Tag: scam

NSEL: Scam or Rivalry?

National Spot Exchange Limited’s (NSEL) decision to suspend trading of all one-day forward contracts was enough to shake investors and have brokers hammering on NSEL doors. Shares in NSEL owner Financial Technologies (India) Ltd (FTIL) fell 73% and over ₹5,500 crore of investor money in NSEL is at stake. Fear of default has created widespread panic that NSEL and investigating authority, Forward Markets Commission (FMC), are trying but failing to allay.

Going by NSEL’s docile obeisance in face of FMC directives and disinclination to adopt legal recourse, it appears that NSEL has indeed been caught dipping its fingers in shady pies. NSEL is accused of allowing short sales by not verifying whether the seller of a commodity actually had stocks with them as well as offering 20-40 days settlement periods in forward contracts. If it turns out that there are no commodities to sell, how will NSEL meet its payment obligations? That’s the big question on everyone’s mind.

According to a report on the Press Trust of India, NSEL has formed an independent committee to advise and monitor the settlement of trade funds amounting to ₹5,500 crore. Chairman and managing director Jignesh Shah of FTIL says that NSEL will announce a pay-out settlement by August 14. Till then, investors will remain on tenterhooks.

What is NSEL about?

NSEL is the facilitator of on the spot trading of commodities in India. Promoted by FTIL, it was established in 2008 to lower costs of intermediation and increase market efficiency.

But like other agencies before and after NSEL such as the Multi Commodity Exchange (MCX), FTIL itself and even SEBI that’s participating in the investigation, the exchange has become just another channel for bureaucrats to swindle money from public.

Scam or rivalry, investors’ the scapegoat

Three years back at a regional commodity exchange meeting in Kolkata, some members brought FMC officials’ attention to trading issues at NSEL that did not conform to spot transaction practices. But nothing came out of that till July 9, 2013. This long gap is a question in itself. Was there an intentional lack of interest and vigilance on the part of the FMC, heading the meeting then?

There is another angle to the story too. NSE and FTIL are longtime rivals. FTIL is the promoter of NSEL and MCX-SX, direct competitor of NSE. In 2009, MCX-SX filed a case against NSE for which NSE was served a show cause notice for violation of provisions under the Competition Act, 2002. MCX charged NSE of lowering trading costs unfairly to kill competition. In June 2011, Competition Commission of India (CCI) fined NSE a penalty of ₹55.5 crore, payable within 30 days and ordered it to immediately stop subsidizing its services. Some say that the recent NSEL saga has a lot to do with the FTIL-NSE rivalry.

Last month, the Minister for Food and Consumer Affairs issued a statement that the Centre will take action against NSEL for violating spot trading rules. In three days, it sought an undertaking to stop the exchange from launching contracts with a greater than 10 day settlement period. On July 15, FMC directed NSEL to stop any such order till further notice.

That was the start of investor panic. When NSEL suddenly suspended all contracts, except the e-series that offer gold and base metals on July 31, there was total market chaos. NSEL then announced the deferment of payments amounting to ₹5,500 crore.

What now?

NSEL has announced that 13 of its members will pay 5% of their outstanding obligations, a total of ₹3,107 crore, on a weekly basis and 8 others will immediately settle contracts amounting to ₹2,180 crore. It is yet to reach an agreement with 3 members having outstanding obligations of ₹310 crore.

The FMC chairman Ramesh Abhishek has informed Reuters that the government has given it the power to take strong actions against any NSEL counterparties that default on their obligations.

Unanswered questions

How did NSEL get away with forward contracts in the first place? How come these goings-on went undetected by the State, FMC and Department of Consumer Affairs before now? Despite complaints 3 years back, why were NSEL’s operations not verified or monitored? And lastly, are the commodities really there? If they are, why the deferment?

Inflation and global market volatility are hitting Indian investors from the outside and it seems Indian bureaucrats are hell-bent on eating the capital market from the inside. It’s a double whammy that’s crippling the economic growth of the country as scam after scam hurt its international reputation. Still, bureaucrats and politicians are too busy conniving schemes to hoodwink people and fill up their own pockets. What do they care?


UID: Another Scam in the Making

Corruption is something we encounter almost every day. We even abet it on for the sake of convenience. Perhaps corruption has become part of our DNA without our knowing it. Could that be why every private, public or government mass project in India becomes a victim of mismanagement, lag, inaccuracies and corrupt practices? Like the UID project … waiting in queue to join the regular Indian diet of scams.

UID – From whence it comes

UID, Unique Identification or Aadhaar Card as it is more commonly known is vigorously supported by the Congress government. Aadhaar registrations kicked off in September 2010 without “proper debate” in parliament. In fact, the proposed bill was firmly rejected by the parliamentary standing committee on finance chaired by Yashwant Sinha in December 2011. Home minister P. Chidambaram has also expressed his reservations of the project that has no cabinet clearance, making it open to question at any time.

The UID project, guidelines and related technology are coordinated by the Unique Identity Development Authority of India, UI DAI at the center. Implementation at field level is the responsibility of respective state governments. They in turn work with authorized registrars who need UIDs for their own operations. And at the ground there are private or publicly owned agents or NGOs that serve as empanelled enrollment centers. The NPR is an important partner registrar in the enrollment process.

The UID project is headed by Nandan Nilekani, former CEO of Infosys. He was called in for the task by PM, Dr. Manmohan Singh. His team includes enterprisers from private and government circles. Some volunteered for free, some were invited to join. The mammoth project will certainly be a once in a lifetime experience for the UIDAI team but will it have an enduring impact on the lives of the average Indian too?

The UID scheme is expected to cost the country a whopping ₹150,000 crore though some estimate it as higher. At least ₹598 crore rupees have been funneled into services outsourced to partners like MindTree and Accenture among others. While the amount is shocking, what’s worse is the inept execution of the project at ground level.

Misguided, mishandled and misused

Projected as a pro-poor people’s initiative, UID is expected to streamline the delivery of food, water, homes, jobs, security, fuel, and the like to India’s poor as sanctioned under various national schemes. Because analysis tells us that the reason NREGA and other “feed the poor” schemes are falling on their face is because poor people can’t be identified correctly? You’ve got to be kidding. How will fingerprinting and iris scans stop unscrupulous agents from exploiting the poor?

Reports of UID’s shoddy implementation continue to pour in. Almost 30,000 bogus registrations were submitted by an “ex-employee” at a Hyderabad enrollment center. Turns out his credentials were used by other agents across 20 centers. This … when the fingerprint scan of the agent is part of the authentication process. Clearly, the involvement of a technocrat like Nandan Nilekani in the UID project has not prevented technological loopholes from entering the system, allowing miscreants to take advantage.

In other places, free Aadhaar forms are being sold to people standing in queues at MLA’s houses; like black tickets for a show but without the promise of entertainment. Delhi’s MPs and MLAs are blindly handing out necessary documents for UID to woo voters. Diligent people who registered in 2011 are still waiting.

UID – It begs the question WHY?

Inept execution aside, why do we need UID anyway? As an aid for the poor, its usability is suspect. With the way Aadhaar registrations are being manipulated and mishandled, building a clean, accurate and verified UID database of Indian citizens is out of the picture.

From a legal standpoint, the Aadhaar project can be challenged as it hasn’t received parliamentary approval. It allows non-citizens to avail the same benefits as citizens in violation of the Citizenship Act, 1955. And collecting biometric data is an invasion of individuals’ privacy rights in a free country.

Strangely and worryingly, UID is not mandatory. Nilekani says UID is voluntary but service providers might make it mandatory. In the long run I wouldn’t call it compulsory. I’d rather say it will become ubiquitous. This play of words means this: Common people will register on Aadhaar because they naturally want access to subsidies. The uncommon man with plenty to hide can conveniently opt out as he certainly doesn’t need subsidies nor wants his biometrics and private information on record. Bottom line? The UID scheme changes nothing except adding to the taxpayer’s burden.



[stockquote]INFY[/stockquote] [stockquote]MINDTREE[/stockquote]

National Food Security Bill: Making India Poor

The National Food Security Bill (NFSB) led to an uproar in the Lok Sabha when it was tabled on May 6. True, it doesn’t take much for our esteemed parliamentary members to get agitated but this time, they have a point. With NREGA and similar “empower the poor” schemes failing to deliver owing to rampant corruption, is another scheme really required? Worse, if the NFSB is passed, India’s fiscal deficit will get worse, a fact that’s already impacting India’s allure as an investment destination.

Opposition parties believe that the NFSB is a smokescreen for UPA to divert attention from the corruption charges levied at the party. They also claim it’s a move to gratify voters as the 2014 elections come close. Whether that’s true or not, the NFSB has holes that make it flawed from the start.

Food Security Bill

First, the NFSB is not new. It’s been dug out of its grave by the UPA government after a spell of 4 years. It was passed by the Cabinet in March 2013 but faced flak from opposition in the Lok Sabha.

If the NFSB is passed, India’s poor amounting to 800 million people (two thirds of the country’s population) will have the legal right to receive 5 kilograms of food grain per person at fixed rates of ₹3 (rice), ₹2 (wheat) and ₹1 (coarse grains) per kilogram. Meanwhile, the Antodaya Anna Yojana (AAY) meant to protect 2.43 crore poorest of poor families will continue with the supply of 35 kg food grains per month per family.

Economic implications of National Food Security Bill

NFSB has not received a favorable response from any quarter – media, corporate, or business. That’s not over a disinclination to help the poor but over the practicality of implementing a scheme that relies on the same flawed infrastructure that has stalled previous schemes.

Secondly, the NFSB was proposed at a time when India’s growth rate was almost 9%. Today it’s struggling to touch the 5.2% mark promised by finance minister, P Chidambaram. If it falls any lower, India’s status in the investment market would be rated “junk.” For 2013-14, the food security bill will cost the exchequer Rs. 1,24,502 crore, an extra expenditure of Rs. 44,711 crore after deducting existing food subsidies and adding infrastructure, transportation and other costs allied to the NFSB. NREGA’s annual cost is only a little less.

Thirdly, the government’s involvement via NFSB could drastically raise the amount of food grain procured from the market, leading to distortion of agriculture prices. The Bill will add to the total subsidy burden that’s already about 2.4% of the GDP. Chidambaram hopes to cut the fiscal deficit to under 4.8% of GDP in 2013-14 from around 5% in 2012-13. NFSB will certainly not help.

fiscal deficit percentage GDP India

Can India afford to decelerate its growth rate any further? As S.A. Aiyer’s calculated in his 2009 paper Socialism Kills: The Human Cost of Delayed Economic Reform in India, India has already failed to prevent 14.5 million infant mortalities, produce 261 million literates and empower 109 million poor because of delayed economic reform. The need of the hour is not NFSB but reform that drives growth – the only factor that effectively helps move above the poverty line.

A scheme to feed the poor does not address the core problem. It will only end up making greedy middlemen, politicians and bureaucrats richer. The UPA knows this too. Then why focus on a scheme rather than the root cause of implementation failure? Why not focus on preventing stored food from going to rot? Why not optimize distribution channels to bring what is already available to the poor instead of creating new administrative burdens? Without fundamental changes at the ground level, NFSB is doomed.



The Sahara India Pariwar Saga

Here’s yet another turn in Sahara-SEBI war. Subrata Roy, CEO and group chairman of Sahara Group has approached the Supreme Court to postpone the hearing scheduled for April 22. That’s when Justice K.S. Radhakrishnan is expected to consider SEBI’s petition to detain Subrata Roy and directors Ashok Roy Choudhary, Ravi Shankar Dubey, and Vandana Bhargava to initiate contempt proceedings against them.

English: At home of Subrata Roy Sahara

Sahara Group was instructed by the Supreme Court in August 2012 to refund ₹24,000 crore to investors in 3 months, along with 15% interest. The charge on Sahara Group, its CEO, promoters and directors is that the firms Sahara India Real Estate Corp. Ltd. (SIRECL) and Sahara Housing Investment Corp. Ltd. (SHICL) raised funds through optionally fully convertible debentures (OFCD) without complying with prudent disclosure and investor protection norms such as notifying investors when their deposit matures or KYC norms. Moreover, majority of investors in Sahara’s scheme come from rural villages and small cities who were attracted by the interest rate but have no idea what OFCD means.

SEBI argues that under the guise of Residual Non-Banking Corporations (RBFC) distributing OFCDs, the firms were running regular deposit schemes and para-banking activities – a breach of SEBI regulations and the Companies Act. An OFCD scheme runs only 10 days while Sahara has been collecting money for years – from over 23 million people. That too in a highly irresponsible manner as their investor records show – incorrect names and addresses, no nominee record, etc. In effect, if an investor does not come to Sahara with debenture papers, the money will stay in Sahara’s pockets – an observation made by courts too.

SIRECL had collected ₹19,400.87 crore from investors by March 2008 and SHICL ₹6,380.50 crore. With the 15% interest, Sahara must pay back over ₹38,000 crore to investors. The company claims 86% of the funds have already been refunded except ₹5,120 crore which they have paid to SEBI on the court’s order.

Since Sahara has failed to make further expected payments to SEBI and their investor records show bizarre gaps that could mean they are bogus, SEBI has passed an attachment order on bank accounts and assets associated with SIRECL and SHICL. Sahara has filed an appeal with Securities Appellate Tribunal (SAT) to appeal on this issue on April 20.

Sahara claims that SEBI has no jurisdiction in the OFCD matter as they are a privately held company and hence answerable only to the Ministry of Corporate Affairs. This argument does not wash with the Supreme Court of India or SEBI.

What of the investors that Sahara accepted money from? Roy claims that none of his 110 million investors have anything to complain about. But reports have come in of strong-arm tactics towards investors who are coming in with their papers and conversion of investments to Roy’s newest venture Q-shop without investor’s consent.

Meanwhile, Sahara Group has acquired acres of land in Delhi, Gurgaon, Mumbai and purchased controlling stakes in hotels abroad with possibly the funds accumulated from SIRECL and SHICL. That’s not a crime but it rightly raises questions for which Sahara doesn’t have convincing answers. Is it the road to doom for Sahara or will Subrata Roy’s entrepreneurial soul find a way out yet again?


How Crony Capitalism Scammed India

It is the season of scams and the cozy nexus between the Great Indian political class, babus and corporate India has exploded. Apart from unraveling the Indian style of doing business, the expose threatens to lay bare ‘the dirty picture’ of crony capitalism. The coal block allocation scam is the latest loot of national resource in various sectors like coal, oil, gas, power, mobile-phone licenses etc.

The sharp spurt in economic growth has been matched by an equally sharp increase in the quantum of frauds. While the ruling Congress-led UPA has sunk deep into corruption, history reveals that other parties like the BJP, SP and other regional parties are not any better.

Just like the 2G scam where a scarce resource like spectrum was doled out by Union Telecom Minister A Raja to his hand-picked companies, the latest CAG report on coal block allocation shows how land was given at throwaway price to GMR’s Delhi airport, coal was given to private players like Essar Group, Jindal, Adani, ArcelorMittal and Tata Steel without bidding. [stockquote]TATASTEEL[/stockquote] [stockquote]ADANIENT[/stockquote] [stockquote]JINDALSTEL[/stockquote]


While the recent CAG reports have thrown the spotlight back on crony capitalism, India is no alien to business-politics nexus. Jagan Mohan Reddy created a multi-million dollar empire in no time, thanks to undue favors from his then Chief Minister father late Rajasekhara Reddy.

The Bellary brothers including billionaire and mining magnate G. Janardhana Reddy ran their illegal iron ore mining business with impunity, thanks to BJP’s patronage. Their political clout ran across party lines and they were also linked to both Jagan Reddy and his father.

Even BCCI’s billion-dollar baby, the Indian Premier League, which included businessman, politicians and film stars, has been implicated for financial irregularities that run into crores.

The controversial S-Band spectrum deal between ISRO’s commercial arm Antrix and private firm Devas Multimedia was scrapped after it emerged that undue favors were given to the private company. The loss from the scandal was pegged at more than Rs 2 lakh crore.

The issue of black money, currently the toast of the nation, gathered steam after Pune stud farm owner Hasan Ali Khan was nabbed in a massive money laundering scam and accused of amassing wealth of over $8bn in Swiss banks. While many influential politicians have been linked to the scrap dealer turned billionaire, none have so far been substantiated.

imageSeasoned watchers explain that the perfect example of crony capitalism was played out in one of the country’s largest companies. Till Murli Deora was at the helm of the oil ministry, Reliance Industries, run by Mukesh Ambani had a free run as Deora was seen close to the Ambanis. Ever since he was shunted out and Jaipal Reddy took over, the fortunes of RIL turned worse and the company’s run-in with regulators over KG-D6 gas basin has intensified. [stockquote]RELIANCE[/stockquote]

Coming back to scams, who can forget Ramalinga Raju and his Satyam Computers [stockquote]SATYAMCOMP[/stockquote]. Raju was seen as close to both former CMs of Andhra Pradesh Y S Rajasekhara Reddy  and N Chandrababu Naidu. While both ministers rode on the back of Satyam Computers and Raju to showcase the city as an IT den, once the Rs 14,000 crore scam exploded, none wanted to associate themselves with the fallen hero.


Even as the tainted government battles to save its skin, the fallout of such scams has been widespread. Parliament functioning has been stalled due to political gridlock, macro environment for investment has worsened, policy reforms are in deep freeze, risk aversion has increased, decision-making at the government’s administrative machinery has completely slowed down and business sentiment has taken a beating. Is it any surprise that the country’s GDP growth is languishing at a decade low of 5.5% in Q1?