Watered Down

Less Than Half...

• Investors in SSNNL bonds of 1993, for funding the Narmada dam, are upset at the early redemption of the bonds
• The Rs 3,600 bonds promised Rs 1.11 lakh at the end of 20 years
• In 2008, the Modi govt legislated to redeem the bonds five years early, offering just Rs 50,000
• The case is in the SC. An RSS-backed group in Karnataka is opposing Modi on this.

***

hen new Karnataka CM D.V. Sadananda Gowda invited his party colleague and Gujarat counterpart Narendra Modi to participate in the Mysore Dussehra festivities in October, he knew perhaps that some ‘progressive types’ would make some noise. But he certainly would not have expected people of his own ilk to protest. Modi skipped the Dussehra function. But by then, this unexpected protest had been made public through a letter to a leading Kannada daily. It was about the early redemption of deep discount bonds of the Sardar Sarovar Narmada Nigam Limited (SSNNL), issued by the Gujarat government in 1993 to raise funds for the Narmada project when agencies like the World Bank and IMF had refused to fund it. T.N. Ramakrishna, an RSS swayamsevak who runs the Rastra Gaurava Samrakshana Parishath, in a letter headlined ‘Narendra Modi should not come to Karnataka’, accused Modi of “causing huge losses” to thousands of retail and institutional investors by forcing the early redemption of the SSNNL bonds.

Here’s the background. In September 1993, the Gujarat government floated the SSNNL bonds at Rs 3,600 each, of which the deemed value at the end of 20 years was Rs 1.11 lakh. While SSNNL could not force early redemption, investors were given the option of exiting at the 7th, 11th and 15th years from the date of allotment. Nationalised banks were then offering 13 per cent interest on deposits, while the bonds offered net returns of 17.5 per cent, so they attracted many middle-class and institutional investors. Among the investors were the the provident- and gratuity-fund trusts of Mysore Paper Mills, SAIL and Hotel Janpath.

In 2004, the Modi government tried to redeem the bonds prematurely but gave up in the face of stiff resistance. But in 2008, the government had an act passed to redeem the bonds on January 10, 2009, five years before maturity, fixing the deemed value at Rs 50,000. Feeling cheated, bond holders challenged the legislation in the high courts of Bombay, Gujarat and Karnataka. SEBI impleaded itself as a party and filed a petition in the Supreme Court seeking transfer of all cases to the apex court. This was upheld, and the matter is now before a bench headed by the chief justice of India.

“Modi claims the GDP growth rate of Gujarat is higher than the national average, but he has forgotten who made it possible,” says Ramakrishna. “If people like me had not invested in the bonds, do you think Gujarat could have built the dam? If the dam hadn’t been built, could the state have attracted investors? The availability of water for homes, industry, hydropower and so on is because of the dam. Why deny people who helped the state their legitimate returns?”

Vishwanath S. Malagan, a member of the Mysore Paper Mills Limited Employees Provident Fund Trust, says the trust suffered huge losses owing to the forced early redemption. Bond holders are hoping the Supreme Court will decide the case before January 2014, the original redemption date. Modi, never short on rhetoric, especially while addressing two groups—the middle class and investors—hasn’t said anything so far to assuage the feelings of the bond buyers, who belong to those very groups.