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The West Bengal government, it seems, is committed to compensating the people duped by the Saradha group. This group of apparent companies collected money from unsuspecting rural and poor people with a promise of hefty returns. The money was collected through agents, who themselves were given generous commissions on the amounts collected. It has been described in the popular media as a Ponzi scheme and a chit fund. Incidentally, it was nothing like a chit fund. In fact, it may be argued that its description as a chit fund was deliberate; chit funds are regulated by state governments and there is reason to believe that the mastermind behind the group - Sudipta Sen - had endeared himself to political leaders of the two major parties in West Bengal. Given its actual functioning, the group should have been regulated by the Securities and Exchange Board of India (Sebi) from the very beginning. Indeed, Sebi first warned the state government about the group's activities in 2009, continued its follow-up investigations and, in 2012, asked the group to stop raising money the way it was doing unless it got Sebi's clearance. Two consecutive state governments, in the meantime, stayed oblivious of what was going on.
The story of the rise and fall of Saradha typifies the way things work in India. Every society has people trying to steal money from others - starting from tax evasion and match fixing to more sophisticated sorts of financial scams. However, nowhere perhaps is the politician-fraudster connection stronger than in India. The smartest Indian politician is a novice when it comes to being entrapped by fraudsters. The latter use their strong and visible connections with politicians to gain credibility, an essential ingredient in conning activities. After all, who would believe that nail-biting Indian Premier League (IPL) matches have been fixed when, every day and in every game, you see top-level politicians - some of whom are also top-level officials at the Board of Control for Cricket in India (BCCI) - cheering from the stands for one or the other team? Whenever a con is detected, our public figures either appear shell-shocked on television channels or arrogantly deny that they had, even unwittingly, facilitated the con. The question is not whether they were involved; the more serious concern is regarding the fate of a billion people led by such gullible and innocent leaders.
However, let us try to understand what the West Bengal government's commitment is. It seems that it will return what the people had invested in the Saradha group. It has started collecting the so-called "bond" certificates that depositors were handed out by the group. Depositors seem confident that these certificates will be checked by the government and then the money mentioned on them will be given back to depositors. The obvious question to ask is, whose money will be used to pay back the depositors? I am assuming that the government will not be able to recover the full amount from the assets left behind by Mr Sen and his team. In other words, everyone else's money will be used. People who did not deposit any money will now lose some so that depositors can be paid their amount. After all, the government, be it the Centre or the state, holds the public's money. It earns its revenue from running public sector concerns - owned by the people and not by the government - and from taxes. People pay taxes so that governments can provide what they have been entrusted to do by people. I do not think that the people of West Bengal paid taxes so that the money taken by cheats from unsuspecting depositors could be paid back.
It is true that the depositors have been fooled. They have been fooled by the promise of fantastic returns. Returns that people knew no one else was giving. They deposited the money based on what the agents promised. These agents were often their next-door neighbours and of similar means and knowledge about financial markets as the depositors themselves. So, why did the depositors suddenly start believing in what the agents were saying? Some people are, of course, gullible. However, in practice, given that the poor have to tough it out every day for survival, they generally have better survival instincts than most are willing to concede. How come they all accepted these infeasible promises? That is assuming that the depositors were all drawn from the poor of West Bengal.
One of the most important elements of a Ponzi scheme is people's greed. Those who run these scams play on this greed. For this they need credibility, and the conmen flaunt their political connections to establish it. One may argue that political connections are best for credibility. This could be because people feel that their leaders are trustworthy and so if they endorse something, or someone, then it has to be good for all. However, since I believe people are rational, I have a different take on this. Politicians establish a conman's credibility because people know that if anything goes wrong the politicians will ensure that the money is returned. And they can do so because they are not giving away their money - even when some of it may have been received by them from the very same scheme - but taxpayers' money.
And this is possible because no one is accountable in India. Not a single politician who has been connected to the scam has resigned or shown any genuine embarrassment. And politicians continue to hanker after BCCI positions even when everyone knows that IPL matches are fixed. Not all leaders may be great but most, if not all, should have some sense of responsibility.
The writer is research director at IDF and director of the School of Humanities and Social Sciences, SNU
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
