The Alarming Designs of a ‘5 Trillion Dollar Economy’: Part Three

  • October 14, 2019

In this 3-part report, we take a stock of the current situation of the Indian financial sector, the current financial policies, and try to map how our ‘common wealth’ is being suctioned off into the pockets of a few big business families of the country. Tathagata Sengupta writes. You can read Part One and Part Two here.


Part Three: What keeps the Machine running?

In Part Three of this series, we address the following questions: How does this money flow go on? Where does the money come from? What makes the system run?


In order to ensure the status quo is maintained, i.e. to ensure that money from the public economy continues to flow into a few pockets, the Government has to design an elaborate draining mechanism. It has to sell to private corporations public infrastructure and large-scale projects such as railways, electricity, water distribution, roadways, coal blocks, mobile phone spectra, education, health, transportation, etc. It has to formulate policies for selling off its rivers, forests, minerals, land, water – everything that is commonly owned, for the purposes of extraction. It has to roll back environmental protections, and it has to drive out forest-dependent communities from the forests. It has to raise taxes on the small traders, while giving huge tax breaks for the super rich. It has to force the Reserve Bank to empty out its reserves. It has to repeatedly run to rich foreign governments and businessmen, begging for them to invest in India. It has to drain out money from public sector enterprises such as Bharat Heavy Electricals Limited (BHEL). It has to use pensioners’ money, for example, the reserves of a public insurance company like the Life Insurance Corporation (LIC), to cover for the money stolen from public banks in order to mitigate the disasters caused by NPAs.


The latest in the line of privatization of major enterprises by this Government is that of one of the biggest and most successful publicly owned petroleum corporations in the country – the Bharat Petroleum (BPCL). The BPCL made a profit of more than ₹35 thousand crores in the last 5 years, paid over ₹19 thousand crores in taxes over the same period, and paid the Government dividends to the tune of around ₹9 thousand crores during this time. The same Modi Government had declared BPCL as a “Maharatna Company” in 2017 for its performance. But now the Government has decided to sell the company, in order to earn one-time premiums estimated at around ₹65 thousand crores. This decision to sell off one of the most successful public enterprises in the country is yet another desperate move towards somehow keeping a cash-starved Government’s expenses running for now. This comes at the back of record low tax collections post-GST, and the Diwali bumper corporate tax cut of the order of ₹1 lakh 45 thousand crores.


Source: Internet.

Bail-outs using People’s Money

According to a recent report published by ThePrint, the LIC put ₹10.7 lakh crores in PSUs under Modi – almost the same as the LIC’s total investments in 6 decades upto 2014. “When Modi govt came to power, LIC’s cumulative investment in public sector was ₹11.9 lakh crore. At the end of FY 2018-19, it jumped to ₹22.6 lakh crore,” says the report. The LIC has been regularly used by the Government to pour in money – “infuse capital”, in economic terms – into the leaking public sector banks. Over the last few years, LIC had to put money into the Punjab National Bank, Corporation Bank, Allahabad Bank, State Bank of India, and IDBI bank. Last year, LIC increased its stake in the state-owned IDBI Bank to 51 per cent with an infusion of ₹21,000 crore in the bank. However, massive losses wiped out most of this infusion, forcing the LIC to go in for another round of infusion. Earlier this month, the Union Cabinet cleared ₹9,300 crore of capital infusion in IDBI with the government and LIC infusing ₹4,557 crore and ₹4,743 crore, respectively. IDBI Bank, now classified as a private bank, had posted a loss of ₹3,800 crore in the June quarter with gross NPAs at 29 per cent, according to a report published in ThePrint. While public money is being used to bail out private banks, the private flow of funds into public institutions has been dropping. According to RBI data, during the same period from March 2014 to March 2019 when LIC was used to inject blood into IDBI etc, the private sector’s share in the total investments of LIC plunged down to around 15% – the lowest since 2003.


The LIC is not alone in this. According to reports, the state-owned Oil and Natural Gas Corporation’s (ONGC) cash reserves have dropped by 91% over the period from 2013 to 2019. During the same period, the cash reserves of another state-run company, Hindustan Aeronautics Limited (HAL) were essentially emptied out. HAL’s reserves dropped 99%, from ₹17000 crores to only ₹140 crores.


Direct Theft of People’s Deposits

In addition to handing over all that is ‘commonly owned’, these rivers of money flowing into the pockets of a few families also bank upon simply stealing the poor person’s hard-earned money. If ‘bad loans’ are a roundabout way of robbing the bank, there are other methods that are much more direct.


From 2014 onwards, 21 Public sector banks and 3 private banks have collected more than ₹12,000 crores as a penalty for not maintaining minimum balance in a user account. SBI started charging for not maintaining minimum balance in 2017 and collected ₹2400 crore in the following year as penalty for the same from saving account holders. Major public sector banks have put a limit (3 to 5 times) on the number of times that a person can visit the bank branches in a month. After that banks are charging ₹10 to ₹150 per transaction/branch visit. Every failed transaction (due to insufficient balance) cost ₹25 till recently. A Jan Dhan account holder is not allowed to conduct more than 4 withdrawals (including online, ATM and branch-based withdrawals) per month. Either the 5th transaction is not allowed, or they are being asked to pay for it. Banks are charging for every service they provide – SMS alerts, change in mobile number and address, change in Know Your Customer (KYC) documents, bank statements, signature verification etc.


Poor people’s savings are under attack in other ways too. For example, the Government owned “Small Savings Funds” is currently being drained. According to ThePrint, loans from the Small Savings Funds to bleeding PSUs have jumped by 500% since 2016-17. The fund that belongs literally to the poor people of this country, has been used to bailout giant corporations such as Air India, National Highways Authority of India, and Power Finance Corporation Ltd. All of these corporations are state-owned financial backbones of the aviation, roadways, and power sector respectively. All are publicly owned agencies that have been sabotaged to make space for private companies in their respective sectors. The above are just a few examples of the elaborate mechanism through which the Government through its ‘policy making’ acts as the architect of this never-ending loot.


In addition to this, increasingly, money deposited by small users such as pensioners and insurance policy holders, is being converted into tradable items in the world-scale ponzi scheme of speculation. Pension accounts, under the so-called New Pension Scheme, are an example. Saving money is fast becoming equal to losing money in real terms. More and more middle class people are being forced to invest in the share markets, in order to keep up. Domestic savings have recorded significant decline, from almost 37% of the GDP in 2011 to a little above 30% in 2018.


Shadow Banking Schemes

As public banks withdraw from the poor, shadow banking activity capable of expanding systemic risks is on the rise; in 2015 the reported annual growth of Other Financial Intermediaries (OFIs) was 18.4%. The Non-Banking Finance Companies (NBFC) – notorious for siphoning off the poor’s money through microfinance scams such IL&FS and the Telangana micro-finance scam in recent times – are being refinanced under the MUDRA (Micro Units Development & Refinance Agency Ltd.) scheme. Data shows that at the end of FY 2017, MUDRA had disbursed ₹6,863 crores through refinance from its corpus of ₹20,000 crores. But over 90% of beneficiaries under the scheme were given loans of less than ₹50,000. Such small loans could have hardly helped anyone set up a small enterprise or expand a business capable of giving jobs to others – that is the declared purpose of MUDRA loans. In essence, the MUDRA scheme has been basically as a way to channel public budget into refinancing shady banks. Post-2016, the NBFCs’ share in the financing of consumer durables jumped to 32% by FY 2017, from 19% in FY 2013. NBFCs, funded by new private banks, now hold dominance over the nationalized banks when it comes to small finance. After the IL&FS scam, however, NBFCs have come under scrutiny – resulting in a credit drought in the market of small loans.


While on the one hand huge chunks of money have been allowed to be channeled into the accounts of the rich, in the name of ‘bad loans’, credits to the Small and Medium Enterprises in the country – the relatively safer small credits – have dried up, leading up to a credit inequality crisis. This has been only aggravated by ‘iron man’ policy stunts such as demonetisation and GST. All this has led to adverse effects on job creation, creating historic levels of unemployment and relative poverty. Demonetisation brought down the employment ratio in the country, with over 3.5 million people losing jobs within a span of 4 months (i.e. by February 2017) after the declaration in November 2016. Post demonetisation, micro- and small enterprises have suffered 35% job losses and a 50% dip in revenue. Demonetisation also hit the labour market adversely with the Labour Participation Rate falling from 47 % to 43% between 29 November 2016 and 8 September 2018.


And then there is official ‘Fraud’ itself

And then there is direct ‘fraud’ in legally sanctioned sense of the term – the likes of Mehul Choksi, Nirav Modi, and Vijay Mallya. And shady transactions. For our purposes, let us consider one of India’s ‘most expensive’ corporates.


“The 2017-’18 annual report of Adani Enterprises counts offshore funds called Albula, Cresta Fund, APMS Investment Fund and Asia Investment Corporation among its shareholders. All four funds are registered at the same building in Mauritius and feature in the Paradise Papers, as leaked documents from two leading offshore finance firms came to be called,” says this report on ‘How the Adani Group funded its expansion’. The meteoric rise of Gautam Adani and his Adani Group is a contemporary Indian financial folktale story.


Soon after the Narasimhan reforms in the 1990s, the Government eliminated import tariffs on technical equipment such as reactors and transformers in the power supply sector. Profit margins on these projects increased overnight. Gautam Adani, the current billionaire Chairman of the Adani Group, saw a business opportunity. In 2010, the Maharashtra Eastern Grid Power Transmission Company Limited (MEGPTCL), a wholly owned subsidiary of Adani Enterprises, was granted a license to develop two electricity transmission networks in the north-east of the state. In a matter of years, Gautam Adani emerged as the frontline player in Indian power supply business.


Source: Internet.

Gautam Adani’s quick rise in the power sector out of almost nothing, grabbed attention. Unlike its rival, the Reliance Group, which has Reliance Industries – the group’s so-called “cash cow”, the retail business that churns out significant profits and works as the material engine for the group – Adani has no such profit-making engine. So how were they outplaying everyone else in the competition?


The 2014 Coal Imports Scam

In 2014, investigating agencies were looking into the issue of power sector industrialists importing foreign coal for their India-based power plants, at inflated prices. Soon they ran into an elaborate scam which involved almost everyone in the market. Forty of India’s biggest energy companies were found to be over-invoicing imported coal. The scale of the scam, conservatively estimated by government officials at no less than ₹29,000 crores, also involved artificially raising electricity bills for consumers across the country. Out of these 40, six companies were owned by the Adani Group.


They found a complex money trail from India through South Korea and Dubai, and eventually to an off-shore company in Mauritius allegedly controlled by Vinod Adani, older brother of Gautam Adani. The Dubai company allegedly sold the exact same power transmission equipment back to Adani Group-controlled businesses in India at massively inflated prices, in some instances said to be eight times the sale price. Allegedly, the Adani Group ‘spent on paper’ an average 400% more for the materials than they actually spent. This money was then allegedly ‘paid’, through a series of shell companies, to a Mauritius trust controlled by Vinod Adani. In May 2014, shortly before the Modi government came to power, the Directorate of Revenue Intelligence (DRI) slapped a ₹5,500 crore show-cause notice on the Adani Group for the “alleged over-valuation of capital equipment imports”. The Adanis have denied all allegations of wrong-doing. “If [the allegations are] true, one effect of the alleged scheme would have been to move vast sums of money from the Adani Group’s domestic accounts into offshore bank accounts where it could no longer be taxed or accounted for,” says this Guardian report.


Following the trail of one of the allegedly inflated invoices. Source: The Guardian.

Higher cited prices for the electricity transmission infrastructure also would have likely led to higher power prices for common consumers. Sure enough, in December 2018, common consumers in Mumbai went up in protests against sharp jump in the monthly bills immediately after Adani took over as the city’s electricity supplier from Anil Ambani’s Reliance Infrastructure. Hoardings were put up across the city alleging a 50% increase in power charges and faulty meter readings.


Gautam Adani has for a long time been a dedicated business backer of Narendra Modi. After the 2002 Gujarat pogroms, when Modi was criticised by a group of industrialists belonging to the Confederation of Indian Industry (CII), Adani created a rival body – Resurgent Group of Gujarat – in protest, and invested in Modi. Adani was also a key backer of the ‘Vibrant Gujarat’ summits that were instrumental in creating the gimmick of the ‘Gujarat Model’ that underscored Modi’s 2014 campaign. In the 12 years from 2002 to 2014, the group’s revenue rose almost 12-fold, from $765 million to $8.8 billion. The Adani Group was allegedly one of the chief funders of Narendra Modi’s campaign in the 2014 elections – the most expensive election the world had even seen till then, only to be beaten later on by the 2019 General Elections fought with the help of Arun Jaitley’s ‘electoral bonds’ that hide the identity of the donor. Narendra Modi won the 2014 elections. In 2018, the CBI shut down probes into the Adani Group over-invoicing case. Over the 6 years of the Modi Raj, Gautam Adani became the main face of ‘India Inc’, expanding from one sector into the other – constantly trying to outgrow his own business capacities, as that is the only way his business model knows how to guarantee survival in the market.


Of course, the Adanis were not the only group that were accused of the coal imports scam. Other companies in the DRI list included Reliance Infrastructure and Rosa Power Supply – both owned by the Anil Ambani Group; two companies in the Essar group promoted by the Ruia family; JSW Steel headed by Sajjan Jindal; four companies in the Hyderabad-based NSL group promoted by M Venkataramaiah and M Prabhakar Rao; and India Cements led by former International Cricket Council chairman N Srinivasan, among others. A significant proportion of the money the Adani Group allegedly siphoned out of India was provided by taxpayers in the form of loans from the publicly-owned State Bank of India and ICICI, a private bank.


Where is the Resistance?

The above account is only a snapshot of how the bulk of poor and middle income people’s money is being given to the big business houses as a direct handover. Successive budget cuts in welfare spending are not just an act of privatizing welfare, it is also a direct cash transfer to the volatile speculation market via private corporations. The latest transfer of the RBI’s reserves to the Government’s treasury is just the tip of the iceberg of desperation that the present Government faces, in its bid to fill up the vacuum in real money it has created by emptying out the country’s finances into the accounts of a few families.


Today’s people’s resistance to this massive loot of public wealth and common resources, are therefore all those movements that are fighting for the ‘commons’. Movements against land grab, such as the anti-Vedanta struggle in the Niyamgiri hills, the anti-Sterlite struggle in Thoothukudi, anti-Adani struggle in Mundra (Gujarat), struggle of the Mumbai fishworkers to protect their coastline from the Coastal Roads project are key examples. Industrial and farmers’ movements make up another class of resistance movements growing out of the same economic reality – the Maharashtra farmers’ agitation, the northern industrial workers’ movements such as the one at the Maruti plant in Manesar, the Ola and Uber drivers’ strikes, the railway workers’ movements, the bank employees’ movements, the Swiggy workers’ strikes, the ASHA workers’ movements, etc. Not just anti-land grab struggles or workers’ struggles, every struggle that is being waged today for rescuing the ‘commons’ – those for common civil rights, those demanding a public education, movements demanding public transportation, movements against electricity price hikes, movements for protection of forests and water bodies from the corporates, movements for common ownership of data, for common housing rights – these are all necessary pieces in the total war against the ongoing public loot. However, all such struggles need to recognize the over-arching design of this loot – the total economic model that necessitates each of their own separate struggles.


Like a cancer that simultaneously affects different organs of the same body in possibly different ways, the loot of public money presents itself in different forms in different regions and sectors. Whether or not the cancer gets cured, is for time to tell. But right now, at least paying collective attention to the detailed diagnosis of the overarching disease instead of just its local manifestations would be an important beginning.


The author is an education researcher.

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