Aadhaar: Who owns the UID database? –Part II

Those enrolling on the UID database have not been informed that their data is to yield profit for the UIDAI, Rs288.15 crore a year and its only investor, the government, does not even own the data. How many in the government are even aware of this investing of ownership in an entity that continues to remain deliberately undefined and opaque

The Unique Identification Authority of India (UIDAI) was set up by an executive notification dated 28 January 2009. As per the notification, the Planning Commission was to be the nodal agency “for providing logistics, planning and budgetary support” and to “provide initial office and IT infrastructure”. As part of its “role and responsibilities”, the UIDAI was to “issue necessary instructions to agencies that undertake creation of databases, to ensure standardisation of data elements that are collected and digitised and enable collation and correlation with UID and its partner databases”. It was to “take necessary steps to ensure collation of the National Population Register (NPR) with the UID”. And, the UIDAI “shall own and operate” the UID database.

 

In July 2009, Nandan Nilekani was appointed as the chairman of the UIDAI, representing a lateral entry of a person from the private sector into the government, with the rank of a Cabinet minister.

 

The UID project proceeded without a law, despite the seriousness of privacy and security concerns till, caving in to public pressure, a draft Bill was prepared by the UIDAI in June 2010; and it was not till December 2010, after the project had begun to collect resident data, that this Bill was introduced in Parliament. The Bill stayed close to the framework for corporate control over databases that was later enunciated in the report of Technology Advisory Group on Unique Projects (TAG-UP) of which Mr Nilekani was the chair, and which gave its report in January 2011.

 

The Bill to give statutory status to the UIDAI was roundly rejected by the Parliamentary Standing Committee on Finance in December 2011. The Parliamentary Committee recommended that both the Bill and the UID project be sent back to the drawing board. There has been no effort since to reintroduce the Bill. Every time the UIDAI is confronted with questions about the legality of its enterprise, its officers assert that the executive order of 28 January 2009 is the legal instrument from which they derive their authority; and that order makes them the ‘owner’ of the database.

 

In the context of the UID project:

Residents from whom the data is being collected have not been informed that the government is not the owner of the data, or of the database; nor what the legal status of the ownership by the UIDAI will mean for the citizen/resident;

the UIDAI set up a Biometrics Standards Committee in September 2009, which gave its report in December 2009. Its report reveals that the UIDAI intended to “create a platform to first collect identity details of residents, and subsequently perform identity authentication services that can be used by government and commercial service providers”;

the “UIDAI Strategy Overview”, in April 2010, estimated that it would generate Rs288.15 crore annual revenue through address and biometric authentication once it reaches steady state, where authentication services for new mobile connections, PAN cards, gas connections, passports, LIC policies, credit cards, bank accounts, airline check-in, would net this profit. Those enrolling on the UID database have not been informed that their data is to be yield profit for the UIDAI; they were perhaps expected to read up from the UIDAI website.

as set out in the TAG-UP report, the data we think we are giving to the government is to end up on the database of what will be in the nature of a private company once it reaches steady state. When it is still a start-up, and till it reaches steady state at least, it will be funded by the government. After that, the government, like other commercial service providers, will become the customer of the UIDAI;

with the UIDAI owning the database, the column in the UIDAI enrolment form for “information sharing consent” acquires a new significance. The UIDAI has all along been claiming that it will only be providing authentication by saying ‘yes’ or ‘no’, and nothing more. But, when the consent to share information is recorded on the database as having been given, the UIDAI may give all data on their database to any “service provider”, a term of wide and undefined import. That is, it is not only authentication services that the UIDAI will provide; through this consent, it is also assuming the authority to make money on the data that it holds, both demographic and biometric. This will provide it one more avenue to find customers, and one more product to market. Mr Nilekani often refers to the UID database as “open architecture”, and avows that a wide array of applications can be built on it;

the claim that enrolment is voluntary has rung hollow for some time now. For one thing, the UIDAI plainly has no authority to compel anyone to enrol or to use their service. However, the UIDAI has been hard at work urging governments, banks, oil companies and other institutions to adopt the UID, to re-engineer their databases to fit the UID and to seed all their systems with the UID. The push is for ubiquity. The UIDAI has been complicit in the coercion and bullying that is now part of the UID enrolment process, and its silent acquiescence while people are threatened with exclusion from services and benefits if they have not enrolled, for a UID is one dimension of complicity. It is easy to understand why this is happening, for, as critics have observed, the services, and the people, have little to gain from the UID, while the UIDAI finds compulsion an easy way to expand their database;

the non-existence of a law that says where the liability will lie in the event of identity fraud, or failure of the system of authentication resulting in denial of services, for instance, places the burden on the individual with no responsibility on the UIDAI for the consequences of the failures of fraud;

while ubiquity of the UID would be a recipe for tracking, profiling, tagging, converging of databases and result in violations of privacy in which ways that could threaten personal security, this would become a mere incidence of the business, leaving the resident/citizen unprotected;

the 2009 notification that set up the UIDAI says that the UIDAI is to “take necessary steps to ensure collation of the NPR (National Population Register) with the UID”. Registering in the NPR is compulsory under the Citizenship Act and the Citizenship Rules of 2003. Although biometrics is not within the mandate of the NPR, they have also been collected in the process of building up the NPR database. Therefore, the data mandated to be given to the NPR is being handed over to the UIDAI to be ‘owned’ by the UIDAI!

 

I wonder how many in government are even aware of this investing of ownership in an entity that continues to remain deliberately undefined and opaque.

 

References

  • Notification No. A-43011/02/2009-Admn.I dated 28 January, 2009 published in Part I, section 2 of the Gazette of India
  • UIDAI Strategy Overview: Creating a Unique Identity Number for Every Resident in India, UIDAI, Planning Commission, GoI, April 2010
  • Standing Committee on Finance (2011-12), National Identification Authority of India Bill 2010, Forty-second Report, Lok Sabha Secretariat, December 2011
  • Report of the Technology Advisory Group for Unique Projects, Ministry of Finance, January 31, 2011
  • Biometrics Design Standards for UID Applications, prepared by the UIDAI Committee on Biometrics, December 2009.

    Read Part I of the series over here:Aadhaar: Private ownership of UID data- Part I

 

(Dr Usha Ramanathan is an independent law researcher and has been critically following the policy and practices of the UIDAI since 2009)
 

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    COMMENTS

    lite

    5 years ago

    Terrorist!

    CA PRADEEP AGARWAL

    7 years ago

    Mr Nayak, How will we tackle corruption, it is anybody's guess, because it has gone to the veins and lifeline of all, when I say all, it means all? Please comment

    Naresh Nayak

    7 years ago

    Collection of data of private citizens by the Government is a violation of our constitutional rights. Based on this data we will lose our right to SOCIAL EQUALITY because the Government will discriminate as a result of the data. I'm sure this violates several other rights. No wonder the UK discarded the project.


    nareshnayak.wordpress.com

    REPLY

    CA PRADEEP AGARWAL

    In Reply to Naresh Nayak 7 years ago

    Who will fight for our rights?
    Further who will listen that our rights are being crushed with impunity and nobody to look after, everybody is a silent spectator. Will India Discard the project....?

    Naresh Nayak

    In Reply to CA PRADEEP AGARWAL 7 years ago

    You can't. The only thing you can do is prepare to flee to a foreign land where the laws are different. Countries respect foreigners if you especially bring dollars to the economy. Another way is to keep your head down when things get aggressive from the Government.

    CA PRADEEP AGARWAL

    In Reply to Naresh Nayak 7 years ago

    Mr Nayak is the ruling dispensation least concerned about your or anybody's rights or are concerned with cornering money means hardly matters? or their slipping vote bank, please be frank enough to answer, I have read your articles on the web?

    Naresh Nayak

    In Reply to CA PRADEEP AGARWAL 7 years ago

    Austrian Economics says that people act out of self interest and so did Adam Smith say the same thing. Governments are after all people who will act in their own self interest and will use all powers available at their disposal to preserve their self interest at the expense of the nation. This is why it is important we have independent institutions such as the Judiciary to balance the abuse of power.

    CA PRADEEP AGARWAL

    In Reply to Naresh Nayak 7 years ago

    Only due to Judiciary we are able to see life in our country, but as per my knowledge goes no one was better ruler in India than ABV.

    CA PRADEEP AGARWAL

    In Reply to CA PRADEEP AGARWAL 7 years ago

    AND NOW I feel if Narendra Modi is given a chance he might equal or surpass ABV.

    CA PRADEEP AGARWAL

    7 years ago

    It is really shameful that NON GOVERNANCE has occupied such a high stage--whereas today only it was said that (in an International report that)GOVERNANCE was required in India

    REPLY

    Naresh Nayak

    In Reply to CA PRADEEP AGARWAL 7 years ago

    Narendra Modi is our only chance left. He may want to break out of the BJP and start a US presidential style campaign himself. The BJP is also corrupt since they have tasted power. Before that they were considered rulers. ABV has had his shortfalls. Today an ABV would be considered a toothless PM. We need a hands on PM like Narendra Modi.

    CA PRADEEP AGARWAL

    In Reply to Naresh Nayak 7 years ago

    I 100% agree, not only as PM, but the same person in PRESIDENTIAL form if possible but our rules and regulations plus our CONSTITUTION.

    sohan modak

    7 years ago

    I think that it is shameful that government has cheated by way of privatising UID data without prior information and consent of the people. This is and insult to the constitutional guaranteee of personal freedom and the government should be taken to the court through a massive PIL.

    REPLY

    CA PRADEEP AGARWAL

    In Reply to sohan modak 7 years ago

    My Dear Sir, who are people in their eyes they are simply insects. When did not pass Jan Lok Pal Bill inspite of such protests, whom do you think they will hear---only and only STRONG NON CORRUPTIBLE media can bring them to their knees.

    rollitup

    7 years ago

    As soon as this project is complete, they'd soon bring a law like CISPA in place, so that data sharing amongst departments does not require court permissions. We're just imitating the west.

    REPLY

    CA PRADEEP AGARWAL

    In Reply to rollitup 7 years ago

    No doubt they will try to bring the law but at present does not seem practicable because if CONGRESS does not come to power it might be the end of UID................?

    CA PRADEEP AGARWAL

    7 years ago

    MLF should keep up with the good work they are doing? Congrats to the team and especially Mr Basu, Ms Dalal.

    CA PRADEEP AGARWAL

    7 years ago

    MLF should keep up with the good work they are doing? Congrats to the team and especially Mr Basu, Ms Dalal.

    suresh dash

    7 years ago

    very useful and good news we are getting.thanks

    Chitra Raman

    7 years ago

    Usha, if I had to characterize your writing in one word, it would be "Integrity." I admire your clarity of perception as well as your unflinching gaze. It is ironic indeed that those intent upon harvesting and stockpiling personal data on millions of Indians should hold themselves so supremely above all accountability to those very millions! In fact, that gives me an idea -- why not start a Unique Determination of Accountability Initiative of India (UDAII ) spearheaded by citizen's groups and directed at the leadership -- affectionately code named "KHABARDAAR" ??? best, Chitra

    Raj

    7 years ago

    Would Moneylife & Sucheta Dalal send a public invite to Nandan and ask him to clear all our misgivings about Aadhaar. If he refuses to participate then he will be confirming our worst fears.

    REPLY

    Sucheta Dalal

    In Reply to Raj 7 years ago


    Well, when he no longer replies to emails (which he did earlier), what is the chance he would come to a public meeting?

    Forget about us, even very senior technology gurus, who knew Nandan Nilekani who have served on top technology committees with him get vague replies, that too occasionally.

    CA PRADEEP AGARWAL

    In Reply to Sucheta Dalal 7 years ago

    I HAVE HEARD THAT THERE IS UNOFFICIAL HO at Infosys Bangalore. Is it right.

    Avinash Murkute

    In Reply to Sucheta Dalal 7 years ago

    Even the emails sent at official UIDAI are not replied. This is the peculiar characteristics of so called transparency. By now we should understand that the word Transparency was USP for selling some one's business in seminars and next day Fragile Publicity.

    MSH

    In Reply to Sucheta Dalal 7 years ago

    Absolutely right, Forget technology heads or gurus,when the PSC itself has said that the project has to go back to drawing boards, it is an indication that there is something critically wrong with the project.. Unfortunately like all the unfolding other things with this government, UIDAI also does not seem to respect the parliament and seem to draw its power from some other sources :)

    Udit C

    7 years ago

    I don't know if we the people are unique in our ignorance or if the administration that allows functioning of a non-valiodated body is unique in allowing such sensitive data to be collected and managed by private/autonomous NIUs.

    But certainly the Authority is as unique in its own identity as are so many of us in allowing all this tamasha at our cost!

    pravsemilo

    7 years ago

    The so called "open architecture" is a mockery. It is infact a walled garden (http://en.wikipedia.org/wiki/Walled_gard..., just like the iOS.

    Just like we have apps for iOS our tech czar is trying to emulate the same.

    The similarity to iOS should have been evident from the hackathon conducted by the Planning Commission recently.

    REPLY

    pravsemilo

    In Reply to pravsemilo 7 years ago

    The link seems to be broken due to the "...".

    Here is the complete link.

    http://en.wikipedia.org/wiki/Walled_gard...

    jtd

    7 years ago

    Hope the fanbois of the UIDAI are able to digest how the whole country is being taken for a jolly ride.

    Mathew Thomas

    7 years ago

    Congratulations to Usha for bringing out ant important aspect of the whole obnoxious UID scheme. Sorry, the word should be 'scam' not 'scheme'.

    Aadhaar: Private ownership of UID data- Part I

    As per the report of the TAG-UP Committee headed by Nandan Nilekani, government data and databases would be privatised through the creation of NIUs, which will then ‘own’ the data and the government would become a ‘customer’ to whoever controls the data!

    It is no secret that data is the new property. The potential for evolving technologies to record, collate, converge, retrieve, mine, share, profile and otherwise conjure with data has given life to this form of property, and to spiralling ambitions around it. The Unique Identification Authority of India (UIDAI) was set up with its push to enrol the entire Indian resident population, and with Nandan Nilekani as both its chairman and as chair of committees set up by Dr Manmohan Singh’s government. In this set-up, we are witnessing the emergence of an information infrastructure, which the government helps—by financing and facilitating the ‘start-up’, and by the use of coercion to get people on to the database—which it will then hand over to corporate interests when it reaches a ‘steady state’.

     

    Since Mr Nilekani was appointed the chairperson of the UIDAI, in the rank of a Cabinet minister, he has chaired multiple committees, each of which pushes for the collection of data and the creation of databases, and steers the government to become a customer of whoever controls the database. Several reports on e-governance as part of the report of the National Knowledge Commission: Report to the Nation 2006-2009 as well as Report of the Committee for Unified Toll Collection Technology (June 2010), the National e-governance plan (November 2011, Background Papers), Interim Report of the Task Force on direct transfer of subsidies on kerosene (June 2011), LPG and fertiliser’ Report of the Task Force on IT Strategy and an implementable solution for the direct transfer of subsidy for food and kerosene (October 2011: Final report), Report of the Task Force on an Aadhaar-enabled unified payment infrastructure (February 2012), and, of course, the TAG-UP report, are testimony to how Mr Nilekani has been used to promote a set of database-related ambitions.

     

    It was in the January 2011 report of the Nilekani-chaired Technology Advisory Group on Unique Projects (TAG-UP) that the framework for the private ownership of databases was elaborated and explained. These were about databases constructed out of data that is given to the government to hold in a fiduciary capacity, and expected to be used for specified, and limited, purposes. The Nilekani Committee report directly dealt with five projects—Goods and Services Tax Network (GSTN), Tax Information Network (TIN), Expenditure Information Network (EIN), National Treasury Management Agency (NTMA) and the New Pension System (NPS). It recommended that the suggested framework “be more generally applicable to the complex IT-intensive systems, which are increasingly coming to prominence in the craft of Indian public administration”.

     

    As the Nilekani Committee understood it, the government has two major tasks: policymaking and implementation. Implementation is fettered by absence of leadership and active ownership of projects, outdated recruitment processes and methodology, inability to pay market salaries for specialised skills, lack of avenues for continued enhancement of professional skills and career growth, non-conducive work environment, outdated performance evaluation and preference for seniority over merit, and untimely transfer of officers. Rather than expend time on finding correctives to the system, the Nilekani committee found in this an opportunity for private business interest. Without further ado, and without considering, for instance the capacities and deficiencies in privatising databases, and what this means for citizens and residents, the Nilekani committee found its answer in National Information Utilities (NIUs).

     

    “NIUs would be private companies with a public purpose: profit-making, not-profit maximising”. The government would have “strategic control”, that is, it would be focussed on how it would achieve the objectives and outcomes, leaving the NIU ‘flexible’ in its functioning. Total private ownership should be at least 51%. The government should have at least 26% share. Once it reaches a steady state, the government would be a “paying customer” and, as a paying customer, “the government would be free to take its business to another NIU”. Except, of course, given the “large upfront sunk-cost, economies of scale, and network externalities from a surrounding ecosystem (and what this means is not explained any further), NIUs are ... essentially set up as natural monopolies”.

     

    The Nilekani Committee evinces a deep disinterest in the various rungs of government. It asks for the “total support and involvement of the top management within the government” -- words reflecting the UIDAI’s experience, with the Prime Minister and Montek Singh Ahluwalia being its staunch supporters, and much of the rest of the administration seemingly unclear about what the project entails. To get a buy-in from the bureaucracy, “in-service officers” are to be deployed in the NIUs and are to be given an allowance of 30% of their remuneration.

     

    “Once the rollout is completed,” the Nilekani committee says, “the government’s role shifts to that of a customer.”

     

    On the question of open source, the Nilekani committee “recognises the intellectual property of the NIU”, but considers that it may be counterproductive to the business planning and profitability of the NIU to release all source as open source.

     

    The report is littered with references to the UIDAI, and suggests that the way the UIDAI has been functioning is what an NIU should use as its model.

     

    What emerges is this:

    Governmental data and databases are to be privatised through the creation of NIUs, which will then `own’ the data;

    NIUs will be natural monopolies;

    NIUs will use the data and the database to be profit-making and not profit-maximising, and the definition of these terms may, of course, vary;

    Government will support the NIUs through funding them till they reach a steady state, and by doing what is needed to gather the data and create the database using governmental authority;

    Once the NIU reaches steady state, the government will reappear as the customer of the NIU;

    Government officers will be deployed in NIUs and be paid 30% over their salaries, which, even if the report does not say it explicitly, is expected to forge loyalties and vested interests;

    The notion of holding citizens’ data in a fiduciary capacity cedes place to the vesting of ownership over citizens’ data in an entity which will then have the government as their customer.

     

    This notion of private companies owning our data has not been discussed with state governments, nor with people from whom information is being collected. This might have been treated as another report without a future; except, in the budget presented by Pranab Mukherjee as finance minister in March 2012, he announced that the “GSTN (Goods and Sales Tax Network) will be set up as a National Information Utility”.

     

    The NIU was not explained to Parliament, and no one seems to have raised any questions about what it is. This, then, is the story of how the ownership of governmental data by private entities is silently slipping into the system.

     

    (Dr Usha Ramanathan is an independent law researcher on jurisprudence, poverty and rights.)

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    User 

    COMMENTS

    Yugal Singhal

    2 years ago

    The Government of the day needs to wake up to the reality and work for the people in an ever changing landscape. UIDAI should owned by the government rather than private entities. we cannot allow foreign based companies to have access to biometric data as it will lead to surveillance of people.

    CA PRADEEP AGARWAL

    7 years ago

    To be very frank of all things UPA has made a mockery of the country. Looks as if they have no love for the country.

    At such an age RAHUL GANDHI IS NOT DISCLOSING his marriage and our great media is silent. Any other plans?

    Dayananda Kamath k

    7 years ago

    is it a scheme to bailout infosys as it is loosing its credibility.

    REPLY

    CA PRADEEP AGARWAL

    In Reply to Dayananda Kamath k 7 years ago

    Feel so, because what I feel Mr Murty is very powerful and there was a talk of his becoming PREZ but before .............became so might be a quid pro for the same.

    p s d

    7 years ago

    This is a preposterous preposition indeed! In US and many other countries in the western world, citizen ID card has been opposed since it compromises the personal identity. These countries oppose this move even the information is to be owned by a democratic state. Now Nilekani and company want to own it privately. Even in communist China Hukou personal ID card, that is issued only in a place where you are born, is a hated document since state uses it to divide the people. In this commercial world driven by businesses such personal information has unparalleled value. America trained Nilekani will be, knowingly or unknowingly, give this vital classified information into private hands. God save India!!
    PSD

    REPLY

    CA PRADEEP AGARWAL

    In Reply to p s d 7 years ago

    ONLY GOD IS SAVING OUR COUNTRY, OTHERWISE THESE POLITICIANS MIGHT HAVE TAKEN IT TO DOCS......?

    CA PRADEEP AGARWAL

    In Reply to p s d 7 years ago

    Do agree

    CA PRADEEP AGARWAL

    7 years ago

    If you look at the contracts INFOSYS has bagged MCA from TCS and debated on this forum.(Regarding non working of MCA)

    Mandar Kulkarni

    7 years ago

    We cannot expect UPA government to do anything good for our country. So they will push for this dangerous UID Aadhaar scheme illegally. But what is more disturbing is that entire opposition is absolutely quiet on UID and not taking any efforts to scrap this project and stop wastage of tax payer's money.

    REPLY

    CA PRADEEP AGARWAL

    In Reply to Mandar Kulkarni 7 years ago

    Who said they will do good for the country, Bas desh ko baksh de wahi bahut hai.

    CA PRADEEP AGARWAL

    In Reply to Mandar Kulkarni 7 years ago

    Why not come out the in the open against Aadhar card in particular and against the opposition to wake them up from the slumber they are in.

    Krishnan

    7 years ago

    What happened to the suit filed in HC / SC in this regard.
    N.Krishnan

    Anil Kumar

    7 years ago

    Not sure, how Infosys has executed state of the art projects under the leadership of NN. Looking at interaction with UID programme at operating level and the quality of people who are running it,I have serious doubts about execution capabilities of NN.

    Would NN and/or Govt consider supporting my business till it comes in 'steady state' and assuring a perpetual market too by becoming a customer?

    CA PRADEEP AGARWAL

    7 years ago

    Ms Usha-Does the present dispensation want to clean the country high and dry.

    CA PRADEEP AGARWAL

    7 years ago

    WHY IS MMSINGH/PC CHIDAMBARAM G's feel respect is earned by their action and lost through deed, feel they have lost G's which they should try to earn by their positive actions

    SuchindranathAiyerS

    7 years ago

    Yet one more view that differs somewhat from ManmohanG Singh Saheb, Tiru.Da.Chidambaram G, and others.

    MOHAN SIROYA

    7 years ago

    Entire "Aadhaar Card" scheme appears to be turning into another RACKET of the Government, this time directly involving the innocent Indian individuals.
    Besides , the open ends of mis use and unofficial money making loop- holes, it has stopped being useful even as an ID proof. To save cost, the job of Bio-metric and other data entry at the time of Enrollment is entrusted to the private agencies who employ, almost illiterate but only who has learnt a PC operation.
    Take for instance my own case.
    In Feb. I had received my Aadhaar Card wherein my 'Gender' is shown wrongly as "F" instead of "M". I was unable to rectify ONLINE,as was tomtommed , so I sent my request with relvant documentary proof for change to the Regional Office at Mumbai.
    The office itself is big HOAX. All the contact nos. or EIDs, Fax nos are dysfunctional.My received request is simply pending unacknowledged or un-acted for last two months. ONLINE Feedback of UIDAI.Gov.in has also been in vain.

    REPLY

    Vinay Joshi

    In Reply to MOHAN SIROYA 7 years ago

    You're lucky, you were not shown as tree or dog or other inanimate object as has happened in thousands of cases & tens of thousands cards could not be delivered on bogus address.

    Regards,

    CA PRADEEP AGARWAL

    In Reply to MOHAN SIROYA 7 years ago

    Told before also it is a very big scam with top guns involved of Industry and POLITICS

    CA PRADEEP AGARWAL

    7 years ago

    I have heard that UID is having unofficial HO at Infosys (though I have yet to verify)

    REPLY

    CA PRADEEP AGARWAL

    In Reply to CA PRADEEP AGARWAL 7 years ago

    I feel the best person to answer is the author of this article/or Editors of MLF.

    CA PRADEEP AGARWAL

    7 years ago

    Dear Mr Basu/Dalal,

    Hurry might not be there to gobble funds which I suppose might see the end of the road for Congress politicians.

    Regards

    CA PRADEEP AGARWAL

    7 years ago

    I feel next fight will be on DATA and that is before fight for water.

    Bailouts for Crooks

    With the WB government bailing out Saradha, we have set a dangerous precedent and reached a new low in accountability

    In mid-April, the Saradha group, a Ponzi scheme in Kolkata, went down, taking the savings of poor people from across the state. This will not be a surprise to readers of Moneylife. Our regular readers know that we have been badgering various authorities—from the Reserve Bank of India (RBI) to the prime minister’s office (PMO) to the ministry of corporate affairs (MCA) to do something about multi-level marketing schemes (MLMs) and Ponzis. We have pointed out that:

        Unregulated chit funds, pyramid/Ponzi or MLM companies are able to lure people to part with several thousand crore rupees each without any regulation, investigation or supervision.
        A massive group, like Sahara, with its logo emblazoned on the shirts of cricketers in a cricket-worshipping nation, operates almost entirely outside any formal regulation. It flaunts its cosy equation with politicians across the spectrum, sports stars, film stars, media stars, judges, god-men, bureaucrats and sundry fixers. Nobody questions its business arithmetic and no one can tell us which of its businesses earns it the kind of post-tax returns that allow for mega-sponsorship deals or Subrata Roy’s lavish lifestyle. Details of taxes paid by the group in the past 10 years are unknown. Yet, according to its own advertisements, it has raised and repaid a mind-boggling Rs73,000 crore as deposits in a residuary non-banking finance company supervised by RBI.

        Multinational MLMs, registered abroad such as Amway, Herbalife, Tupperware and more dubious ones such as QNet, are known to be in violation of the Prize Chits & Money Circulation Act, but the government makes no effort to act against them. They are big sponsors of television programmes with top sporting stars as their endorsers.

        Whether SpeakaAsia, Saradha, Rose Valley or MPS Greenery—the business model has a pattern—media support through advertisements or by setting up television channels and newspapers and cosy relationship with regional political parties. Moneylife’s website has many articles on these.

        In May 2011, Moneylife Foundation wrote to the prime minister about the need to act against SpeakAsia and other MLM schemes. Moneylife has repeatedly reported that over 10,000 Ponzi companies and dubious chit funds (as collective investment or chain schemes masquerading as chit funds) operate in every Indian state. The big ones raise upwards of Rs1,000 crore in a matter of months by handing out returns in excess of 100%, which are tied to luring new investors into the scheme.

        In July 2012, former union secretary, EAS Sarma, at our request, wrote to the prime minster, revenue secretary, MCA and the RBI governor about the dangerous proliferation of MLM/pyramid or money circulation schemes that “swindle the unwary public by offering them misleading inducements and depriving them of their hard-earned savings.” He called them a ‘scourge on society’ and asked that they be dealt with an iron hand. Mr Sarma also pointed to their political links. Nothing happened.


    This is the India that we live in. Yet, as soon as a big collective scheme blows up, intellectuals and columnists clamber on to a high moral platform to berate people for their greed and gullibility in falling for the promise of extraordinarily high returns offered by these Ponzis. My question is the opposite. Why should an ordinary person assume that a company that owns IPL teams, or whose founder shares the stage at public events with top political leaders, be anything but law-abiding? And, if this is untrue, why shouldn’t the buck stop at the very top?

    Every politician who protected and helped legitimise the dubious Saradha group, Rose Valley and MPS Greenery in West Bengal—to name just a few—should be held accountable for its collapse. Would a group like Saradha have been allowed to start a newspaper and a television channel if union ministries had questioned and scrutinised its source of funds?

    It is time we, the people, began to ask these questions. Over the past two decades of a liberalised economy, we have allowed policy-makers, regulators and ministers (Union ministers and state governments are equally culpable) to obliterate the distance that used to be maintained between government and the businesses that it regulates. Now, many of the shadiest businessmen are inside parliament and involved in policy-making. Meanwhile, each new scam is buried after some perfunctory noise in parliament largely to empty benches. Even joint parliamentary committee (JPC) reports have only served to delay investigation until public anger cools down.

    Independent regulators are all IAS officers who owe their jobs to being compliant or their willingness to act as hatchet persons for politicians (barring the singular exception of Vinod Rai as comptroller & auditor general, CAG). Nobody in the system is under pressure to prevent wrongdoing; hence, no regulator, bank chairman or union minister has lost his job in the past 20 years, despite the sharp increase in the size and number of scams. If this is true of massive scams and misappropriation of funds unearthed by the CAG (2G, coalgate, irrigation, aviation, mining, defence procurement, disbursement of government subsidies, etc), where is the question of holding anyone accountable for failing to go after MLMs, Ponzis and chit funds?

    Even in the Saradha case, West Bengal chief minister, Mamata Banerjee is only containing the political fallout of a situation where some distraught investors committed suicide. But her hasty action sets a dangerous new precedent. Mamata Banerjee has created a Rs500-crore ‘relief fund’ to be raised through a 10% tax on tobacco and tobacco products; this will be supplemented by proceeds of the seizure and auction of Saradha group’s property. A commission will ensure that ‘most ordinary and small investors’ are taken care of. She is mum about the fact that Trinamool nominee to the Rajya Sabha, Kunal Ghosh, headed the now shuttered media business of Saradha.

    It is ironic that the former FICCI general secretary, Amit Mitra, will rubber-stamp this desperate idea of his financially illiterate chief minister, which is likely to be emulated by corrupt state governments across the country in future Ponzi failures. Consider the consequences.

    West Bengal came up with a tax on tobacco companies, probably because ITC Ltd is headquartered there. Other state governments may tax alcohol or automobiles, depending on their presence in the state. Some may come up with a populist tax on multinational company products—especially if a global Ponzi goes bust. Where does it stop? Can taxes be raised to pay for losses caused by the failure of Ponzi schemes?
    Mamata Banerjee’s bailout for Saradha investors signals that the gullible will be protected if the Ponzi collapse is big enough to have political consequences. Those who avoid such schemes, opting for safe, taxable and bank fixed deposits with lower returns, will feel foolish and end up paying the bailout tax. Does the government really want to signal that it is stupid to be prudent and careful? Do we really want to allow politicians to start a new bailout tax or scam tax to pay for the financial scandals caused by their inaction or complicity?

    We are, indeed, in a strange situation. Regulators and tax authorities will harass and hound legitimate businesses over compliances, taxes and permissions, while the most dubious businesses will be allowed to lure people and destroy their wealth with impunity. We have now moved to yet another level of lunacy, when the exchequer will foot the bill for such private scams. We need to do something to stop this madness now.

    Sucheta Dalal is an award-winning journalist and the managing editor of Moneylife. She can be reached at [email protected]

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    COMMENTS

    Vinay Joshi

    7 years ago

    Hello Ms. Sucheta,

    Well articulated post after a long time under your byline. Hope you read my comments with due diligence & respond.

    Is it not that the fourth estate & third estate predominantly safeguarding falling democracy?

    Modi’s Govt. on May1, released full page ads in print media in Mumbai, including English dailies about its highlights.

    None, by the Maharashtra state Govt. [possibly it had nothing to state OR things are taken for granted.]

    All were busy on April 30, to launch the ‘MARATHI’ channel ‘Jay Maharashtra’ of ‘SAHANA’ group, politicians of all hues, glitterati of stars & bigwigs attended the inauguration in the five star hotel. The Charman & MD of ‘SAHANA’ is Sudhakar M. Shetty. The said channel aired since May 1.

    The said promoter of the channel, erstwhile owner of dancing bar ‘Deepa Bar’, in western suburb was raided arrested & the dancer worth 100K, history sheeter.

    The function was attended by Sushilkumar Shinde [MoHA] whose ministry clearance is most important.

    So as Manish Tewari vehemently claims that ‘permission[s] is granted to co’s not individuals. His IB ministry gives all clear to air the channels. [actually he was speaking on ‘chitgate’ as Cong. spokesperson.]

    Further, May 1, paying homage to ‘Hutatmas’ at Hutatma Chowk, certain Shahirs wanted to sing in praise, WERE NOT ALLOWED as being silent zone!? It was just one hour programme. No soul around at the HC or other functional banks or any residency in the vicinity – so as to coz any disturbance.

    But within a km radius i.e Churchgate & Marine lines – ‘DECLARED SILENT ZONE AS PER HC ORDER’, gala wedding receptions & parties can be had with blaring music DISTURBING the residents UP TO past midnight. So the might & BLATANT SUPPRESSION by the mighty.
    Now ‘F’ & ‘D’ road citizens are bound to approach the court.

    The above out of the context as in finance products essentially meant to highlight the might.

    In KP scenario Advani prevailed to bail out A’bad coop bank. [Mercantile.] WHY?

    The kingpin of HM scam is yet not got, unknown. HM was to be an Economic Minister at the center. You have written books on him. Yet KP is trading. [now SEBI desires lo-co access to retail investors!?]

    What has happened to Telgi scam?

    WHY NO PONZI SCHEME – after Charles Ponzi, 1929- in US have taken place?

    I’m prepared to debate the biggest PONZI in US of 2008, ‘quants & algos’, but not in the shade of gullible poor looted in small town & cities of India including metros.

    When poor get cheated we talk about easing financial inclusion. See the dichotomy – KYC not adhered to results in massive – so called – ‘money laundering’.

    Again allowing ‘non banks’ into inter bank card payment system [as announced in annual rate policy] IS REQUIRED TO BE VETTED!!?

    As regards Sahara all things will now fall in place. The aspects are under the apex court scrutiny, the designated retd.Judge & the staff has to submit its report on verification in the warehouses of SHCIL & other. This exercise is at a cost of 80CR, to be recovered from Sahara.

    U.K Sinha is not a person to leave it. [What about RIL? Insider trading!]

    Ms. Sucheta, we require first amend the laws to ‘PROSECUTE’ the culprits, put the ‘EXACT’ violation & ‘breach’ of ‘financial system’ as in place.

    The Achilles heel in respect of WB adopted law – empowering the state to seize properties, no formal complaint required. Well, GOOD!!?

    Can such a law entail to ‘override’ mortgages & seize assets from banks? Mortgaged assets!
    The banks are likely to petition the courts.

    Further the laws [proposed] does not prohibit ‘FIRMS’, in accepting public deposits.

    Ms. Sucheta, I’m prepared to file a petition in SC against Amway & Tupperware – PROVIDED – you highlight the ‘LEGAL VIOLATIONS’ in accordance to the laws & rules & regulations.
    [so read my earlier para re amend laws.]

    When gullible believe in ‘tantriks & mantriks’, [no law[s] have been curbing it] so how you think ‘financial tantriks’ will not swindle?

    In which manner you thought that writing to PMO including PM or otherwise a corrective action will be taken?

    WHY you didn’t approach – straight away – LS & RS filling up the respective form[s] & documentation? Mr. E.A.S Sarma new the politicians but didn’t advise you the course of action to ‘NAIL’ them.

    WHY STILL NOT TAKE IT? Of course today spilling the beans will be of no use as it will be futile an exercise. [what can the soft talking headmistress [contemplating to contest from Punjab, learning Punjabi] & the Principal of the school do with students abandoning classes with impunity? Got it.

    Why it took 22 mnths for the scam to surface perpetrated earlier? Any idea?

    We the ‘people’, is just a preamble, none know the definition of the ‘Republic’, least of all the politicians.

    We the people want Ashwani Kumar & Pawan Bansal to be ousted! What can we do?

    All JPC’s & PAC’s is a farce for the intelligent just as ‘chit funds’ is for the gullible, DUPED!

    Mercurial Didi is no subject matter, is she a CM or activist. Her only fame was that while in Cong, she won against the stalwart Somnath Chateerjee, in the wave of 1984. Nothing else!?
    In which manner she will curb rampant smuggling of tobacco products from neighbouring states? More than 30KCR is the amount in her state.

    Why you talk of Amit Mitra & not Derek O’Brien? Amit Mitra should come out & state that Singur people are most affected in this ponzi, coz of political bosses.

    WE NEED TO GET 49[O] MANDATED IN EVM’s – ‘none of the above’, instead of exercising it individually – ‘which is not’ secret ballot as per constitutional provisions. First past the post should be abolished.

    Russell’s Paradox.

    Regards,







    anantha ramdas

    7 years ago

    Instead of taking to task her own partymen, Mamata Banerjee wants people to smoke more so that she can collect additional taxes to cover the disaster that Saradha has caused.

    She may have helped in changing the communist rule in the state but, in the process, all that she has done so far is putting tantrums at will. It is very doubtful if TMC will ever come back to power considering the catastrophies of hospital fire, cash going up the smoke thru Saradha. And we do not know what else is in store for the poor affected people of Bengal.

    Thanks, Sucheta, once again for writing about this.

    Str

    7 years ago

    Sucheta & co are right on the nail. No surprise there.

    This insanity is just another example of the fortune-at-the-bottom-of-the-pyramid. Steal 10 bucks a month from each of a billion Indians, and you can easily live a life of luxury.

    The problem here lies in enforcing the separation between the fence and the raiders. If they're the same, the crop is kaput.

    Funnily enough, the current descent of capitalism is echoed across the globe: witness the US Supreme Court's decision allowing PACs in.

    Hard to say where this will lead us all.

    DEEPAK KHEMANI

    7 years ago

    Payback for the paintings he bought of didi!
    On a serious note this says well start a ponzi scheme, loot millions of innocent investors, bring on some political heavy weights and they will see to it that no harm comes to the bosses.

    Harish

    7 years ago

    Bang on target, Bull's Eye.Salutes to the author.

    nagesh kini

    7 years ago

    In humans "multi-organ failure" leads to death". What we are facing to day is a classic case of "Multi-Regulatory Failures". Why any of these money multiplying schemes do not within the Regulatory ambit of either MCA, RBI, SEBI or ITDA beats logic. Now all of them have woken out of their slumber. Each investigator wanting to guard its own turf will seize some records and it will be a Satyam repeat. The AP Police were also in the game!

    In the current scenario Saharadha is only the tip of the iceberg, there are other time bombs waiting to happen.

    Gaurang Shah

    7 years ago

    Can this order of WBG challenged in a court of law?

    Vinayak Bhimarao Mudholkar

    7 years ago

    Hats off to Sucheta & her team!!!

    Gaurang Shah

    7 years ago

    Please refer to my emails to you on Empower Network, USA which is a cousin of SpeakAsia and now being promoted in India.
    ML is the only magazine crusading against fake MLMs and IDSA needs to be more active in order to separate the wheat from the chaff.

    Arun Mehta

    7 years ago

    All other scams pale in comparison to SAHARA ,a PONZI scheme promoted nurtured by a master con with a veneeer of a true "Son of Bharat maata" and any one pointing a finger at him is a"True enemy of Bharata Maata" and an "evil' force.

    One has to recall his mastery of control of politicians of all hue by an ad published during the times of VPSingh as an FM where he reproduced an full page ad ,which was nothing but a true copy of letter from IT Office listing out names of leading politicians(all parties covered) except the left,who have/had deposited funds with his outfit and the asking for details there of.The fate of the IT officer can be imagined as that the last one heard from the Govt of the day then.
    The "Mango" people can only hope for Apex court(thro the current SEBI matter pending with SC) to expose this "Mother of all funding Scams" and expose the politicians nexus once for all(perhaps, too much to hope for).The Apex court is the only body ,the noble son of "Bharat Maata" is scared of.The others he has 'taken care of'.

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