In West Bengal, jobs and consumption growth created by chit funds under threat
Millions of people were connected to the chain-money or chit fund companies in West Bengal. These created the wrong kind of jobs and dubious economic growth which is under threat with no new businesses coming up and chit funds unravelling
Ashok (name changed), an agent for the Alchemist group is suddenly desperate for a job. Alchemist, supposedly an important backer of the Trinamool Congress (TMC) raised deposits from the public in West Bengal and adjoining states. Over the last few weeks, the inflow of deposits has vanished. It is not a temporary problem, suspects Ashok, so he is desperately calling up old acquaintances for just about any job he can get. His tale reflects what has been the happening to an important economic segment of West Bengal over the last 14 days: the chain money schemes that had mushroomed in the state are rapidly disintegrating, following the collapse of Saradha, one of the most high profile among such companies. “I have an EMI for a car and my son is in an English medium school,” says Ashok. I don’t care much for the car, which I will sell off, by I don’t want anything to happen to my son ,” he says. Ashok has a small daughter, as well.
Just six years ago Ashok was a salesman in a tiny consumer goods company, earning about Rs4,000. He was grateful for that job. He has no formal education and hardly any skills. That company closed down and Ashok moved on to a temporary job as an attendant in a nursing home. Now he earns almost Rs15,000 a month. He has a Tata Nano, bought with a bank loan. People like him have kept economic growth going in a state, which has no new large businesses coming up. Only one kind of business has given jobs to lakhs of people like Ashok—the corrosive business of chain-money schemes.
There are more than 50 major schemes like Alchemist operating in the eastern India, commonly called chit funds, but really in the “business” of paying old deposits with the new ones, thriving on the potent cocktail of illiteracy, greed and regulatory inaction. There are a few thousand smaller schemes that are also conning people with the same modus operandi. And, they are now imploding. Ashok was ‘collecting’ Rs30 lakh every month in deposits for Alchemist, but this month it is already down to Rs15 lakh. The entire deposit was presumably in the first half of the month. After the Saradha case blew up mid-April, the flow of money has completely stopped. “Alchemist is paying whoever is asking for his money back after a 5% deduction, but no new money is coming. The “money market” business will not come back in another 5-6 years, Ashok has heard. The collapse of Saradha, with ostensible businesses in automobiles, cement, media etc., has claimed several lives.
The media too will be deprived of an important source of revenue. The Bengali print and TV media and the hoardings, thrived on advertisements from Rose Valley and MPS Greenery. Rose Valley has set up its own TV channel now but continues to advertise in popular media outlets like ABP’s Ananda channel. In a last burst of that cosy relationship, the print media is now getting huge ads from the surviving several chain-money schemes which are asserting that they are different from Saradha. Ashok does not think they will last.
Such illegal schemes started small under the Left Front government in early 2000 when official interest rates were falling and employment opportunities were low. They grew in the decade of 2000, desperately acquiring legitimacy by ‘diversifying’ into tourism, real estate and agriculture. When Mamata Banerjee came to power in 2011, TMC politicians found a goldmine and chain-money schemes magnified rapidly, looting millions of savers. Nobody knows the total amount of money involved in these schemes. The amount can run up to Rs30,000 crore. The arithmetic behind this estimate? Deposits in state-run small savings schemes in the past five-six years have shrunk by Rs20,000 crore and another Rs10,000 crore incremental deposits that did not come to such savings and got diverted to these chain-money schemes.
This business, three of which were high profile—Saradha, Rose Valley and MPS Greenery—were among the biggest advertisers in the Bengali media and later started their own media companies. Countless others don’t need to advertise. After all, money talks. Once an agent of a chain-money scheme, Ashok has paid a few cheques of interest, it immediately becomes credible. The expansion into various businesses, especially media makes it look even more a regular business. And when Trinamool Rajya Saba MP Kunal Ghosh was heading the media division of Saradha, film star Shatabdi Roy was seen to be endorsing it and a senior TMC minister openly praised Saradha to the skies in front of 1,200 people, what more proof does a semi-literate person needs to believe that scheme and other such schemes are legitimate and have political-backing. Interestingly, all these schemes are owned by Bengalis in a city where the majority of large businesses—including many shady ones—are owned by the Marwaris.
And then there is Alchemist, whose agent Ashok is. Alchemist is controlled by Kanwar Deep Singh, once a small-time Chandigarh-based operator and now a businessman which miraculously claims to be a Rs10,000 crore group ‘employing’ 9500 people. According to media reports, Singh owns a jet and wears customised $30,000 made-to-order suits, measured by tailors flown into India by Stefano Ricci, an Italian designer. He is a Rajya Sabha member from the TMC, having earlier entered the Parliament as a Jharkhand Mukti Morcha member. Within a year, this jet-setting, Italian suit-wearing operator ditched JMM and found himself in the cosy company of sandal-wearing pro-poor Mamata Banerjee. It is not clear how of much of Alchemist’s current business is supported by new deposits. Alchemist has many businesses outside West Bengal including poultry and hospitals. It may have the means to pay back but Ashok is forced to quit.
The implosion of the chain-money schemes will not affect business climate because there is no such climate at all in West Bengal. Nobody wanted to invest in West Bengal when CPM was in power, because of a deathly combination of anti-business policies and extortion rackets it used to run everywhere. After TMC came to power, a demagogic chief minister has used the same poisonous formula with even greater force. At least, CPM leaders always stayed out of businesses they extracted from. TMC leaders have been proven to be in bed with the chit funds. The Saradha Group had bought a Mamata Banerjee painting for over Rs1.8 crore and paying its TMC Rajya Sabha MP Rs2 crore a year.
The real impact of the chit fund scam will be a surge in deposits with banks and small savings and large-scale unemployment among lakhs of unskilled people who were making easy money. For 35 years the Left Front had taken the state economy steadily down. It is just two years that Mamata Banerjee has come to power. Her paranoid utterances and actions have alarmed large and medium-seized businessmen who alone can create jobs since the state government is bankrupt. Not only has she outdone the Left Front in repelling businessmen in two years, but also outdone the Left Front in allowing the chain-money schemes to mushroom, which gave a phony sense of prosperity to lakhs of people like Ashok. With both legitimate and illegitimate job-creating vehicles unable to function, how will she face the electorate?
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