April 23, 2013
Ten things you wanted to know about Chit Funds but didn`t know who to ask – Team Trinamool YUVA
1> Chit funds – sometimes called “cheat funds“ are dubious bucket-shops that are a legacy of the late 1970s and 1980s. West Bengal saw several such companies in that period: Sanchayita,Sanchayani,Favourite,Overland. Each was a Ponzi scheme that ended in investors becoming paupers.
2> Again in the 1990s, similar chit funds started mushrooming in the state, but this time with political backing from Left Front politicians. They started issuing unsecured debentures – offering 20-30 per cent interest rates to consumers and 30-35 per cent commission to agents – and set up sales and distribution networks using CPI(M) activists. To lure people they also began issuing advertisements in newspapers and television channels. The government did nothing to regulate them.
3> It is notable that chit funds and such Ponzi operations have tended to succeed in West Bengal, Tripura and Kerala. It is obvious they are a part of money-laundering operations and political fund collection by Left and Communist parties and are therefore patronised by them. To cite just one example, Ganashakti the CPI(M) newspaper in West Bengal, has received crores of in chit fund advertising over the last several years. Some 80 per cent of its ad revenue comes from chit funds. This is the political version of paid media.
4> On April 16, 2013, the Government of West Bengal received a formal complaint about the goings-on in the Saradha Group. Within three days, swift action had been taken and the police was on the job. This led to closure of Saradha`s dubious business operations. The fact that one of the Trinamool MPs was a salaried employee – not a promoter or director as is being made out – of Saradha Group did not deter the Government at all.
5> Why do chit funds such as Saradha prosper? They thrive in rural and semi-urban areas where there are few formal banking and savings channels. They thrive because the Registrar of Companies, the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) ignore frequent and regular complaints and do not crack down on such companies or bother to run public education programmes against them. When these companies don`t file tax returns or seek to regularise accounts for years together by paying a small fine, the Registrar of Companies and the Income Tax Department simply facilitate the process. None of these institutions are answerable to the West Bengal Government.
6> Money laundering is a crime that is on the concurrent list, and so is within the ambit of both the Union Government and the State Government. To set up its network of television channels and newspapers, Saradha certainly needed permission from the Information and Broadcasting Ministry. Should the Ministry not have sought details of its sources of funding? Nobody asked questions because all this happened at a time when the CPI(M) ruled in Bengal and the Congress ruled in New Delhi. The role of the then Information and Broadcasting Minister must have been interesting.
7> The Trinamool Government is taking on Saradha and trying to sort out the mess in a legal vacuum, without an enabling law. The CPI(M) made a great show of regulating chit funds by passing the West Bengal Protection of Interest of Depositors in Financial Institutions Bill in 2003 and then changing its language in 2009. The Bill still hasn`t got the President of India`s assent. Chief Minister Mamata Banerjee has spoken to the President in this regard in the past week. Her government is planning to withdraw this Bill and bring in a genuinely strong Bill, with teeth, to take on the chit fund menace.
8> Yet, some questions remain. Between 2004 and 2008 the CPI(M) was backing the Congress Government in New Delhi. Why did it not ask for the West Bengal Protection of Interest of Depositors in Financial Institutions Bill to be approved by the President?
9> The CPI(M) made so many demands from the Congress government between 2004 and 2008 – on economic policy, on foreign policy, on nuclear policy. Could it not have requested the Union Government to push a law to help innocent people – rickshaw pullers, ordinary rural peasants, domestic helps, daily wager, common people, and protect them from the ferocity of chit funds and their promoters?
10> It is obvious the CPI(M) had no interest and desire to protect the common people of Bengal. Chit fund regulation was never its priority. Any investigation will reveal dubious links between the CPI(M) and chit funds, including property and assets of certain comrades and their family members, whose assets are disproportionate to their known sources of income. As the Trinamool Government pushes ahead with its investigations, more skeletons will emerge from the CPI(M) cupboard. Saradha and similar chit fund swindles have the fingerprints of the Communist top leadership and their Congress cronies all over them. Now that the muck is in the public eye, the CPI(M) and the Congress are looking for excuses to extract political mileage and pass the buck. The Trinamool`s focus is to alleviate the pain and anguish suffered by innocent people, and help them in the short, medium and long term. We will do what it takes.
Epilogue :
Fiscal discipline and fiscal turnaround in Bengal, after the Left put the State in the doldrums: The Bengal Government is doing everything possible to garner own resources in the midst of a `debt trap` left behind by the previous Government. During the last year of the Left Front Government (2010-11), they were able to raise Rs. 21,000 crores of revenue. In contrast, in the very first 10 months of taking office, our Government was able to raise the bar to Rs. 25,000 crores and during this financial year (2012-13), our Government will be raising it over Rs. 31,000 crores. To meet the goal of raising revenue to 31,000 crores, the tax collection has increased by a record 35% between April and September of 2012-13. In other words, in less than 2 years` time, our Government`s tax collection will go from Rs. 21,000 crores to Rs. 31,000 crores. And this too, without raising tax rates. However, it must be remembered that because of Rs. 2 lakh crores debt left behind by the previous Government we have to pay over Rs. 25,000 crores a year in interest and repayment. So, you can sense that despite our Government`s effort of raising as much as Rs. 31,000 crores during this financial year we are surrendering Rs. 25,000 crores due to the sins and financial indiscipline of the previous Government, allowed by the Central Government in Delhi, leaving very little from our own tax revenues towards economic development.
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