A key calculation of the global alliance of groups that have coalesced to oppose Prime Minister Narendra Modi is that the decline in economic performance caused by Covid-19 and other factors will result in a steady intensification of public discontent

New Delhi: A collapse in commerce, reversal at the hands of China and continued Corona havoc are regarded as the keys that would bring down the popularity of Prime Minister Narendra Modi and by implication, the credibility of a government headed by him. While millions of Covid-19 cases may have been avoided as a consequence of the Great Indian Lockdown ordered by Modi on 24 March, the phobia about the novel coronavirus caused by doomsday warnings about its effects is continuing to affect business sentiment and economic prospects in India, a situation expected to continue into 2021. About China, the assessment of those eager to see a weakened Modi is that Beijing will continue to nibble away at territory in a manner that would affect the confidence of the public in his ability to protect the borders of India. A key calculation of the global alliance of groups that have coalesced to oppose Prime Minister Narendra Modi is that the decline in economic performance caused by Covid-19 and other factors will result in a steady intensification of public discontent. The assessment is that by the close of 2020, such a change in mood and public support would ensure the beginnings of a repeat of 2012, when Baba Ramdev became the face of a mass movement against UPA 2.0. This was before then Gujarat Chief Minister Narendra Modi took hold of the public imagination as a possible saviour against governmental corruption and sluggish income growth. It is unclear who the face of the planned movement against the Modi government is expected to be this time around, except that it will not be Rahul Gandhi. Having bossed over the Manmohan Singh government as Heir Apparent of the Congress Party throughout the UPA decade, it would have taken the skills of a Houdini for Rahul Gandhi as inheritor of the UPA legacy to escape the charge of corruption that he flings with alacrity against Modi. The results of the 2019 Lok Sabha elections were decided from the moment Rahul Gandhi embraced the suggestion made by seniors within his party that he be the party’s 2019 candidate for the Prime Ministership of India. The decision by him to enter the PM sweepstakes converted the 2019 electoral contest into a choice between Rahul Gandhi and Narendra Modi as PM. The consequence was that the BJP tally crossed 300 Lok Sabha seats in that poll, while the Congress Party strength in the Lok Sabha fell in an unprecedented manner. There must be glee within the NDA that neither Sonia Gandhi nor her designated successor Rahul seems to be in any hurry to surrender control of the Congress Party to any of the capable non-family individuals present in an organisation that still has support within elements of the public. Such backing is based on sentiment rather than on more tangible factors, but sentiment and emotion have long been drivers of political choices in India.

Although this has yet to happen, there is anxiety in Beijing as well as among those opposed to Modi that he may soon take advantage of the geopolitical opportunities created by the anti-China mood in the wake of Wuhan being the epicentre of the pandemic. The government has the strength to hold a Special Session of Parliament to put through measures designed to push through fiscal and monetary policy that frees itself of the Milton Friedman nostrums that are designed to keep the poor in poverty, squeeze the middle class and reduce its numbers while at the same time leaving the wealthy unscathed.

Transformational Change Initiated

A start at substantive structural reforms has been made during Modi 2.0 in Education and Agriculture, although in both fields additional fine tuning is needed of the reforms undertaken. The government’s policy options have to be secured from a much larger pool of talent than the limited group comprising the higher bureaucracy and their long-term contacts. Innovations which include substantial horizontal recruitment and the resulting embedding of domain specialists need to be introduced. Corrupt officials have to be identified continuously and removed from responsibility rather than continue to do their dirty work undisturbed. Several within the IAS, IFS, IRS, IPS and other services entered through the ancient Chinese system of a single set of examinations are motivated by a genuine desire to work for a better country, and such reforms would be welcomed by the honest majority of officials. Indeed, several officials have even before retirement migrated from the administrative services to the private sector, and are doing very well there. Only a minority within the administrative services have succumbed to the lure of lucre and thereby betrayed the trust of the people, but the harm done by such corrupt officials is often much more than the good done by officials who belong to the honest majority within the administrative services. This is especially the case when the political interface becomes a force multiplier for corruption and its effects, as has been repeatedly witnessed in India to the detriment of the country. Corrupt officials form a network that protects each other, so that accountability for past misdeeds has almost entirely been eliminated from a system that prides itself on being inbred and resistant to outside ideas and influence. In particular, any suggestion which reduces the grip of the administration from the colonial-era levels it still enjoys is thrown away without a second look. Central officials with a vested interest in retaining discretionary powers well beyond what is desirable in the interests of public policy seek to constantly expand such powers at the national level, while their like-minded colleagues work for the same expansion of discretion at the state level. Every crisis is used by them for the purpose, including the reverberations to public policy caused by the novel coronavirus. Since the 1950s, policymakers in India have been talking of decentralised Panchayati Raj, without taking the steps needed to devolve sufficient finances and authority down the line of administrative jurisdiction. These are matters requiring urgent attention during Modi 2.0, and the worry of those opposed to Narendra Modi is that he will finally ensure such changes, hence the intensifying effort to destroy his goodwill and credibility especially within the middle class. This group is the link between the poor and the wealthy, and forms the keystone of the economic arch. By word of mouth and by other means, capsules of misinformation are being disseminated about Prime Minister Modi that have been expertly compiled to discredit him in the eyes of those who have long supported him. The strength of the NDA government that has been in power since 2014 is that PM Modi is seen by millions as the protector of India from chaos and the PM who can rescue India from the misery of low growth rates. Unfortunately, thus far standard police methods have been used against the tactics used by predators, such as the filing of multiple FIRs and other methods relying on state power. Most such actions become an exercise in futility. An example is the manner in which Vijay Mallya is still living in comfort in the UK after officials in India turned down his public offer to repay the principal and interest he owes to the public banking system. Nirav Modi and his high-priced lawyers are still smiling even as the exchequer bleeds as a consequence of the manner in which banks have been drained of funds by him and by others too numerous to mention. The list of those who have clandestinely secured a passport of convenience as a prelude to escape overseas is growing. What is needed urgently is a transformational change in the matrix of policy that is designed to enhance the capability of the economy to begin growing at an annual minimum of 9%. This floor rate is needed to enable social stability to be maintained so as to create the conditions for double digit growth rates spread over a generation. If Beijing could do it, why not Delhi?

Termites In The Stock Market

An institution affecting tens of millions of the middle class that is vulnerable to attack by the anti-Modi coalition is the stock market. It is here that “termites” have been at work undisturbed by multiple regulatory agencies. Even before Covid-19 was released upon the world in January 2020 by the WHO failing to warn countries in time to block visitors from Hubei, there has been a succession of what agencies have identified as market manipulations that have in their reckoning caused immense financial harm to investors. Entities needing forensic examination for their practices are listed by honest officials in monitoring and regulatory agencies as including BMA Wealth Advisors, Karvy Stockbroking, India Nivesh Securities, Allied Financial Services, V Rise Securities, Anugrah Stockbroking and Modex Securities. Such entities may deny that anything other than “routine errors” have been made and that not wilful actions but “market changes” were the culprit in the destruction of investor value. What is impossible to deny are losses amounting to thousands of crores of rupees suffered by Indian investors through their trust in entities indulging in questionable activity in plain sight of somnolent (and seemingly complicit) regulators. The losses made as a consequence of market mischief get distributed amongst hundreds of thousands of investors, who almost always lack the unity and political and financial reach and resources necessary to secure justice through a legal system not always known for speed in decisions. As a consequence, the perpetrators of such frauds have thus far mostly escaped not merely penalties or prosecution, but even detection. Their cabals enjoy official as well as political protection. While some brokerage entities have been directly involved in actions that have reduced hundreds of thousands of investors to penury, greater effort needs to be made by North Block to bring to account the entities responsible for the cheating of investors. These cabals include the “PC Network”, who lead in their predatory behaviour. These also include certain stock exchanges, depositories, clearing corporations and professional clearing members. Ending the somnolence of regulators and monitors such as the Economic Offences Wing in different states and SEBI needs urgent attention by Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman. International investor confidence in stock markets in India is in danger of ebbing away as a consequence of market manipulators functioning with the help of accomplices in levels of authority. Confidence in the integrity of markets is essential if genuine investors rather than vulture funds and arbitrageurs with insider accomplices are to be motivated to invest substantially in the Indian market. SEBI seems clueless about what is taking place, and as for the EOWs, the less said the better. Police Constable (PC) methods can never succeed in thwarting the sophisticated frauds and manipulations that are taking place almost with impunity in certain exchanges in India. All they do is create an illusion of accountability that television anchors can declaim over until public attention moves on to another subject and the inactivity of the agencies gets ignored in the thrill of a fresh diet of “breaking news”.

Misuse of Market Mechanism

A few brokerage houses can bring about a shock to the economic system as would severely retard its prospects. Among the ways in which this can be done (and gets done) include:

(a) transfer of client securities without authority (from the client);
(b) trading without authority (from the client);
(c) diversion of client funds and securities for covering losses incurred in trading by brokers. This common and fraudulent practice results in Ponzi schemes that eventually go bust at huge cost to innocent investors who operate on the basis that regulatory and monitoring agencies are watchful rather than sleeping at the wheel;
(d) utilisation of client funds and securities for proprietary trading by broker;
(e) diversion of client funds for other business such as real estate or lending to cronies.

While SEBI sleeps and the EOWs chase after diversions, such misuse of the market mechanism takes place daily in a country where even something as major as the co-location imbroglio has been swept under the carpet as the matter involves an exchange that has long been favoured by elements in North Block. Litigation does get resorted to by those who have been affected by such frauds. However, such processes take years if not decades to conclude, and are therefore hardly a disincentive. As for the police, their lack of knowledge of the market gets added to the propensity of corrupt elements to look the other way. This is once “goodwill” gets distributed to corrupt officers and officials by brokers who gladly hand over a small share of the moneys they have made at the expense of the investor. Small wonder that even efforts at accountability result in cases that drag on for years with no result and which are initiated by charge sheets that are so riddled with inconsistencies and inaccuracies that they get dismissed in court. It was during the UPA period that such issues multiplied, with Union Finance Minister P. Chidambaram not hiding his partiality towards certain exchanges. This combined with an open display of hostility to the business rivals of favoured entities. Thus far, Chidambaram has been held to account only for pocket change rather than the substantial amounts of money that flow from stock market manipulations. The PC Network is making sure that the light shines on only a small patch. This is in order to avoid a situation where the culpability in frauds and sabotage of competing entities of those still in high positions gets exposed.

The PC network ensures that its members be protected from discovery or penalties in case any gets discovered, usually by accident. The widespread dissemination of the PC Network within the financial bureaucracy (including some regulatory agencies) has led to a sense of invincibility amongst stockbrokers favoured by the network. These get used in financial transactions which are not always ethical or even lawful, of course with a blind eye turned towards them by somnolent regulators. Such brokers are confident that the exchange & clearing corporation (which would have to bail them out in case of defaults) has a near perfect record of not discovering frauds until the last paisa has been squeezed out of the unwary investor and diverted to the clearing corporation. The record will show that this has happened in a miscellany of cases, many involving a particular exchange that inspected such trades only after the clearing corporation had received and used the money that investors were persuaded to hand over in good faith. The process ends with the clearing corporation walking away with the money and securities of investors who run after a broker only to discover that he has closed shop. The specific exchange that members of the PC Network normally utilise will then declare the broker to be a defaulter, so that no further arbitration is possible under the by-laws. The exchange and clearing corporation gobbles up the fruits of the stolen property of the investor. The existence of such trades, which were given a boost during the Manmohan Singh years, is among the reasons why genuine investors are wary of Indian markets, even the few unaffected by practices which would ensure hefty fines and possible jail time in the US but which escape with either no or negligible penalties in India. This needs to change during Modi 2.0.

Protect Genuine Investors

PM Modi can protect investors by passing a law that would make the clearing corporation repay funds to defrauded investors without the latter having to go through the judicial mechanism. An amendment needs to be incorporated into the SCRA which provides that in cases where client funds and securities have been used to settle another client or broker trades, the settlement will be void. The clearing corporation being the central counter party should be obliged to return the funds or securities to the affected clients. This is possible as the properties lost through fraud vest with the clearing corporation, which is the central counter party. Of course, exchanges and the clearing corporation will resist such a move in favour of innocent investors. Once Prime Minister Modi goes ahead with a necessary reform of the stock market, the effect will be to force the exchanges to take up inspections properly rather than simply for show. It will act as a disincentive to exchanges to turn a Nelson’s eye to frauds being committed by unscrupulous brokers and clearing members who are giving exchanges in India a bad name by retaining the practices they perfected during the UPA era. Of course, the clearing corporation would be entitled to recover its dues through the processes of law. What is needed is to avoid the protracted litigation that has become a commonplace, with cases lingering on while defrauded investors suffer helplessly. Many simply give up, as they lack the money needed to hire the expensive lawyers needed for challenging the pricey advocates hired by the other side. Stock market scams wiped out the urban Lok Sabha seats held by the Congress regime under Narasimha Rao and the same happened to the BJP government headed by A.B. Vajpayee. The effort is to ensure a similar situation of political fallout in India, once again involving an unscrupulous section of brokers together with lax oversight by regulators. The present laws, regulations and administrative practices have not kept pace with the way markets have evolved and the newer ways of cheating the investor. This is the reason why cleansing and making transparent the functioning of stock exchanges and ancillary trades should be given high priority during Modi 2.0. Among the steps that could be taken is to avoid cartels and monopolies by permitting investors to access the market in ways more freely than at present. Trust the citizen while keeping an eye out for the very few who betray that confidence in the integrity of citizens of the world’s most populous democracy. Change is needed in a situation where fraud has become rampant and punishment of the perpetrator almost non-existent. Every investor cheated of his or her money is a family ruined, something that should be eliminated through discovery and punishment of offenders in a manner that is the opposite of the past.