Two decades after economic liberalisation, we are the world’s second-fastest growing economy. Decades of scarcity of everything, from telephone and gas connections to foreign exchange, are gone. Isn’t it ironic then that on the 20th anniversary of the end of licence raj, what has grabbed the nation’s interest is the systematic, large-scale plunder of national resources through ever-larger scams? Each scam was improved on by the following one in fine larceny. Our netas and businessmen, with the intermediation of clever lobbyists and venal babus, dreamt up new ways to skim the cream off every deal, contract, licence, statutory clearance or mining site while at the same time evading and suppressing any inquiry or media attention. Ramalinga Raju even ruined Satyam by siphoning off money to fund the ambitious Maytas Infrastructure and allegedly to bribe politicians.
In the past decade, corruption in infrastructure contracts and land deals has raged unchecked because those in power began to share the loot with anyone who was likely to object. Throwing crumbs at opposition politicians to buy their silence and rewarding babus through allotment of undeserved flats became a regular feature. “A flat for a signature” seems to have been the policy in the Adarsh Housing Society scandal, where almost every bureaucrat whose concurrence or clearance was crucial (for denotification and conversion of user status) has been allocated super-expensive real estate in Mumbai.
In comparison, the Harshad Mehta scam of 1992 really burst on an age of innocence. The outrage in Parliament over my report on how Mehta had stolen Rs 500 crore from the State Bank of India was fairly genuine. Politicians found it hard to believe that one upstart trader could amass such stupendous wealth from the capital market in so short a time. The Reserve Bank had even called a press conference to deny my subsequent report that the scam was worth around Rs 5,000 crore. Perception changed so rapidly that a few months later, people found it hard to believe Harshad Mehta’s claim that he had bribed P.V. Narasimha Rao, the then prime minister, with a paltry Rs 1 crore. If the Joint Parliamentary Committee (JPC) that investigated the Harshad Mehta scam served any purpose at all, it was to educate our neta-babu class about the immense potential of the capital market as a vehicle to amass wealth, launder black money and convert it into legitimate investment income. After all, one had to hold shares for only a year and, lo and behold, it emerged through the system as tax-free earnings.
This education coincided with the entry of Foreign Institutional Investment (FIIS) into India and provided the perfect opportunity for ‘round-tripping’ of money. Black money left India through hawala channels and returned as super-clean ‘foreign investment’. Is it surprising that demands to disallow non-transparent fii sub-accounts have always been ignored? Or, that despite several known cases of abuse, including the recent investigation involving the Anil Dhirubhai Ambani Group (ADAG) with Union Bank of Switzerland and others, the regulator merely tinkers with the rules?
The 1992 scam set the stage for Ketan Parekh’s manipulations in 1999-2000. The difference was that Ketan, once a groupie of Harshad Mehta, openly flaunted his business and political connections and partied with the best of Bollywood. He still made the same cardinal mistake of believing that his powerful connections had made him invincible. When the bubble burst and the stockmarket collapse also took down a couple of banks, a second JPC was set up. The dubious genius of Pramod Mahajan was evident in its composition, which ensured that nobody but Ketan Parekh was truly indicted. It is another matter that although he has been banned from the market for 14 years, the man continues to manipulate shares with impunity even though the Intelligence Bureau’s monthly reports detail the specific stocks he is manipulating, as well as his co-conspirators.
Sadly, all this interest from business and politicians hasn’t strengthened the capital market. It remains narrow, shallow and illiquid. Official reports now confirm that India’s investor population has shrunk to a third of the 20 million in 1992. This explains why stock prices are so easily manipulated and controlled by a bunch of anonymous moneybags masquerading as institutional investors. Even among Indian institutions, goings-on at the mammoth Life Insurance Corporation and its subsidiary exposed what is an open secret in the market—that government officials loot institutions under their charge to prop up stock prices or lend money to companies under political pressure and for petty gratification. This scam is on its way to a quiet burial without anyone asking why so many former lic top honchos, including one who was a member of the Securities Appellate Tribunal, were on the board of an unknown brokerage firm called Money Matters.
Brisk trade Yediyurappa and sons had a well-trodden path before them
Remember that Pramod Mahajan, a former telecom minister, was investigated for the concessions granted to Reliance Infocomm Ltd? He started another trend as well. The nasty war between the Ambani siblings revealed that Mahajan had acquired a one per cent stake in the company for twisting the rules. This scam too has been quietly buried. Although Mahajan’s share allotment was subsequently cancelled, Ashish Deora, the family friend who was the alleged ‘front’, was gifted the optic fibre network laid by Reliance Infocomm worth several hundred crores. It is another matter that they failed to build a successful business out of it. An income-tax investigation into this gift was also buried. Years later, an industrialist told me that Mukesh Ambani did a great disservice by offering Mahajan a stake, instead of money. “Since then, every two-bit politician or bureaucrat who can block project clearances is demanding a stake in businesses,” he said.
Meanwhile, politicians have cornered the most lucrative segments of India’s economy—education, healthcare, realty and mining rights—as their own turf. In Maharashtra, the 2010 assembly elections had builder-politicians contesting in 40 constituencies. Clearly, political power is key to this business. Leaders like Raj Thackeray, Uddhav Thackeray, Manohar Joshi, Mangal Prabhat Lodha and Nitin Sardesai are all builders, many have ‘links’ with multiple builders. Several others (D.Y. Patil, Padamsinh Patil, Manohar Joshi, Chhagan Bhujbal) are in the education and hospitality business. Slum redevelopment, tinkering with Floor Space Index rules and environmental clearances are the biggest cash cows, and have made dollar billionaires out of many politicians and the businessmen who front for them. Is it any surprise that Karnataka CM B.S. Yediyurappa’s son said it was a convention for elected representatives to be allotted land by the state?
The hotline Pramod Mahajan was high on Reliance Infocomm’s speed-dial list. (Photograph by Atul Loke)
Their inspiration is probably a Maratha heavyweight leader seen as India’s biggest ‘venture capitalist’ (several top companies today were backed by him) and has vast interests in realty, agro industries, media, sports, food, aviation and beverages. He uses the market so effectively that in the run-up to the last election, key party functionaries got stock tips in lieu of cash, with specific instructions on when to book profits. It gave them clean, tax-paid investment income thanks to easy market manipulation.
Even as the corruption, cooption game is played out, small and honest businessmen face daily torture. The government has hit upon a strategy of keeping statute and regulations deliberately vague so that even the cleanest of businesses can be hauled over the coals, at will, on trumped-up charges. Pratap Bhanu Mehta put it best in Indian Express: “Our law enforcement institutions are beginning to resemble an indiscriminate melange of arbitrary powers, randomly exercised. What is frightening about the Indian state is that evidence has no sanctity, arbitrary leaks have become the norm, officers routinely provide a running commentary to plant insinuations, any line of investigation is accompanied by indiscriminate fishing expeditions, and no one seems to acknowledge that citizens have basic rights”.
Economic liberalisation was supposed to free business from the clutches of the neta/babu class. Instead, either businessmen have been forced to make them their partners or have been displaced by them. Until recently, the media was kept happy with ad campaigns and equity investment directed by this nexus. It is probably the utter brazenness of their dealings that have finally goaded a few good men to stand up and do something.
To this end, the publication of the Radia tapes, which gave ordinary Indians a first-hand audio peep into the operations of the neta-babu-fixer-industrialist class, is a national service by this magazine. It will hopefully provoke a whole generation of Indians, whose fat salaries give them an international lifestyle, to wake up and realise what is going on. Hopefully, a few thousand of them will decide to support those individuals who are fighting dogged battles all over the country to draw attention to this plunder of the nation from within.
The author is the Managing Editor of Moneylife Magazine