Chief Minister Mamata Banerjee cannot get away with blaming 34 years of left misrule. While that point of a toxic legacy is well taken, she has been at Writers' Buildings for two years now
As a tragic, wrenching human story, the implications of the collapse of the Saradha Group in West Bengal have few parallels in recent times. Tens of thousands of people have been defrauded for literally hundreds of billions of rupees by the bucket-shop operation that Saradha’s founder-promoter, Sudipta Sen, ran. As politicians argue it out every evening in television studios, exchanging barbs and waving and reading from equally damaging letters and documents, the small investor is somehow forgotten in the din.
In going down, Saradha and Sen have sunk the hopes, dreams and meagre, carefully-gathered capital of very ordinary working-class and lower middle-class people. The suicide of a domestic help who lost everything to Saradha offered a prism to this dark reality. Heaven knows what lies ahead.
There are several aspects to the Saradha saga. There is the politics of course, particularly in West Bengal, since Sen seemed to have bought into about every party. There is a sorry tale of corruption in media and of shysters and thugs masquerading as influential journalists. There is a lesson to be learnt in the continuing and unrelenting fascination for and success of chit funds, which have proven to be Ponzi schemes time and again. Relatedly, there is the issue of how, despite all talk of “financial inclusion”, the formal savings and investment structure has bypassed large sections of the Indian population. Each of these merits importance.
The Saradha Group was set up under the nose of the left Front Government and continued to flourish after the Trinamool Congress came to power in 2011. It had a way of purchasing support and political protection. The two Trinamool MPs who had business dealings with it began as critics of the chit fund company. One of them is a media baron whose family made its fortune running an extortionate and criminalised stevedore syndicate at the Kolkata Port. The second MP is a journalist who wrote strong articles against Saradha before signing up with it for an exorbitant monthly fee.
It stands to reason that Saradha had a similar relationship with the CPI(M) leadership. Indeed, its initial distribution network in rural Bengal is believed to have mirrored or plugged into the CPI(M) cadre network. The case of the Congress MP, a Minister of State in the UPA Government, who switched from being an opponent of Saradha to praising it effusively, is also telling. In one letter he called for Saradha to be regulated; months later he wrote another letter to the Union Government, arguing Saradha was completely above board and should be kept out of a Reserve Bank of India investigation. What happened in betweenIJ Was a transactional relationship built between the MP and SenIJ Were considerable resources spent on the gentleman’s “education”IJ
While West Bengal’s broader political climate may be responsible for swindles such as Saradha, it is not as if Chief Minister Mamata Banerjee can get away with simply blaming 34 years of left misrule. While that point of a toxic legacy is well taken, she has been at Writers’ Buildings for two years now. There was a surge in Saradha’s operations in this period. Important political and cultural faces linked to the Trinamool regime came to lend their name to Saradha. Didn’t it alarm the Chief Minister at allIJ
That apart, Ms Banerjee has to be answerable for the type of people she has made MPs. No doubt politics is about compromise. In defeating as formidable an enemy as the CPI(M), the Trinamool has had to embrace and join hands with many disreputable figures and entities that in fact thrived under the left.
Nevertheless, there is a difference between giving such people an audience in the backyard and inviting them into the drawing room. The two Saradha cronies Trinamool has sent to the Rajya Sabha do Ms Banerjee, her party and Bengali society no credit. They only add to the perception that sections of the media and individual journalists are capable of the most despicable actions and are little more than blackmailers.
In West Bengal and beyond, the grip of chit funds and similar companies on rural and semi-urban financial markets is extremely disquieting. In the past, especially in Uttar Pradesh, powerful politicians have patronised such funds because they can be used as a means of money laundering and bringing cash bribes into the formal economy. A large sum of slush money can be shown as collected from millions of depositors in obscure villages and towns. Nobody is seriously going to travel house-to-house for a verification exercise.
For all the talk of financial inclusion, these chit funds exploit the vacuum left by the regular banking system. It is a cruel joke that while any given neighbourhood in a big city will probably have half a dozen bank branches and a dozen ATMs, rural and even semi-urban locations in India are severely under-served. That apart, whatever the Union Minister for Finance and the Reserve Bank of India may say, the paperwork demanded for opening a bank account is calculated to keeping people out rather than bringing them in.
What this means is that while wealthy and upper middle class Indians have access to multiple and safe investment channels — mutual funds, fixed deposits, insurance schemes — poorer Indians are at the mercy of chit funds and agents who collect tiny sums, maybe even a few hundred rupees, every month and make unreal promises.
The other avenue for investment among rural Indians with some disposable or investible income but little access to secure banks and the like is gold. In recent years there has been an appreciable rise in rural consumption of gold. As rural incomes have risen, the extra money has gone into purchasing gold because often that is the only form of investment the rural (or urban working-class) householder knows of.
If gold prices are really headed for a phase of long-term decline, as some analysts have contended in the past few days, then India has another social problem coming. Well-heeled Indians will use the moment to move to other asset classes as part of a sophisticated investment portfolio — or to buy jewellery for personal use. Underprivileged Indians, with less exposure to calibrated investment opportunities, will see the value of their little gold holdings fall. This could cause another round of panic. It could set off further restlessness for some future chit fund racketeer to exploit.
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