The Saradha Chit Fund Scam and Trinamool Congress: Crony Capitalism and Class Collaboration, Bengal Style

November 2, 2014

By Partho Sarathi Ray

It has been one and a half years since the Saradha chit fund scam came to light, with the spectacular collapse of the largest chit fund in West Bengal, together with a number of smaller chit funds, leading to the ruin of  more than 17 lakh investors and the loss of around Rs 2500 crores worth of investments. Over the last one and a half years, the investigations into this massive scam has taken many twists and turns, with investigations being done at various times, and simultaneously, by a special investigation team (SIT) set up by the West Bengal state government, the enforcement directorate (ED), and finally the central bureau of investigation (CBI) after a Supreme Court judgement transferred the investigations to the CBI. Last week, the CBI filed the initial chargesheet in the case, against Sudipto Sen, the owner of the Saradha group and some of his associates, and Kunal Ghosh, the Rajya Sabha MP of the TrinamoolmCongress (TMC). One of the most startling facts which has come to light during the investigations, confirming what was public knowledge in West Bengal, is the absolute closeness, if not identification, of the Saradha group with the ruling TMC. The success of the Saradha group in attracting the investments of such a large number of small investors in rural and semi-urban Bengal, and its ability to evade any regulatory oversight by the state, was always considered to be due to its proximity to the TMC, and to a certain extent with the CPI(M) before that. The visible, and highly publicized, proximity of the Saradha group with various leaders of the TMC, from the chief minister Mamata Banerjee till the lowest rung local leaders, was used by the company and its agents to convince the mostly poor potential investors that it was nearly a semi-governmental organization and therefore the state government was the ultimate “guarantor”. In this regard, the TMC and its leaders are prima facie culpable in this scam. However, what the exposés over the last one year and half has shown that the connections went much deeper, and made the Saradha group a virtual extension of the TMC, and vice versa. And in this lies an interesting insight into the political economy of the chit fund crisis, and the class basis of political power in West Bengal. Although volumes have been written about the Saradha scam, and the role of the TMC in it, a political economic analysis of the entire phenomenon has not been done. Also, what has surprisingly not been done is an analysis of the class basis of TMC’s rise to power, and its current stranglehold on it, in West Bengal. Interestingly, the Saradha scam has thrown open a window of understanding on the latter and makes us understand a special type of “crony capitalism” that is unique to Bengal.

To understand the economic situation in which the meteoric rise of Saradha took place, it would be instructive to go back a few decades and look at some of the major economic trends in West Bengal over the last fifty years. West Bengal inherited a strong industrial base at the time of independence, mostly centered around the jute industry, textile industry and various machine tools and consumer goods manufacturing industries. Many of these companies were British owned, hence the names such as Reckitt and Coleman or Guestkeen Williams were household names in Bengal. Over the couple of decades after independence most of the British owners moved out and these companies were taken over by Indian owners or by the state government and converted into public sector undertakings (PSUs). However, from the 1960s onwards, Bengal started seeing a downturn in industrial growth, contributed by a number of economic, historical and geographical factors, including reductions in the global demand of a number of material such as jute. Together with this, other states in India also built up industrial bases, making them competitors of West Bengal for industrial investment. These factors triggered a process of deindustrialization of West Bengal, which has been generally blamed on labour unrest by the popular media, but which is actually caused by a combination of multiple factors which made industrialists seek higher profits elsewhere. The industrialists who had taken over or set up industries in post-independence Bengal were mostly originally traders, with little experience or interest in manufacturing. Their main motivation was making a quick profit in an economic scenario where demand for both consumer goods and basic industrial inputs was rising, and when these took a downturn from around the mid-1960s, they started to shut down industries in West Bengal and seek profits elsewhere. The process of deindustrialization that started resulted in massive loss of employment, and immiseration of the working class and the professional middle class in Bengal. This contributed to the atmosphere of political unrest in Bengal in the 60’s and 70’s, which contributed to the industrial decline in the form of a vicious cycle. As these trends continued into the 80’s and 90’s, and were aggravated by the economic liberalization, globalization and privatization process taken up by successive central governments, and enthusiastically followed by the Left Front governments in West Bengal, which provided death blows to the PSUs and the remaining manufacturing industries, two things became clear. Real estate speculation became the main sector of investment for entrepreneurs in West Bengal and for the lower middle and working classes, in absence of gainful employment, short term, high risk-high returns investment schemes became a major attraction.

 In the former case, the graveyard of the industries, huge swathes of land in the industrial areas near Kolkata and along the Hooghly river, became the target for the real estate speculators, to be used for building housing complexes, malls and entertainment areas for the  professional class involved in the service sector. This became such an attractive sector, with high returns in lieu of low investments, that even running industries were, and are, being closed down and the land taken over for real estate development. Thus the multitude of “cities”, such as South City and Diamond City, built on the land of industries such as Joy Engineering and Reckitt and Coleman. Most of the major industrialists of West Bengal, mostly from the Marwari community traditionally dominant in business, the Neotias and Budhias, Todis and Goenkas, Agarwals and Mohtas, shifted their focus from their erstwhile manufacturing or trading interests, and focused on this as their major economic activity. Real estate groups such as Merlin and Shrachi and Hiland came up and dominated the economic life of Bengal. These businessmen, in order to further their business interests, also forged close ties with the ruling CPI(M) and exerted their influence in upper echelons of the government; the influence of the Todis or Harsh Neotia over the CPI(M)-led government was the talk of the town in Kolkata. They attained enough power to even force amendments in land reforms laws in the face of opposition of the former land reforms minister Abdur Rezzak Mollah to make it easier to take over industrial land for real estate development purposes.

As this was the scenario in one section of the economy, on the other hand the shutdown of industries and increasing deindustrialization resulted in massive unemployment amongst both the working class and the Bengali middle class whose mainstay was low level white collar jobs in these industries. Unemployment, and a quest to gain some “respectable” means of employment  became a defining  feature in the lives of Bengali youth throughout the 70’s-90’s, leaving its marks on the literature, cinema and art of this period. Under this scenario, the middle class in Bengal was strongly attracted to the high-risk, high-return investment schemes, which came to be known as Ponzi schemes, as a source of investment and income. Touted as “savings schemes”, these promised to pay depositors huge returns on their investments. The first, and biggest, of these schemes which collapsed in 1980 was Sanchayita Investments, which wiped out Rs 120 crores of savings of working and lower middle classes of Bengal, having a huge impact on a large section of the population. The shockwaves of Sanchayita spread and a number of other such companies collapsed throughout the 80s. However, the attraction for such investments promising high returns remained, and towards the end of the 90’s this again gained prominence as chit fund schemes. The major difference this time was that instead of the middle classes, who had learned their lesson from Sanchayita, it was the poorest of the poor, farm workers, domestic workers, vegetable sellers etc., the large mass of informal sector workers in Bengal, who had invested their life savings in these schemes. The era of globalization had shown them spectacular dreams of opulence, and the collapse of these dreams was equally spectacular. A number of policy decisions also contributed to this process. One has been the lowering of interest rates by the central government on small savings. As a direct result of the economic liberalization process, a number of committees appointed by the central government recommended that the interest rates of small savings, such as the post office saving schemes, be determined by the market. With a lowering of the interest rates on these schemes which were the main mode of investments by the poor, these ceased to be attractive, and opened the way for the chit funds which promised much higher returns. In fact, the net collection from small savings in West Bengal declined from a high of Rs 8,985 crores in 2009-10 to -Rs 987.22 crores in 2011-12 (this means that Rs 987.22 crores more was withdrawn than what was deposited). So, the governemt small savings schemes saw a decline of more than Rs 9500 crores in two years, a startling fact which was not even discussed at any level of government or the media. This huge amount of money was invested in the chit funds which finally collapsed in the summer of 2013. The other factor which also contributed to the process is the reduction of rural banking, again as a direct result of the economic liberalization process. With economic liberalization, the nationalized banks reduced their focus on rural banking and drastically reduced the number of branches in rural areas (numbers declined from 35,360 in 1993 to 31,667 in 2009 during which time the numbers of urban branches increased rapidly). The private sector banks in any case did not have much interest in the rural areas as the financial condition of would be depositors was not good. Therefore, with increasing lack of access to formal banking, and also greater demands in the form of collaterals etc. to get loans from banks, the rural poor turned to informal banking in ever greater numbers, again opening up a sea of opportunity for the chit funds.

The success of Sudipto Sen, the founder of Saradha, lay in being able to bring these two major economic trends together, and use it for his own profit. He began his life (his second life, to be precise, he had other activities to his credit in his earlier life as Sankar Sen) as a real estate speculator, and amassed a large number of plots of land in the Bishnupur area of South 24 Parganas on the outskirts of Kolkata in the name of Saradha Realty. In this process he was helped by CPI(M) leaders and he was known to be quite close to a number of them. But not content with the profits that came from real estate development, he came up with an idea: to use the land as a bait to lure poor investors into a chit fund scheme. Thus began the predatory journey of the Saradha Group, using real estate as the bait and the numerous rural and semi-urban poor, mostly employed informally, as the prey. The group raised money, through agents, from investors, promising a flat or land in one of Saradha’s real estate development projects, or alternatively an option for a refund with interest ranging from 12-25%. In some schemes, a deposit of Rs 1 lakh was supposed to become Rs 10 lakhs after 14 years. Compare this with an interest rate of 9% in bank fixed deposit schemes. The agents, in turn would get 15-20% on the funds mobilized by them, with handsome bonuses if certain targets, in terms of number of depositors or amounts of funds, could be met by them. These things set up a chain reaction in rural Bengal. Sudipto Sen went on a land buying spree, building up a land bank in the names of the 160 odd fictitious companies which he had set up as part of the Saradha group. Extensive tracts of lands were reportedly obtained, with active help from local TMC leaders, in South 24 Parganas, North 24 Parganas on both sides of the National Highway 34 and north Bengal around Siliguri. Some of these lands were used to build some houses to show to potential investors, whereas some were used to build malls and resorts. As part of the chit fund scheme, Saradha also started a time share vacation scheme, promising investors with a stay of 7 days in one of their resorts as return on their deposits, with an alternative option for a cash refund. Sudipto Sen also set up a motor cycle manufacturing factory with much fanfare, but which did not do any production. It had around 150 employees who would put up an act of production whenever potential depositors were brought in to see the diversified investments of the Saradha Group. In most cases, nothing was done with the land except that it was resold at higher rates to other developers and the money siphoned off by Sudipto Sen, or it was just held vacant under some false name. These actions of the Saradha Group set up a chain of real estate speculation in the peri-urban areas of Kolkata, with small developers, agents and local political bosses all making money out of sale and resale of lands.

On the other hand, Saradha set up a virtual army of agents, reportedly running into lakhs, mostly from amongst the unemployed youth working in the informal sector, who found the returns from the chit fund scheme to be very lucrative. In Bengal, number of rural and urban workers in the informal sector are much higher than the national averages (86% and 71% versus 75% and 69% respectively). These people readily became agents for Saradha. With the scheme being nearly self-financing (in ponzi schemes, new depositors would supply the returns for the earlier depositors), the only requirement was to get more and more depositors. And with many of the local agents being workers or supporters of the ruling TMC, it was easy to lure or persuade potential investors that the entire operation had the sanction and support of the state government. These potential investors were also people coming from the same class, farm workers, small shopkeepers, vegetable vendors, domestic workers, who deposited their live savings with Saradha, lured by the windfall returns and the visible proximity of the company with the top leadership of the ruling party. Some of the agents themselves acquired huge local influence and power, such as Arindam Das, aka Bumba, Saradha agent of the Baruipur area in South 24 Parganas, who reportedly siphoned off Rs 33 crores of depositors’ money himself by providing fake receipts. The local police used to eat out of his hands, with the Inspector in Charge (IC) of Baruipur police station riding on a vehicle gifted by him.

So, Sudipto Sen had brought together two defining features of Bengal’s economy, deindustrialization and unemployment, together for his own profit and used it to loot Rs 2500 crores of peoples’ money. But, it is clear that none of this would have been possible without the proximity of the powers that be, which both provided legitimacy to his operations and protection to his irregular and illegal dealings, both in the real estate and chit fund businesses. So basically how deep did the relationship between Saradha and the TMC go? And what was the nature of this symbiosis? To find the answers to these questions let us look at some well known, and some not so well known, facts. Saradha started putting its full financial and material support behind the TMC from before the 2011 assembly elections, when Sudipto Sen became sure that Mamata Banerjee was coming to power. The Saradha Group became the main funder for the TMC at all levels, giving money directly and indirectly to its leaders and workers. Its a well kown fact that Sudipto Sen paid Rs 1.86 crores to buy a painting of Mamata Banerjee, of at best a doubtful quality. Now, if it is declared by Mamata Banerjee herself that proceeds from the sale of her paintings are used to run TMC election campaigns, then this Rs 1.86 crores was an indirect payment into TMC election funds. Together with such obvious handouts, Saradha funds, all money basically looted from an unwary public, flowed into TMC coffers at all levels from the election campaign to local Durga Puja committees run by TMC leaders such as the education minister Partha Chattopadhyay. A Saradha owned NGO, called the Clench Foundation, would run out of local TMC offices, supposedly providing vocational training to poor women, but actually a way to supply under-the-table funds to local TMC leaders. It bought a loss-making cement company, Landmark Cement, which was owned by the TMC textiles minister Shyamapada Mukherjee. It has even come to light that a TMC Rajya Sabha MP, Srinjay Bose, a very rich businessman, used Saradha money to pay for his liposuction operation done in a Kolkata clinic! After the TMC came to power, Saradha became a major and visible donor to the state government, donating ambulances in the Jangalmahal area, which were inaugarated by the chief minister herself, and a fleet of motorcycles to the Kolkata police. In the spirit of true symbiosis, these same vehicles were used to transport and escort funds collected by Saradha agents from depositors. But more obvious than the financial support was the political backing which Saradha provided to the TMC. The more than a lakh agents of Saradha were instructed by Sudipto Sen in the 2011 assembly elections to vote for and mobilize votes for the TMC. With the level of local influence wielded by these agents in 2011, this would have translated into millions of votes in all parts of West Bengal. Then the media empire of Saradha, headed by the TMC Rajya Sabha MP Kunal Ghosh, was completely put into use for the TMC. Its news channels Tara Newz and Channel 10 put up a 24 hour cacophony in support of the TMC and the state government and maligning any opposition, be it from political parties or mass movements, as conspiracies against the chief minister and the ruling party. Its newspapers, in Bengali, English, Hindi and Urdu, were virtual mouthpieces of the TMC. This political patronage played an undeniable role in creating the public opinion in support of the TMC which brought it to power and established its stranglehold on it in West Bengal.

What did Saradha get in return from the TMC and the government? Starting from active patronage, protection and collaboration at the local level, the symbiosis between the TMC and the Saradha Group extended all the way to Mamata Banerjee. This collaboration went to such a height that the differences between the TMC and Saradha has become blurred. TMC leaders and members became officials and representatives of Saradha, Saradha employees held top positions in the TMC. The Rajya Sabha membership of TMC is a glaring example of this phenomenon; the upper house of parliament which is supposed to represent the states and have members accomplished in various walks of life have been converted into a rogues gallery courtesy of Saradha and the TMC. Out of 11 TMC members of the Rajya Sabha, at least 6 are directly linked with Saradha or the chit fund business. Among these are Mukul Roy, all India general secretary of the TMC and the handler of Sudipto Sen from the party’s side. It has now become clear that he was the last person Sudipto Sen met before he purportedly escaped from West Bengal after the Saradha scam came to light. Then there is Kunal Ghosh, currently suspended by the TMC because he spoke out against the top leadership to save his own skin but who was the undisputed monarch of Saradha’s media empire, and who put the entire Saradha media machinery to use for the TMC. There is also Srinjoy Bose, shipping and media magnate, owner of the newspaper Sangbad Pratidin and also editor of the TMC’s mouthpiece Jago Bangla, who was Sudipto Sen’s main conduit to the media, sports and business worlds and also for transferring money to the TMC. There is Mithun Chakraborty, famous actor and once quite close to the CPI(M), who was a brand ambassador for Saradha. Then there is Ahmad Hassan Imran, editor of the Bengali daily Kalam, targeted to a Muslim readership and again a virtual mouthpiece of the TMC, who is now accused of transferring money to the extremist organization Jamaat-e-Islami of Bangladesh which the latter used to bankroll their violent protests against the war crimes trial of their leaders in Bangladesh. And there is the infamous Kanwar Deep Singh, better known as KD Singh, billionaire owner of another chit fund, the Alchemist Group, in Jharkhand, who looks after the expansion of the TMC in northern India. Besides these, prominent leaders from all levels of the TMC were either closely associated with, or direct employees of Saradha. TMC Lok Sabha MP and film actress Shatabdi Roy was a brand ambassador. TMC vice-president and ex-DG of police Rajat Majumdar was in charge of security operations of Saradha. The transport minister Madan Mitra was the president of the Saradha employee’s association and openly exhorted people to deposit money with Saradha. Mamata Banerjee herself ordered that only newspapers published by Saradha’s media housed would be kept by government libraries in West Bengal. This sort of complete identity of a political party and a private enterprise has been unprecedented in Bengal’s politics.

Added to this symbiotic relationship between the Saradha group and the ruling party, Sudipto Sen also spread his tentacles into every aspect of Bengal’s much vaunted cultural milieu. This was mediated by the cultural personages associated with the TMC, the painter Subhaprasanna, who mediated the sale of a TV channel to Sudipto Sen, the theater artiste and current MP Arpita Ghosh, once a firebrand voice against CPI(M) misrule, but who became a highly paid media employee of Sarada media, author and film director Aparna Sen who became the editor of Paroma, one of Saradha’s Bengali magazines. The Saradha Group also financed the traditional football clubs of Kolkata, East Bengal and Mohanbagan Sporting. It paid the different Durga puja committees so handsomely that there has been a visible decline in the pomp associated with the Durga puja celebrations since Saradha collapsed last summer. In one word, Saradha had control over a large section of Bengal’s “literati and glitterati”, the class which plays an immense role in forming public opinion in Bengal. And they were there to serve the TMC’s interest too.

Therefore we observe that within the Saradha Group was brought together three influential classes of Bengal: a local and upwardly mobile bourgeoisie, the opinion making intellectual class and the unemployed or informally employed, partially lumpenized, proletariat. And within the alliance of these classes lies the secret to the political power in Bengal. A class analysis of Mamata Banerjee’s support base, what class interests she represents, has never been systematically attempted. But, the Saradha scam has thrown light on the class basis of her rise to power too. Because, it is a grand collaboration of these three classes that Mamata Banerjee was able to forge, and which brought her to power in West Bengal. The CPI(M) also stayed in power on the shoulders of an alliance of these three classes, the local Marwari capitalists whose interests it served and who financed the party, the public opinion-making intellectuals who first supported the CPI(M) on an ideological basis but which finally turned into a system of reciprocal patronage, and the lumpenized proletariat in cities and villages which ran the party’s election machinery and intimidation system. This alliance came apart in the wake of Singur and Nandigram: the local capitalists started moving away from the CPI(M) when they found that the latter, under Budhhadeb Bhattacharjee, was more interested in serving the national, and globalized, capital rather than their interests. The intellectual class moved away from the CPI(M) in righteous indignation against its atrocities in Singur and Nandigram. And the CPI(M)’s cadre force, composed of the lumpenized proletariat and lower middle class, moved away as soon as it felt the former’s grip on power loosen.

And Mamata forged a grand alliance between these groups, which was the secret of her success. She could not readily get the established local capital into her fold, they would not change sides unless she really came to power as they had a lot to lose if they made a mistake in choosing sides. Therefore she got the upwardly mobile capitalists like Sudipto Sen as her support base and financial backers, who invested in her party and political campaign to reap the benefits when she came to power. In Bengal, no party can come to power, or hold on to it, unless they get the support and financial backing of the local capitalist class and in turn serve their interests, be that the traditional Marwari businessmen or the noveau rich chit fund scamsters. This is crony capitalism, Bengal style. The difference between the CPI(M) and the TMC is that the latter came to power on the shoulders of a new set of bourgeoisie, the chit funders and small scale real estate developers, who have been at the centre of power in West Bengal over the last two and half years. Now, with the collapse of this set, Mamata has gone back to the traditional bourgeoisie, the Neotias and Budhias and Goenkas, who have visibly cosied up to her and whom she recently took to a trip to Singapore to advertise investment opportunities in West Bengal. This is also the basis of her opposition to national and multinational capital, as she represents the class interest of these state level bourgeoisie against the big national and multinational bourgeoisie.

Mamata easily got the Bengali intellegentsia firmly in her fold. This class, traditionally leftist, abandoned the CPI(M) in response to its arrogance and misrule, and also because it felt that CPI(M)’s continued rule was an impediment to their future success. These “paribartanpanthi” intellectuals became a mainstay of Mamata’s political campaign, and drew many of their colleagues into the alliance. They were in turn rewarded with plum posts, committee memberships and MP positions. These intellectuals played an important part in shaping public opinion in support of the TMC through their access to the corporate media (which was provided by capitalists such as Sudipto Sen) and which helped manufacture the public “consent” in favour of Mamata Banerjee.

And thirdly, it was the multitude of the lumpenized proletariat and lower middle class, who traditionally made up the cadre force of the CPI(M) and cemented its power base, which Mamata got into her grand alliance. This class, unemployed and criminalized in many places, has to go with power in order to enjoy the patronage and protection which power provides. Patronage in the form of building material supplying syndicates, real estate promoting, bheri ownership, government contracts, fair price shop dealerships etc. And protection from prosecution and public anger. This class, sensing Mamata’s steady ascent to power, rapidly allied itself with her, which finally could tilt the electoral balance in her favour and still maintains the TMC’s stranglehold on power.

Therefore we see a very interesting convergence of Saradha and the TMC in terms of the class interests both represents, which explains the unprecedented identification of these two organizations. Saradha’s success and TMC’s hold on power are both established on this same class collaboration, which is also the basis to political power in Bengal. Bengal’s unique political economy has given rise to this situation, and both Sudipto Sen and Mamata Banerjee, in their own ways, adroitly used it to their own advantage. The new crony capitalist class to which Sudipto Sen belongs gave financial and political backing to Mamata, the intellectual class which Sudipto Sen mobilized in his media empire built public opinion in Mamata’s favour and the lumpenized proletariat and lower middle classes which constituted the agents and depositors of Saradha established her hold on the electoral machinery. Now it remains to be seen how the collapse of Saradha impacts on this collaboration of classes which forms the basis of power of the TMC and how it affects Bengal’s politics in the days to come.

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