Who should pay for it?

Market watchdog SEBI has pointed out that five companies which are under its scanner had total deposits of `7000 crores. The RBI on its part estimates that the size of deposits collected by several hundred chit fund companies to be around `17000 crores

Heartbreaking wails disrupt the serene ambience of rural Bengal. Tragedy overtaking lakhs of citizens in rural Bengal underlines a social explosion. The cup of woes for the poor is a bottomless pit. The crash of the ponzi schemes which hit the State from the middle of the month and its depth and sweep is still in the process of fully unraveling. That six persons have already committed suicide is symptomatic of the mounting frustration and depression.

Hundreds of entities have now been found to be associated with what financial regulators describe as 'multi-level marketing' and, in plain speak, mobilising deposits from gullible small investors for an assured return of as high as 25 to 30 per cent. Though popularly referred to as chit funds, in practice they were ponzi funds. A Not that such fraudulent financial activity is unprecedented elsewhere in the country, or it is for the first time that this has happened; but the magnitude and the factors that led to this humongous social tragedy make the current sequence of events stand out.

As information is trickling out of market regulator SEBI and banking regulator RBI or income tax department, the scale of fraud and the number of small investors drawn into the vortex of this crisis have started emerging. A Indeed, the information reported by the media is mind-boggling. Market watchdog SEBI has pointed out that five companies which are under its scanner had total deposits of Rs. 7000 crores. The RBI on its part estimates that the size of deposits collected by several hundred chit fund companies to be around Rs. 17000 crores. The IT department, on the basis of a survey, has primarily projected that almost Rs. 70000 crores have been raised by over 800 such companies in an unauthorized manner in West Bengal.

There are obviously factors which enable such fraud. The inadequate provisions of investor protection in existing laws, inadequacy of infrastructure for surveillance and detection, low level of investor awareness, untenability of promises, inadequacy of institutional linkages for small investor deposits, the falling rate of interests on small saving schemes by the government of India under the neo-liberal dispensation � are all part of the policy environment which prepared this time bomb to explode and produce the current financial disaster.

But, there was something unique in the manner it went off with a bang in West Bengal today. When questioned on camera by media, hundreds of small investors had a common refrain in explaining the reasons for them to deposit their life-savings in such questionable funds. A Collectively and individually they had been given an impression by the agents and the companies that Mamata Banerjee's TMC-led government's 'blessing' would provide 'security' to their deposits! And for five years nothing could go wrong! The foremost of these ponzi funds, Sharada, has gone bust. The trigger that brought the process of snowballing in the open was the closing down of television channels and newspapers owned by Sharada on the eve of the Bengali new year.

That they brazenly reflected a pro-TMC and a pro-State government editorial line was only one of the factors which contributed to the widespread public perception and particularly that among the hapless small depositors. A That the state government earlier promoted these Sharada group-owned newspapers in government libraries to the exclusion of more widely read publications also reinforced the perception about official patronage. A Before the elections, Sharada and many such companies supported the TMC-led electoral combine is also unraveling. Agents who were key props in collecting funds in dozens reported to the media that respective owners maintained that in the event of the Left Front returning to office this lucrative business would have to be wound up.

One can easily understand their worries. The State government under the Left once in the early 1980s and once in the mid-1990s faced the fallout of this phenomenon of fleecing of public deposits by dubious entities. But on both occasions the State government apprehended the wrongdoers before the frauds came into the open, not to speak of the punishment meted out to the offenders. Wiser by these experiences , the Left Front government also started putting in place a legal framework thorough a strong enactment for investor protection in 2003. But unfortunately, the process remained unrealized with the GoI sitting on the Bill passed by the Assembly for years together and suggesting only a small set of amendments as late as 2008.

Then again the Assembly adopted a unanimous Bill strengthened by the widest consultative process and sent it to Delhi for Presidential assent in early 2010. But the enactment never saw the light of day with the TMC becoming the second largest constituent of the UPA which ran the dispensation in Delhi. A The contrast is so stark. Chief Minister Mamata Banerjee, at her first press conference after the scam broke out, claimed that she came to know of it only when the media outfits came to be closed down. But facts speak for themselves.

The Economic Offence Wing, which had been set up by the earlier government under her stewardship, had been all but dismantled. Significantly, the first complaint by the EOW to SEBI led to the investigation by SEBI and the subsequent findings about the huge wrongdoing. Also, throughout 2012 there were four occasions when SEBI had asked Sharada management to appear and produce documents which were stonewalled by the group. A And the State government, despite information, had stayed away from the proceedings. The public sector banks functioning in the State through the proceedings of the State-level bankers' committee had also cautioned the State government about the impending disaster.

Then there were small savings; the strength of Bengal economy came down from Rs. 12000 crores in 2010-11 to an abysmal Rs. 157 crores last FY. The corporate affairs ministry listed 72 companies on the floor of the Parliament, yet the chief minister made this ludicrous claim!A The scam is now public along with narrative of official patronage. With Sudipta Sen's letter to CBI in public domain which, of course, needs to be officially corroborated, the State government is delaying recovery and instituting a judicial commission. Withdrawing the pending legislation, it intends to bring fresh legislation, a virtual copy of the previous one.

Constitutional experts maintain criminal proceedings cannot be invoked retrospectively, thus making this exercise infructuous in dealing with perpetrators.A Small investors struggling to get back their life savings burn effigies of the Sharada owner and the Chief Minister who once symbolized their dreams to usher in paribartan. And, meanwhile, the decibel levels of their wails are reaching a crescendo.