Economic Highlights
New
Delhi, 4 April 2014
Stocks Boom
POLL FUNDING BONANZA
By
Shivaji Sarkar
India is in for a pleasant
surprise in the midst of no sign of economic recovery and circumspection in the
industry. Its stock market has started booming. The foreign institutional
investors (FII) have been pouring in as much as they can in the stocks “sensing
recovery” taking the Sensex beyond 22000.
The facts, however, may be different
and not cheerful. It is election time. The candidates need money. With the Election
Commission swooping down on all cash movements, it is possibly coming through
the equity route. At least that is the hint the Reserve Bank has given
recently. It wants to check participatory notes (P-Notes), a route that gives
option for anonymous investment. There has, of late, been a surge in investment
through the P-notes.
There is yet another way. It is
known as private placement programme (PPP). This involves offering shares or
bonds to groups of individuals. It also involves preferential allotment of
securities. The operation is simple. It can be done by a donor to help an
election contestant or deposits from a foreign bank could be routed to
equities. Alternately, the contestant himself through hawala-like routes could
send his money to an FII to invest in the stocks. The equities then are resold
and money recovered. This is said to be an ongoing process, wherein detection
is not easy. A number of transaction trails would have to be checked for a
definite result.
In fact, the sporadic sensex boom
through 2013 is attributed to this kind of transactions. Else why should FIIs
risk their money in a sagging economy? This is what the Central Economic
Intelligence Bureau (CEIB) is trying to unravel with the Directorate of Revenue
Intelligence.
The preparations for elections had
begun long back. The knowledgeable, be it political parties or key political
players, manage finances through ingenious means to fund a high-cost campaign. The
party treasurers and many wealthy candidates are assisted by financial experts
to fund campaigns but keep off legal loopholes of the EC code of conduct or
other laws.
Some fund managers accuse the low
limit of poll expenses of a candiadte, now raised to Rs 70 lakh, for the
malady. “Even if you send 5 lakh postcards to the voters it would cost Rs 25
lakh. Do you think anybody can contest an election in a constituency of over 10
lakh people for just Rs 70 lakh? In fact, some of the EC measures to include
the cost of posters and banners in poll expenses force the candidates to look
for devious methods. Just familiarizing the name of a candidate costs a lot.
Transportation, voter slips, door-to-door and social media campaigns add to the
costs. Unrealistic limits will create new dubious routes,” explains a party
fund manager.
Mere white money and white expenses
cannot fund elections. The rules, they say, have to be realistic and not just
tailored by bureaucrats to suit public perception of morality. In fact, some of
the largest chit fund operators, now facing the Supreme Court’s wrath, are said
to have thrived with anonymous investments of some top politicians of UP and
other States. Some of them have died and the operators have simply gobbled up that
money.
It is not a new mechanism that the CEIB
is trying to look at. The operators are much smarter than the bureaucrats.
Those who know these operations closely say that while bureaucrats may detect
the supposed “illegal” investments, it is they who suggest methods to legalise
disproportionate assets of many a rag-to-riches politicians. In short, it is a
pointer to the bureaucratic-politician nexus, which obviously comes for a
price. Recall that it was perhaps this trail which made a Union minister, who
reportedly lost the election in Tamil Nadu, be declared a winner eventually by
a wafer-thin majority!
For the CEIB, 2013 had been quite significant.
It detected Rs 2280 unaccounted income being allegedly routed through the PPP.
Thus, P-notes and PPP are now being closely watched. The surge in such
investments is undoubtedly for election purposes. Financial sleuths have
detected 881 large suspicious transactions of Rs 10 lakh each through PPP. Besides,
the Securities and Exchange Board of India (SEBI) is said to have increased
surveillance.
A nation that has been vociferously debating
curbing the black money trail has virtually ended up seeing more of it coming
its way with each new vow to eliminate it. In 2010, US-based Global Financial
Integrity, or GFI, estimated that $213 billion or about Rs 9.58 trillion (1
trillion equals 100,000 crore) had been siphoned out of India over a
60-year period ending 2008. But all that money is not lost, if one quotes Aam
Aadmi Party chief Arvind Kejriwal, who says it shouldn’t be brought back lest
it is misutilised by the Government.
He is wrong. Raymond W. Baker, Director of GFI,
points out that the money “round trips”, or is laundered and brought back in
the form of “investments”. And if there is one destination that is synonymous
with the round trip, it is Mauritius,
an island nation in the Indian Ocean that is the springboard for much of the
capital inflows into India.
Unfortunately, the malaise is too deep-rooted. All
the different sources point to an easy access of the stock market for either an
entry or exit of big money. The small investors need to be wary of not only the
stock market but also investments in instruments such as mutual funds (MF) of
Aegon Religare type, an indirect route to equities. The National Pension Scheme
(NPS) for government employees also is becoming another risky proposition for
its direct linkage to the stock market. Most investments in MF and NPS have
made losses. Each loss is a gain for an FII or benami (unaccounted) transactions.
It goes without saying that the stock market is
turning people’s hard-earned money into black and putting the economy at risk.
It is the people of the country who are suffering, as the stock market behaves
in an awry manner. Possibly that also explains why inflation gallops despite
numerous monetary measures by the RBI.
There is no easy solution. The nation needs to and in
fact must discuss the entire election funding process. The propagators of Government
funding must too realise that it is also not a solution. What is needed is simplification
of many laws including those pertaining to the stock market, polls, income tax,
highway tolls, FDI and a shift from penal taxation to a friendly system to
prevent the white money from turning black. There should be no grey areas.
---INFA
(Copyright,
India News and Feature Alliance)
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