A fortnight into the collapse of the Saradha group, which has wiped out the savings of many poor people in West Bengal, the scourge threatens to spread to neighbouring states and other similar deposit takers. Bihar Deputy Chief Minister Sushil Modi has raised a red flag over the Rose Valley group - which has also been collecting deposits in Bihar - and asked for central legislation to curb the Ponzi scheme menace. Mindful of this, the prime minister himself has added his voice to the need to curb unauthorised deposit taking against the promise of exorbitant returns. The Union finance and corporate affairs ministries have announced they are taking action now. The capital market regulator, Securities and Exchange Board of India (Sebi), issued a number of notices to the Saradha group for three years, as well as got the group to appear before it and submit documents. But this was clearly no substitute for real action. Finally, Sebi last week issued a winding up order on the group in a classic case of closing the stable door after the horse has bolted.
The primary responsibility for regulating chit funds lies with state governments. The record of West Bengal's Trinamool government is worse than most. It is only after the collapse that it has called a special session of the West Bengal Assembly to pass a Bill to prevent the likes of Saradha from being in business. This is after not pursuing the Bill sent to the Centre for its assent in 2009, when the Left Front was in power, and withdrawing it last year to write its own Bill. Meanwhile, important leaders of the party have openly associated themselves with the group, creating the impression that it had the full backing of the state government. Senior Trinamool leader and the state's transport minister, Madan Mitra, openly patronised the group; and it was not till late last week that the party's Rajya Sabha member Kunal Ghosh, Saradha's CEO for media operations, offered in a letter to party leader Mamata Banerjee to resign from Parliament. The Trinamool Congress will likely pay a heavy political price for the widespread suffering it has caused by its naïve, cavalier and self-serving support to unscrupulous deposit takers.
The long-lived Sahara group exemplifies the modus operandi of such businesses, which are usually masters of regulator shopping and legalistic delays. When this is known and when the regulators have been reduced to merely issuing notices that are disregarded with impunity, a unified authority to tackle the menace should have come into existence long ago. This is primarily the Centre's responsibility. Of course, the lack of financial inclusion encourages people to look with favour on such schemes, especially as they are hard-sold by agents who gain high commissions that regular banks cannot, naturally, match. It is also unquestionably difficult to regulate the human greed that seizes on the offer of outsize returns; but clearly problematic operators should not be allowed to grow as large as Saradha did.
