contractor capitalism’s Ponzi bids riding the crest of desperation of a protracted agrarian crisis. Sudipta Sen and Saradha are not isolated instances but the systemic surfacing of the poisonous potion that the crucible of fascist politics and neo-liberal politics can possibly brew. 

The Political Economy of Shadow Finance in West Bengal

EPW, Vol - XLVIII No. 18, May 04, 2013 | Subhanil Chowdhury 

The Saradha group's collapse has possibly bankrupted lakhs of small investors robbing them of their life savings, and has rendered thousands of its agents jobless. The scam highlights the failure of the government and its regulatory agencies to reign in the mushrooming chit fund companies in West Bengal. It also brings under the scanner the Trinamool Congress' proximity with the tainted group. In the wake of the scandal, the article attempts to understand why the dubious Ponzi schemes have thrived and flourished in state.

Subhanil Chowdhury ( teaches at the Institute of Development Studies, Kolkata

Sudipto Sen, the chairman of the Saradha group of companies, was arrested in Kashmir on April 23, 2013, for allegedly defrauding lakhs of depositors who had invested in various schemes floated by his companies. After the Saradha group went bust, Mamta Banerjee, the chief minister of West Bengal callously told the duped investors, “let go whatever has gone”. However after two days, she announced a Rs 500 crore relief package for the hapless investors. In light of the unfolding events, this article attempts to analyse the political economy of the dubious shadow finance organisations in West Bengal.

The Modus Operandi
Let us take a look at the modus operandi of the Saradha Group of companies. The group collected money from the investors, through agents, promising them either land or a flat, or an option for a refund with a rate of return ranging between 12-24 per cent approximately, as per the Securities Exchange Board of India (SEBI) notice.1 The agents in turn were assured of a commission ranging from 15 to 20 per cent on the funds mobilised by them, according to local media reports. In some schemes, the group promised that on a deposit of Rs 1 lakh an investor will get Rs 10 lakhs after 14 years. If the same amount of money was kept in a fixed deposit in a bank for the same period, the amount accrued would be Rs 4 lakh. In other words, the rate of return promised by the group was more than double of that promised by commercial banks. According to some media estimates, the number of agents employed by Saradha group may run into thousands or even in lakhs, while the total amount of money mobilised by the group can run into thousands of crores. The huge collection of money from the agents was deposited with the main company which loated 160 companies (according to the letter submitted by Sudipto Sen to the CBI), including a large number of newspapers in various languages and TV channels in Bengali.

The entire money mobilisation exercise of the group was, however, deeply problematic for a number of reasons. Firstly, in none of the documents given to the Registrar of Companies did the group mention anything about mobilising such huge amount of money from the public, and hence kept itself out of the purview of either the Reserve bank of India (RBI) or SEBI.2 The SEBI report also categorically mentions that the group never sought any permission from it to run such a scheme. The promise of providing a plot of land, or a flat after the maturity of the scheme was also a hoax. The SEBI found that the land/flat allotted to the investors was not pre-determined, and the investors had no control over the scheme, or the property. Moreover even after repeated prodding by the SEBI, the group did not furnish the required information, and tried to mislead it by providing voluminous data, which was basically irrelevant. When at last they furnished the information, it was found that it contained details of only 5 projects while the group stated to have acquired land in 31 locations. The details of allocation, booking, cancellation etc, were not provided, thereby prompting the SEBI to conclude that “it is highly unlikely that the projects are actually in progress”.3 There are also reports in the media that a motorcycle factory run by the group did not carry out any manufacturing. The workers were told to act as if they were producing the bikes when the group brought in investors to showcase the factory as an important asset of the group.4 In short, the group’s functioning was blatantly illegal and fraudulent.The working of the group in such blatant violation of all regulations and laws shows a mammoth failure of the regulatory authority of the government, both at the centre as well as the state level.

In April 2010, the Left Front government sent a letter to the SEBI to investigate the group's activities. Prior to this, the Left Front government had passed a bill first in 2003, and then in 2009, to protect the interest of depositors and reign in such fraudulent companies. The bill has sections under which the property of such companies could be confiscated and auctioned to repay investors and charge them with criminal culpability. But even after four years, the bill still awaits Presidential assent. It can be argued that the Left Front government should have done more in terms of devising some mechanism to either control the functioning of the group, or at least alert the public. However, the matters came to a head under the Trinamool Congress (TMC) government.

The Unholy Nexus: TMC and Saradha Group
There are deep links between the Trinamool Congress party and the Saradha group. The CEO of the group's media wing Mr. Kunal Ghosh, and Mr. Srinjoy Bose, owner of the Pratidin newspaper, which has extensive business deals with Saradha, are both TMC MPs. Newspapers such as Pratidin, Sakalbela (owned by the Saradha group), etc, and TV channels such as Channel 10 are practically mouthpieces of the TMC. The brazen manner in which they support the chief minister Mamata Banerjee and the TMC makes a mockery of journalism.

The TMC has been equally complicit in patronising Saradha's media network. The TMC government had ordered all public libraries to subscribe to newspapers owned by the Saradha group, including a Bengali daily Kolom, which Mamta Bannerjee had inaugurated recently. Video footage of her distributing ambulances, motorcycles and bicycles donated by the Saradha Group in Jangalmahal in 2011, has also been circulating. It is also reported that Sudipto Sen bought a painting of Banerjee for Rs 1.86 crore. The TMC transport minister, Mr. Madan Mitra, was appointed the president of the employees' union of the group, and at a programme organised by Saradha he proclaimed that its owner Sudipto Sen was the pride of Bengal. Moreover till April 15, the Chief minister feigned ignorance about Saradha being a chit fund company. Infact in March 2013, Sachin Pilot the Union Minister of Company Affairs placed in Loksabha, a list naming 73 companies from West Bengal who were running Ponzi schemes. The list included the Saradha group. No action was ever initiated by the TMC government against Saradha in the last two years. Rather the growing proximity between the ruling party and the group only helped in increasing the latter's credibility. After his arrest, the group's chairman in a letter to the CBI claimed that TMC MPs like Kunal Ghosh and Srinjoy Bose promised to protect him from the law if he acceded to their demands.

Reasons for Small Investors Flocking to Saradha
As has been already noted, the Saradha group promised a very high rate of return to the investors. It is true that the investors did not know that the scheme was a big fraud. However, it was evident that the abnormally high returns promised by the group was either not feasible, or involved too much risk, which could lead to investors loosing all their money. Currently, the rate of growth in India has slowed to 5.5 per cent, and the rate of interest prevailing in the market is between 8 and 9 per cent. In such a scenario to promise a rate of return above 20 per cent was blatantly absurd. So why did the people give their hard earned money to such complete fraudsters? There are number of reasons for this phenomenon.

Slide in small saving deposits- If we look at the savings portfolio of the household sector in India, we find that between 2000-2005 the financial assets consisted of 12.8 per cent of GDP, while the physical assets accounted for 12.9 per cent. However between 2005-2010, the financial assets increased to 15.6 per cent of GDP, while physical assets declined to 11.8 per cent. In other words there was a greater degree of financialisation of savings in the second half of the last decade. If we further analyse the financial savings data we find that bank deposits account for the largest share-- increasing from 37.8 per cent in 2000-2005 to 51.6 per cent in 2005-10. The share of life insurance fund and that of stocks and debentures also witnessed a significant increase. However, there was a drastic fall in the share of claims on government -- mainly the small savings schemes -- which declined from 19.5 per cent in 2000-05 to 2.6 per cent in 2005-10.5 This drop in small savings holding is because of two reasons: (a) a decline in the interest rates of the schemes on offer (b) the availability of other financial instruments in the market made possible by economic liberalisation.

West Bengal has been particularly hit hard by the fall in small savings deposits. The net collection from small savings was Rs 6,238.93 crore in 2006-07. This increased to Rs 8,985 crore in 2009-10,marginally declined to Rs 8409 crore in 2010-11 and then and subsequently declined to (-)987.22 crore in 2011-12.6 Therefore within two years, approximately Rs 9,000 crore did not go to small savings schemes. The question is where did this money go? This money, which was earlier mobilised by the small savings scheme, must have been invested in financial instruments which promised a higher rate of return than that provided by the small savings schemes. Therefore, the shadow financial organisations like Saradha became an obvious choice for the small investor.

Lowering of the rate of interest on small savings - The issue of lowering of the rate of interest on small savings is a direct result of central government policies. With the opening up of the financial sector and the concomitant liberalisation of financial institutions, the ruling establishment has let markets determine financial investments. As a result, various committees of the central government which looked into the issue of small savings suggested that the interest rate should be market-determined, or it should be aligned with the interest rate obtainable on government securities of the same maturity. With lower rates of interest on small savings, and lower financial inclusion, fraudulent companies like Saradha group become the obvious choice of the people to deposit their savings.

Low Financial Inclusion -The state of West Bengal has one of the lowest ranks in financial inclusion in the country, as stated in a working paper published by the RBI.7 Excluding Kolkata, all other districts of West Bengal have very low financial inclusion. The Index of Financial Inclusion (IFI) constructed by this RBI paper has a maximum value of 1. Most of the districts in the state have a value of IFI less than 0.1, with some like South 24 Parganas having a value of 0.01.8Given such abysmally low levels of financial inclusion, most of the people in the state are outside the net of organised financial institutions. Therefore, the people park their savings in shadow finance institutions like the Saradha who promise a rate of return much higher than that offered by the commercial banks.

Several reasons can be cited for this low rate of financial inclusion in West Bengal. The RBI Working Paper, mentioned above, states that the main reason why the people do not keep their money in banks is that their income level is not sufficient to open and operate bank accounts. There is a lack of awareness about banking facilities and the benefits that banks offer. Since most of the people do not have a collateral against which they can take loans, they borrow from the rural money lenders and carry on their banking transactions in the informal sector. While all these factors are important in understanding why financial inclusion has lagged behind in West Bengal, the change in banking policies with the introduction of liberalisation should not be underestimated. With the advent of economic reforms in the early nineties, there has been a decline in the bank offices opened in the rural areas (from 35,360 in 1993 to 31,667 in 2009), while the number of offices in the urban areas have increased significantly. Moreover, there is a huge concentration of both credit and deposit in the urban and metropolitan areas, which account for 77 per cent of the deposits and 80.4 per cent of the total credit provided by the scheduled commercial banks in 2009.9 With the banking sector's focus on earning more profits, the social aspects of banking has been adversely affected. The norms of opening branches in the rural sector and providing banking services to the poor have not been adhered to by the private banks. The public sector banks have to compete with the private banks and are reluctant to open more branches in the rural areas, or areas where financial inclusion is low. The net result has been that in a state like West Bengal, which is a predominantly agricultural state, majority of the people living in rural areas have not been included in the organised financial sector.

Lured by Saradha

However, two sets of questions can be raised at this point. (a) Any financial venture has to be based upon the trust factor. Why did the people even believe what the Saradha group promised? (b) Why did thousands of people enroll as agents of this kind of a dubious group? I have tried to answer these questions.

a) Information asymmetry - With respect to the issue of trust, the first point that needs to be made is that there was an acute information asymmetry between the Saradha group and its customers. The Saradha group chairman was fully aware that he was running a fraud company, and that his promise of a higher rate of return was false. But the customers had faith in that promise and believed that they will reap high dividends.

In any financial transaction such information asymmetry can be present. This is normally dealt with by a regulatory mechanism as it exists in case of Banks and other financial companies. The regulator along with the government’s statutory authority maintains faith in the working of financial instruments. But in case of Saradha, no such mechanism in terms of a regulatory framework existed. What existed was the active patronage of the company by the TMC.

The information asymmetry got exacerbated because of the group's connection with the political party. Primarily, money was invested in Saradha by the people on the belief that both the TMC and the state government were behind the company. There were also some media reports that the Saradha group chairman had asked its agents to actively campaign for the TMC in the 2011 assembly elections. In other words, the trust was earned by Saradha because of the patronage provided by the TMC. People put their bet on Saradha looking at TMC as the guarantor. This kind of political underwriting of a dubious financial organisation by the ruling party is unique in the history of West Bengal. However at the same time it must be highlighted that the people did not use their judgment to invest prudently. Though most people were misled by Saradha and its association with the TMC, given their weak educational and class background, it cannot be denied that they got lured by high profits offered by the Ponzi schemes.

b) Seeking employment with Saradha - The employment situation in the state is under severe stress with a huge informalisation of the labour force. While it is true that this informalisation is an all-India phenomenon, the proportion of informal workers is higher in West Bengal than in rest of the country. In India around 75 per cent of the rural workers and 69 per cent of the urban workers worked in informal sector, while for West Bengal the numbers were 86 per cent and 71 per cent respectively. 10 The manufacturing as well as the agricultural sector in the state has also witnessed a slowdown, particularly in the last two years of the TMC rule. The share of manufacturing in GSDP in West Bengal has has been steadily declining. Therefore, with a fall in the share of manufacturing, income of the informal workers was adversely affected. Moreover even after the implementation of NREGA, there has been only a minimal increase in real wages of unskilled workers in rural areas as compared to the rest of the country.11 The huge informalised workforce, in search of a better livelihood, was lured by companies like Saradha with the promise of a huge commission. In the meantime, the central government also cut the commission of the agents of LIC and other small savings instruments. These agents therefore decided to seek employment with Saradha and other similar companies.

There was yet another reason why people gravitated towards Saradha. The growth in West Bengal has been mainly led by the services sector, and more specifically the real estate and construction sector. These are two sectors whose share in GSDP has increased significantly in the recent period. Therefore, the common perception of the people was that this is a booming sector, and hence nobody will suffer a loss if money was invested here. Since Saradha’s main investments were supposedly in real estate, this attracted both agents as well as investors to the company.

Not Borrowing from Banks
Another important aspect of these shadow finance institutions has to be highlighted. Saradha and other companies of the same ilk raised money from customers at a higher rate compared to what the banks would have charged them if they had borrowed from them. The credit-deposit ratio in West Bengal fell from 64.8 per cent in March 2010, to 62.9 per cent in March 2012. These figures indicate that the credit market in West Bengal was definitely not supply constrained. Therefore if somebody wanted to start a business, s/he could easily borrow from banks at a reasonable interest rate. Given this situation why were companies like Saradha collecting money from public with a commitment to pay a higher rate of return, than borrow from banks? Firstly, if these companies had borrowed from the banks then they would have had to observe certain norms of financial prudence. These norms ensured that excessive risk was not taken by the borrowers, and that in case of default the money could be rescued by auctioning the collateral. The basic motive of companies like Saradha was to either dupe people, or speculate in excessively risky assets. This could not have been done by borrowing money from the commercial banks. Therefore, they took the route of borrowing money from the public, bypassing all rules and regulations. They were unconcerned with the fact that the inevitable bursting of the bubble would lead to a loss of livelihoods and lives.

Need for a Regulatory Framework
The only way to deal with such problem is to organise a clamp down on such companies, and at the same time ensure financial inclusion of the people. What is clear from the Saradha case is that there has been a breakdown of the regulatory framework. This has been facilitated by an absence of suitable laws at the state level, and a lack of vigilance on the part of both the government as well as regulators like the SEBI. What is required, therefore, is to have a sound regulatory framework to deal with companies like Saradha. The experience of Tripura can be of help here. The state had formulated an act protecting the interests of depositors in 2000, and then amended it in 2011. As a result of this act, the menace of such companies has been greatly reduced in Tripura.12 At the same time a central law must also be passed to deal with such fraudulent financial enterprises.

However on an immediate basis, the people who have lost their money should be protected. The setting up of a Rs 500 crore relief fund by the chief minister for the affected investors is fraught with many bureaucratic hurdles. Without a proper regulatory framework in place, this kind of announcement might embolden other such companies to become even more reckless knowing well that the government will refund the defrauded investors. Therefore instead of announcing token relief for the people, which in any case is too little and too late, the government should concentrate upon bringing to book all those who are involved with this scam irrespective of their political colour. They should confiscate and auction the property of Saradha to pay back the investors in the least possible time, and develop a proper regulatory framework to deal with all such companies. Unless these measures are taken, tragedies like the busting of Saradha will recur in West Bengal.

1. The Stock Exchange Board of India (SEBI) in its notice dated April 23, 2013 (No. WTM/RKA/ERO-CIS/19/2013) has given some details regarding the schemes floated by the group.
2. Chit Wriggles past Watchdogs, The Telegraph, 20 April, 2013.
3. All details from the SEBI notice dated April 23, 2013.
4. Bengali daily ‘Ei Samay’, 24 April.
5. All data quoted from Report of the Sub-Group on Household Sector Saving during the Twelfth Five-Year Plan (2012-13 to 2016-17) Planning Commission.
6. Statistical Appendix, Economic Review, 2012-13, Government of West Bengal.
7. Financial Inclusion in India: A case-study of West Bengal, Sadhan Kumar Chattopadhyay, RBI Working Paper Series, August 2011.
8. Financial Inclusion in India: A case-study of West Bengal, Sadhan Kumar Chattopadhyay, RBI Working Paper Series, August 2011.
9. Basic Statistical Returns of Scheduled Commercial Banks in India, various issues, RBI.
10. Calculated from NSS Report on Employment and Unemployment in India.
11. Database of Indian Economy, RBI.
12. Anandabazar Patrika, 24 April 2013.

May 10, 2013

West Bengal: The Trinamool's 'cheat' fund nexus

Reported by Sreenivasan Jain (with inputs from Alok Pandey, Niha Masih) |

NDTV, Updated: May 05, 2013 00:20 IST

Kolkata: The Mamata Banerjee government is facing an escalating crisis, with fresh proof emerging every day of Trinamool's links to the fraudulent chit fund company, run by the Saradha Group.

Ms Banerjee's party denies it, but it's not likely to convince those like Julie Patua, an agent of Saradha, or her clients.

Ms Patua is one of lakhs of Saradha agents who sold bogus schemes that promised huge returns on small investments.

To avoid regulators, these schemes were shown as sale of plots of land or travel packages.
As proof of its intentions, Saradha would give every agent a hefty catalogue, full of pictures of non-existent companies and mega projects. The clincher - pictures of their top management led by Kunal Ghosh, Trinamool Congress MP, a key Mamata aide and CEO of Saradha's media empire.

On Saradha-run television channels, the group's investors say, they have seen Ms Banerjee giving away ambulances donated by Saradha, to be used in the troubled Naxal-prone Junglemahal region.

Or of Ms Banerjee at the inauguration of the takeover of Urdu newspaper Kalam, by Saradha.

Hardly surprising then that when Saradha went bust, thousands of agents and depositors banged at the doors of the Trinamool and Ms Banerjee.

The greatest anger is against Mr Ghosh and Srinjoy Bose, another Trinamool MP and owner of the newspaper Pratidin, who partnered with Saradha chief Sudipta Sen in September 2010, to set up a string of newspapers, magazines and TV channels.

Both Mr Ghosh and Mr Bose claim they had no idea that they were tying up with a questionable chit fund company.

An improbable claim given that Mr Ghosh, who was editor ofPratidin, had co-authored a string of articles against Saradha and other fake chit funds on the front pages of Pratidin - just three months before the deal with Mr Sen was struck.

In a letter that he wrote to the Central Bureau of Investigation (CBI) while he was underground last month after his group collapsed, Sudipta Sen has claimed that those articles were used to blackmail Saradha into funding a pro-Trinamool media empire, a charge denied by Mr Ghosh.

In May 2012, Mr Bose exited the tie-up with Saradha, since, he says, by then Saradha's cheques had started to bounce.

But Kunal Ghosh stayed on, rising through Saradha's ranks to become first Group CEO, and then Executive President of Saradha Media as recently as in January 2013.

Despite this, he claims ignorance of the group's fraudulent businesses. His ex-employees are not convinced and have filed an FIR against Mr Ghosh.
But the Trinamool-Saradha links seem to have gone much beyond just using the company to fund a friendly media empire. As is now emerging, the lines between the party and the company had blurred, making it hard to tell who was feeding off the other.

The most powerful example is Madan Mitra, Transport and Sports Minister, who was seen at a Saradha agents' meet in Kolkata's Science City, heaping lavish praise on Sudipta Sen.

Mr Mitra claims he had appeared as a courtesy. But Saradha agents like Reba Mitra say that Madan Mitra was president of their employees' union.

For her 2009 Lok Sabha election campaign, Shatabdi Roy, the actress and Trinamool MP from Birbhum, used Somnath Dutta, Vice President of the Saradha Group as her campaign manager.

In another video, she is seen thanking Sudipta Sen for making her brand ambassador of the Saradha group.

Given the public anger, some in the Trinamool claim they spoke up earlier.

Like Somen Mitra, MP from Diamond Harbour, who says he wrote to the Prime Minister in May 2011 about the menace of dodgy investment companies. Except that Mr Mitra was himself seen at a Saradha agents' meet. He claims he was invited since Saradha was very active in his constituency.

In just a matter of three years, the Saradha-Trinamool links extended all the way to the ground, with Trinamool cadre doubling up as agents and vice versa.

This allowed the Saradha group to rapidly expand its base in the rural hinterland, collecting crores of rupees from the marginal and the poor, with no concrete proof that it was being ploughed into profitable investments.

From time to time, agents and investors were shown tracts of undeveloped land. Julie Patua says she was a shown a plot of land and told the company had 4,000 acres in all.

Or there were outright bogus investments, like a defunct two-wheeler factory on the outskirts of Kolkata, brought to life only to impress visitors.

Under fire for its inaction, the Trinamool claims it needs special laws to act against fake chit funds, now finally passed in haste this week by the Assembly.

Some say this is just an excuse; that existing laws have enough powers to act against fraudulent companies. In neighbouring Assam, which doesn't have special laws, the police have registered 246 FIRs against such companies. They have already frozen 106 bank accounts of Saradha, land assets and recovered Rs. 25 crore in deposits and Rs. 90 lakh in cash.

But it is not clear if the Trinamool is learning from its lessons. Sitting in the office of the Saradha's Urdu publications, is builder-developer Asif Khan.

He is vague about his antecedents, saying he is a businessman and the Trinamool's point person in Uttar Pradesh. Mr Khan, who may well be the Trinamool's next Sudipta Sen, says he has been brought in by party leader Mukul Roy to "help" ailing Saradha publications.

But the CPM says he is proof that the ruling Trimaool continues to seek funds from shady sources to maintain control over the media.

Left union leads in railway polls in West Bengal

By Jayanta Gupta,

TNN, May 2, 2013, 09.31PM IST

KOLKATA: Left unions have dominated the elections held in Eastern, South Eastern and Metro Railways to decide the employees' bodies that would be permitted to interact with the management. According to law, to qualify as a recognised body, a union would either have to bag at least 35% of the total votes polled or 30% of the total votes.

In Eastern Railway, the Left-backed Eastern Railway Men's Union (ERMU) bagged 42,601 votes and was declared the leading employees' body. The Congress-backed Eastern Railway Men's Congress ( ERMC) got 33,126 votes and came second. The Trinamool Congress-backed EREWC got only 10,684 votes.

In South Eastern Railway, the Congress-backed South Eastern Railway Men's Congress (SERMC) won 29,932 votes and was declared the winner. The Left-backed South Eastern Railway Men's Union came a close second with 27,536 votes while the Trinamool-backed South Eastern Railway Men's Trinamool Congress (SERMTMC) got only 3,443 votes. In the Metro Railway, the Left-backed Metro Railway Men's Union won and was declared the recognised union.

DC debate: West Bengal govt responsible for the chit fund scam?

DECAN CRONICLE, A.B. Bardhan/Sultan Ahmed | 02nd May 2013

Trinamul patronised Saradha  

A.B. Bardhan, senior leader of the CPI

The chit fund scam in West Bengal has left lakhs of people lamenting the loss of their life savings.

Majority of them are poor and daily wage labourers who do not even have bank accounts. They were lured into contributing their daily, weekly or monthly earnings to the chit funds, which generally paint a rosy picture about the amount getting doubled within a few months. 

These are ponzi schemes. Such schemes are not regulated, but are allowed to advertise that all the benefits would go to the depositor in the form of real estate or multiplication of their amount. In the absence of regular employment growth, many young people become agents of such chit funds. Thus, it becomes a huge mechanism for defrauding people and plundering their small earnings. In West Bengal, there has been no economic development for over a decade. These chit funds generally get their nod from the Centre, such as the RBI, finance ministry and so on.

During the Left Front’s rule, one such chit fund was exposed and after that the government adopted a law to punish the evildoers and return the money of the depositors. But for some reason, this law did not get the approval of the President. Certain amendments were made and the new bill was adopted in 2009. This, too, awaits the signature of the President. 

However, after a series of complaints against chit funds, Securities and Exchange Board of India (Sebi) launched an investigation and wrote to the West Bengal government the fraud that was going on. But the Trinamul Congress government, which had replaced the Left Front government, refused to act on Sebi’s warning. 

Chief Minister Mamata Banerjee claims that she was not aware and came to know only recently about the fraudulent activities of these chit funds, in particular, the biggest of them, known as the Saradha Group. The Saradha Group has collected several thousands of crores of the poor people’s earnings, and with that it also acquired several media companies and TV channels. The Saradha Group and the Trinamul Congress were actively working in tandem. 

Today, the bubble has burst. Several lakhs of poor people have been looted of their entire earnings without any hope of recovering the money. Three people have committed suicide and others are in despair. The main offenders, the bosses of the Saradha Group, were on the run perhaps with the knowledge of several higher ups in the Trinamul government. They were ultimately apprehended from a hotel in Jammu and Kashmir. The CID and the Kolkata Police are investigating the roots and branches of this fraud, the like of which West Bengal has never seen before. 

The Trinamul government has much to answer for this. The names of two Trinamul MPs that have been in news in connection with the fraud is only the tip of the iceberg. How is such financial fraud possible without the active connivance of the government? Ms Banerjee herself was present at the promotional event of the Saradha Group. The CBI should be asked to conduct for a complete inquiry into this.

(As told to Thufail PTI)

The Left,  SEBI are to blame

Sultan Ahmed, former Union minister and an MP (Trinamul Congress)

It’s too simplistic and politically motivated to blame the Trinamul Congress-led West Bengal government for a chit fund company run by the Saradha Group going bust and, consequently, duping a large number of small investors of their hard-earned money. First and foremost, this money business being run in the name of chit fund is not new for the country or West Bengal.

These have been mushrooming for the past several years and people had been victims of this earlier too. In 1980, during the rule of the Left Front government in the state, small investors in West Bengal were duped of their hard-earned money by chit fund companies like Sanchayita Invest-ment, Overland Invest-ment etc. In these cases, middle class and educated people living in the urban areas were deceived.

During the Left Front regime, the chit fund companies spread their wings into the rural areas of West Bengal, with each village having a couple of their offices. They have been operating for the last 20 years. The Saradha Group may have gone bust, but there are 70 to 80 such companies still operating in the state.

How can the state government be held res-ponsible for the Saradha Group duping the people? In our country, we have a number of regulators for the financial market, including the Reserve Bank of India (RBI), income tax department of the ministry of finance, Securities and Exchange Board of India (Sebi), Registrar of Companies (RoC), etc. Why were all these financial regulators sleeping for the past 20 years when such chit fund companies mushroomed and spread their wings in rural areas?

It’s not a case of West Bengal alone. Assam chief minister Tarun Gogoi has also complained against the operations of such companies in his state. Therefore, blaming the West Bengal government for the chit fund scam will serve no purpose.

Importantly, the state government had, in 2003, got a legislative proposal to regulate and check chit fund companies passed in the West Bengal Assem-bly, but is still awaiting the nod of the President. The state government has constituted a probe to inquire into the Saradha Group scam and Chief Minister Mamata Banerjee has set up a corpus fund of Rs 500 crore. She has said that the poor people who have lost their money will get their savings back. But no one is questioning the dereliction of duties by the financial regulators, including the RBI, Sebi, RoC etc. Why?

So far as two MPs of our party are concerned, they are cooperating in the probe. While one was connected with a news daily, another was the chief executive officer of the printing and publishing firm owned by the Saradha Group. If they are found guilty, the party will definitely take action against them. 

The Opposition Left Front is clearly trying to take political advantage of the issue. However, people will realise in the end that it was dereliction of duty on the parts of the earlier Left Front government that such chit fund companies mushroomed. People will not fall prey into the Left Front trap again. It’s commendable that Ms Banerjee has taken swift action to address the woes of the people. 

West Bengal cuts India's FY14 outlook

By Arup Roychoudhury

Financial Express, Posted online: Wednesday, May 01, 2013 at 0000 hrs

New Delhi : The World Bank slashed India’s economic growth outlook for 2013-14 to 6.1% from 7%, on the back of an expected fall in agricultural and services growth, but said that an increasingly favourable global environment and rising domestic demand may drive the country’s GDP growth to 8% in the long term.

World Bank’s latest India development update, released on Tuesday, sees the agricultural sector growing at 2% and services growth at 7.4% for the current financial year, down from the 2.7% and 8.5% respectively that it saw earlier.

The World Bank’s growth projection, which is 13% down over its earlier expectation, comes at the lower end of finance minister P Chidambaram’s growth target for 6.1 to 6.7 % for the same year. The PMEAC sees 2013-14 GDP growth at 6.4%.

“The World Bank’s expectations are on the higher side. Services sector growth is expected to remain low due to a relative slowdown in areas like financial services or transportation,” Sujan Hajra, chief economist of Anand Rathi Securities, told FE. Hajra sees FY14 GDP at 5.7-5.8% much lower than projections of the government as well as the World Bank.

He echoed the bank’s medium to long-term expectations and said that the basic India story remained unscathed, with the current weakness a result of a cyclical slowdown.

“Recent data point to some improvement in economic activity. Together with a modest improvement in investment and some strengthening in the global economic activity, signs point to a gradual recovery in growth ahead,” the report stated. It pegs FY14-15 GDP growth at 6.7% and the last financial year’s expected growth at 5%, in line with that of the government’s central statistical office.

The bank stated that while a rise in domestic demand, easing inflationary pressure and lower fiscal deficit will give more room for the government to pass through reforms, job creation, infrastructure bottlenecks and the expected pressure on expenditure due to a possible roll out of the food security Bill could create headwinds.

“Infrastructure remains a challenge. While the government has recognised this, there is no single way to address it. There are good examples of world class infrastructure in parts of the country. It is about how you take the best practices out of these and replicate them in other parts of India,” Denis Medvedev, senior country economist of the World Bank, said.

In a separate report on South Asian economies, the bank stated that other countries will see a spillover effect and benefit in the medium-to-long-term from India’s influence following the regional giant’s slew of reform measures and increasing foreign investment.

The chit fund, media, Trinamool tangle in West Bengal

Reported by Alok Pandey, Edited by Sindhu Manjesh |
NDTV, Updated: May 01, 2013 22:15 IST
Kolkata: The Saradha Group that collapsed last month controlled many television channels and newspapers in West Bengal. So do some other companies that have been accused of running Saradha-like get-rich-quick schemes.

Over the last two years, Mamata Banerjee's political opponents have alleged that the ruling Trinamool Congress that she heads has tried to control the media in the state, particularly through the publications and channels owned by such companies.

Senior journalist Manas Ghosh of The Statesman says that the editorial stance of these media groups is very pro-Mamata Banerjee. "When Mamata came to power, I told her, 'What is this?' She said to me 'these people are all cheats'. Yet, a few days later, I started seeing government advertisements with prominent photos of Mamata in these papers and TV channels," he said.

At inquiry into Saradha's chit-fund scam, stories of loss and despair In March last year, Mamata Banerjee controversially banned several leading newspapers from public libraries in the state and listed eight newspapers they could subscribe to. Two of them were Saradha group publications and one published by the Rose Valley Group, which is being investigated by market regulator Securities and Exchange Board of India.

Also last year, Ms Banerjee picked four journalists to be Rajya Sabha MPs from her party, provoking more allegations that she was trying to control the media in the state.

One of these MPs was Kunal Ghosh, who headed the Saradha Group's media wing and who is now in trouble because of that association. Two FIRs have been filed against him by Saradha's media employees, who allege he knew of the group's precarious finances, but did not warn them.

Mr Ghosh has promised to quit his Rajya Sabha seat "if any probe reveals that I have taken advantage of the chit fund business".

The Saradha Group had four TV channels and about 10 newspapers, all of which have shut down. The Rose Valley Group owns nine satellite television channels, including news channels and also a newspaper.

Other groups against whom the Ministry of Corporate Affairs has received complaints - like the Chakra Group, the Tower Group, and the Rahul Group - also own media publications or channels.

Story first published: May 01, 2013 19:42 IST 

West Bengal chit fund scam hits the state's film industry

Priyanka Gupta, CNN-IBN | Updated Apr 29, 2013 at 08:45am IST

Kolkata: The West Bengal chit fund is getting bigger each day. It has now turns out that ponzi schemes in the state financed not just media houses but Tollywood films as well. In the past four years, at least one in three films has been produced by groups that run ponzi schemes.

Rose Valley, a deposit-taking company which is now under the MCA scanner, has produced 18 films including three National Award-winning ones. The Prayag group of companies, also under probe, is building a film city with none other than Shah Rukh Khan as its brand ambassador. But the industry is worried at what it sees as a mere brand-building exercise by the chit funds.

Arijit Dutta, former President of Eastern India Motion Pictures Association, said, "There are about 18 chit fund companies which have shown interest in producing films or have produced films." Filmmaker Sumon Mukherjee said, "They have no background in cinema, no understanding, no concern about the future of cinema. They just have some loose money, illegal money coming in and they want to use it."

Rahul Mukherjee, a first time director is now scrambling for producers to finance his film. His producer, a chit fund company, deserted the project and went hiding after the crackdown on the Saradha group. "80 per cent of the film is done, but now we cannot complete it without funds. So it has stopped," Rahul said.

Projects have been shelved and releases have been postponed. With no state funding and an unregulated market with a lot of grey areas, the film industry is caught between a rock and a hard place. Filmmaker Q said, "It's all right for us to say we need a clean source of funding but how? At the end of the day a director wants to make a film."

The Bengali film industry, which has seen an unprecedented increase in terms of sheer volume of films produced and released because of the fresh flow of funds, has suffered a setback. But many of the industry insiders believe that this setback was perhaps necessary to purge the industry of illegal money. 

JSW Steel puts Rs. 35,000 cr West Bengal steel project on hold

Press Trust of India | Updated On: April 28, 2013 15:05 (IST)
JSW Steel has put on hold plans to set up a 10 million tonnes steel plant in West Bengal as it has not been able to secure long-term iron ore supplies for the Rs. 35,000 crore project.

"It is stalled right now, it's on hold. Unless we are going to fix the iron ore matter, unless we have the visibility of iron ore, we cannot move ahead. It's on hold," JSW chairman and managing director Sajjan Jindal told PTI.

JSW is working with the Centre and state government to secure iron ore mining lease, he said, adding, long-term visibility of iron ore is required to begin construction of the plant.

When asked about any timeline for the project, he said: "Nothing (is) in my control. The project is stalled at the moment."

The West Bengal project of JSW, first announced in 2007, has been getting delayed for various reasons. This included a land acquisition row with the state government after Mamata Banerjee-led government took charge in 2011. The issue has now been resolved and land acquisition has been completed. However, the company has not been willing to move further on any new project, including the ones in West Bengal, without securing either long term iron ore supply agreement or a captive iron ore mine due to its experience in Karnataka.

In Karnataka, the company runs a 10 million tonnes (MT) steel plant but it neither has any captive mine nor any long term iron ore supply agreement and the company has to source the ore from open market.

For more than one and half years now, JSW has been running the Karnataka plant at a reduced capacity due to iron ore crunch in the state.

Currently, all ore in the state gets auctioned due to a Supreme Court direction, thereby increasing the raw material cost for the company.

According to original plan, JSW's West Bengal project was envisaged to have a 10 million tonnes steel plant along with a 1,600 MW captive power plant at a total cost of Rs. 35,000 crore that requires about 4,300 acres of land.

In the first phase, the company had plans to set up a 3 MT steel plant and a 300 MW captive power plant with an investment of Rs. 20,000 crore. The first phase was proposed to be financed at a debt-equity ratio of 65:35.

Deallocation of Gourangdih ABC coal block last year by the Coal Ministry is also an issue JSW is facing. The block, allocated to JSW and Himachal EMTA jointly in July, 2009 would have provided coal for the captive power plant of the Bengal plant.

JSW has challenged the deallocation of the coal block in court and the matter is currently sub-judice.

Story first published on: April 28, 2013 14:58 (IST)