The line between ‘legitimate’ business and the
mafia is getting increasingly diffused. The greater the liberalisation/globalisation
of the economy, the more rampant is the loot. Phoolan Devi as a dacoit in the
ravines of Madhya Pradesh could not even dream of the type of wealth made as a
Member of Parliament. Her wealth at the time of her death was estimated at a
minimum of Rs. 10 crores. But this is small fry compared to the Harshad Mehtas,
Bharat Shahs, Ketan Parekhs, Subramanyams etc and the top
politicians/bureaucrats/corporate houses with whom they are linked. Phoolan Devi
appears as a petty thief compared to these gangsters. The amount robbed through
the UTI scam intails thousands of crores — the bulk of which belongs to small
investors who have put their life-savings into this scheme.
What is the UTI ?
The Unit Trust of India is the largest mutual fund
in the country created in 1964 through an act of parliament. Mutual Funds are
financal institutions that invest people’s money in various schemes, giving a
‘gauranteed’ return to the investor. The UTI (of which the US-64 scheme is the
largest) was set-up specifically to channel small savings of citizens into
investments giving relatively large returns/interest. The US-64 scheme has 2
crore investors, the bulk of whom are small savers, retired people, widows and
pensioners. Besides the US-64 the UTI runs 87other schemes giving inverstors
various options. But the US-64 has been most popular, giving returns as high as
18% in 1993 and 94.
Genisis of the Scam
Liberalisation of the economy immediately led to
the liberalisation of the UTI, throwing it to the mercy of the stock market. In
1992, itself the US-64 scheme was changed from a debt-based fund to one linked
to equity. In 1992 only 28% of its funds was in equity; today it is over 70%.
Further liberalisation was pushed by Chidambram, as the finance minister of the
U F government, who, in 1997, removed all government nominees from the board of
the UTI. Besides, the US-64 does not come under SEBI regulations, its investment
delails are kept secret (ever depositors cannot know where their funds are being
parked) and the chairman has arbitrary powers to personally decide an investment
upto a huge Rs 40 crores. Such ‘liberalisation’ is tailor-made for frauds. Not
surprisingly, within one year of Chidambram’s liberalisation, in 1998, the UTI
crashed, and the new BJP-led government organised a large Rs. 3,500 crore
bail-out to prevent default.
It was during this crisis that the new chairman,
P.S. Subramanyam, was appointed. Subramanyam was a direct appointee of thug
Jayalalitha, who had made his selection a condition for her continuing the
support of the then NDA government. Later, though Jayalalitha withdrew from the
government, Subramanyam developed close links with the Prime Minister’s Office,
and corporative big-wigs. Small investor’s funds were used to promote big
business houses, shower favours to politicians, and invest huge amounts in junk
bonds....all for a fat commission. Subramanyam functioned like a fascist,
arbitrarily transferring hundreds of senior staff, in order to cover his tracks.
He was a key player in the Ketan Parekh scam.
Huge amount of UTI funds were channelled into the
infamous K-10 list of Keten Parekh stock, such as Himachal Futuristic, Zee
Telefilims, Global Tele, DSQ, etc. The UTI continued to buy these shares even
when their market value began to crash in mid-2000, in order to prop up the
share values of these stocks. The Trust saw its Rs. 30,000 portfolio (value of
stocks) lose half its value within a year since Feb. 2000.
To take just one example on how the UTI operated :
In August 2000, much after the software stocks had begun to crash, the UTI
bought Rs. 34 crores worth of shares in Cyberspace Infosys Ltd at the huge price
of Rs 930 per share. Today the shares have no value and its Lacknow based
promoters, the Johari Group, are in jail. But, what is astounding is that it was
none other than India’s prime minister, Vajpayee, who, as late as Jan. 31, 2001,
laid the foundation stone for the Software Tectnology Park (STP) in Luknow,
promoted by this group. (Incidentally the UP government had a 26% share in this
STP). Coincidentally, in the four days when the UTI reversed its earlier
decision and subscribed to 3.45 lakh shares of Cyberspace, Subramanyam had rung
up N.K. Singh (then secretary in the PMO) at least 4 times. It does not take
much imagination to link UTI purchases in Cyberspace with Vajpayee. Similar were
the investments in DSQ Software, HFCL, Sriram Multitech. and others.
Besides, the UTI also invested in junk bonds like
Pritish Nandy communications (Rs. 1.5 crores), Jain Studios(Rs.5 crores), Sanjay
Khan’s Numero Uno International (Rs. 7.5 crores), Malavika Spindles(Rs. 188
crores) etc. This amounted to nothing but handing over people’s money
(investments) to the rich and powerful. Thereby thousands of crores were
siphoned off to big business and prominent individuals, with the UTI chairman,
bureaucrats and politicians taking their cuts.
But this was not all. The fraud continues even
further. With knowledge that the UTI was in a state of collapse, the Chairman
organised a high profile propaganda campaign promoting UTI (spending crores of
rupees on the top advertising company, Rediffusion), while at the same time
leaking information to the big corporates to withdraw their funds. The Chairman
thereby duped the lakhs of small investors through false propaganda, while
allowing windfall profits to the handfull of big corporates who had invesed in
So, in the two month prior to the freezing of
dealings in UTI shares, a gigantic sum of Rs. 4,141 crores was redeemed. Of this
Rs.4,000 crores (97%) were corporate investments. What is more,they were re-purched
at the price of Rs. 14.20 per share (face value Rs.10) when in fact its actual
value (NAV — net asset value) was not more than Rs. 8. As a result UTI’s small
investors lost a further Rs. 1,300 crores to the big corporates.
In fact these huge withdrawals further precipated
the crisis. On July 4, 2001 the board of UTI took the unprecedented step of
freezing the purchase and sale of all US-64 UTI shares for six months.
Simultaneously it declared a pathetic dividend of 7% (10% on face-value), which
is even lower than the interests of the banks and post office saving schemes.
Such freezing of legally held shares is unheard of — and is like overnight
declaring Rs. 100 notes as invalid for some time. In other words the 2 crore
shareholders could not re-invest their money elsewhere — and would have to
passively see their share price erode from Rs. 14 (at which they would have
purchased it) to Rs 8 — and get interest at a mere 7% on their initial
investments. Fearing a back-lash, the government/UTI later announced the ability
to repurchase UTI shares at Rs. 10 — i.e. at 30 % below the purchase price.
Imagine the plight of a retired person who would
have put a large part of his/her PF, gratuity etc. in the US-64 scheme,
considering it the safest possible investment. Not only has the person’s income
(interest/dividend) halved overnight, he/she also stands to lose a large part of
the investment. So, a person who invested Rs. 1 lakh would now only get back Rs
Today, the entire middle class is being robbed of
their savings — first it was by the private mutual funds (NBFCs), now by the
govt. sponsored mutual fund. Those who gain are the robber barons who run the
country’s economics, finance, politics.
The middle-classes, affected by these scame, will
soon realise the facts and come out of the euphoria of consumerism that has
numbed their senses. They will see through the hoax of globalisation/liberalisation,
and will turn their wrath on these so-called pillars of society. It is important
that this impending explosion be channeled in a revolutionary direction, or else
it will be diverted by the ruling elite into fatricidal clashes. The
middle-classes are most prone to fall prey to ruling-class propaganda. But life
itself is the best educator. Faced with unemployment, loot of their savings,
price rise of all essentials, etc. they will no doubt, join the working class
and their peasant brethrens in revolt.