Sanjay Singh, 45, from Dausa and Madan Singh Yadav from Udaipur, both small-time investors, had showed up to see if anybody could tell them anything about their now-lost ₹15 lakh. Once upon a time, the office belonged to Pearl Agrotech Corp. Ltd (PACL), a credit cooperative society. Now, the only remaining evidence of its existence is in the form of a few nameplates, in the stairwell or next to the elevator.
The PACL scam amounting to an estimated ₹49,100 crore—considered to be one of the biggest chit-fund scams in the country affecting nearly 56 million investors—hides a larger tale about a silent transformation that has been under way in Rajasthan.
Hints about that hidden tale tumbled out a few weeks ago when the National Crime Records Bureau (NCRB) released its long-delayed 2017 report documenting the nature of crimes across the country. Surprisingly, the rate of economic crimes (cases per 100,000 people) in Rajasthan’s capital city, Jaipur, topped even Delhi and Mumbai. Despite having only one-sixth of the population of Mumbai, the pink city recorded almost as many cases of economic offences as the country’s financial capital (about 4,400 or 12 cases a day). In 2017, Rajasthan also accounted for the highest share of economic crimes (cases of forgery, cheating and fraud) in the country, pushing the more populous Uttar Pradesh to second place.
How and why did Jaipur become the country’s economic crime capital? And what does it say about the nature of economic transformation that is currently under way in India’s emerging cities?
In Jaipur, men like Singh, the farmer from Dausa, have been wondering why there haven’t been many street protests despite a recent spate of chit-fund scams in the desert state. “Maybe the people who have invested in these chit-funds are moneyed and from the upper middle class. Probably, the money lost is something they can deal with," says Singh.
The tentative government estimate of investor losses is upwards of ₹1,000 crore. But nobody knows for certain yet. Beyond the sums of money involved, however, lies a simple question: why is this happening in Rajasthan and why now?
Chit-fund scams and Ponzi schemes are of course nothing new to India. Despite strident efforts to turn more Indians into bank account holders, over half of the respondents in the most recent government-backed financial inclusion survey said they prefer to keep their savings at home. Combine that with poor financial literacy (only 11% had “good" financial literacy, according to the National Bank for Agriculture and Rural Development survey) and it creates a potent mix. Scams have inevitably rippled through every part of the country from southern Tamil Nadu to West Bengal, where the Saradha scam exploded into a political scandal in 2013.
Due to its proximity to several economic corridors, in Rajasthan, the credit bubble was inevitably linked to land, at least initially. PACL’s business model, for example, was to buy tracts of agricultural land using investor funds and hope for a swift appreciation in value. It worked well as long as land prices soared. And then came demonetization.
The widely-held perception in Jaipur’s business community is that once the real estate-fuelled economic growth bubble went bust around 2016-17, people who used to invest in land began to park surplus money in credit cooperative societies, which promised roughly the same returns that land speculation used to. Here, the Rajasthanis’ innate ability to take risks came into play.
“Rajasthanis are genetically disposed to accumulate wealth despite the desert conditions—to make money out of nothing. Personal wealth creation comes naturally to them," says D. K. Taknet, author of The Marwari Heritage and a business historian.
Insiders in Rajasthan’s state police department say that around 2016-17, the rate of economic offences started to spike. Police claim that several key players in the erstwhile booming real estate sector, which was filled with a network of dubious people, spilled on to other fields—with some even launching credit cooperative societies of their own. The number of those duped over the past few years in the state is now estimated to be more than 500,000.
The government machinery responded by launching one of the country’s first-ever portals meant to make the process of lodging complaints against credit societies easier. “The complaints of non-payment of dues by these credit societies began to come in from November-December, 2018. We took the case to the Special Operations Group, who unearthed the scam in May-June this year," says Neeraj K. Pavan, registrar of the state’s cooperative department.
Only about 5,000 complaints have been lodged till now though, which is a drop in the bucket, says Otaram Choudhry, nodal officer who is manning the website.
But the police insist that filing complaints in Rajasthan is fairly easy compared to many other states. Ashok Kumar Gupta, additional commissioner, crime (economic offences), said that one of the reasons Jaipur may have topped the charts in the NCRB report is because a large number of cases are obviously being registered.
Policemen like Gupta also say the unfolding chit-fund scam may only be part of the explanation. Money here is often loaned on good faith without documents, he says. This parallel, informal economy, which is more common in a tier-II city like Jaipur, was severely hit by demonetization. The unreturned loans have also resulted in cheating and fraud cases.
Shifts in local economy
Jaipur with a population of about 3 million (2011 Census) has always been a thriving city. Jewellery, gemstone cutting, textiles, mining, the mineral and stone industry, automobiles, and information technology have spurred the economic growth of this tier-II city. Trade and commerce have also played vital roles in the financial growth of the city.
Garima Dhabhai, a political science professor at Kolkata’s Presidency University who has worked extensively on the transformation of Jaipur after the 1991 economic liberalization, says: “Jaipur’s economy saw its first transition in the late-1940s due to an influx of Partition refugees from Sindh and Punjab. The coming of the Sindhis also marked a departure from the erstwhile craft-based economy to trading."
The second major transition came in the 2000s. Because of good connectivity and its prized location within the Golden Triangle, Jaipur witnessed a real estate boom after the turn of the century. Many educational, IT hubs, ultra-modern commercial and retail complexes, and luxury apartments came up rapidly. It became a lucrative destination for both property developers and investors.
Land and real estate prices got artificially inflated despite not being rooted in any material economic output. Once the land bubble burst in the 2010s, investors stopped chasing real estate. And with banks having reduced their interest rates drastically, people naturally veered towards credit cooperative societies, who offered quick money and hefty returns.
“Rajasthanis have always been risk-takers. So, a little money lost here and there is ingrained in their DNA," says Sanjay Kaushik, a tourism professional trained in economics. “Even the unfolding of the credit cooperative scams has not stirred the people enough. They have not been united to approach any political leader to turn it into a bigger issue. My father-in-law has lost quite a large amount but he is not inclined to file a complaint."
That is true for 82-year-old Vishwanath Agarwal too. Even he has not bothered to file his complaint on the government portal. Ever since he retired 23 years ago, Agarwal has never been a worried man. With his pension and savings intact, life was never difficult, at least financially.
Agarwal invested ₹16 lakh in the Adarsh Credit Cooperative Society in 2015. Sitting in one corner of his room at his house in Jaipur’s Tonk Phatak neighbourhood, he seems to be a little troubled now. More than getting back his life’s hard-earned savings, he worries about the future of his three granddaughters because his saving was supposed to be the “gift money" for their wedding.
“My life is almost over. So, the money is more important for my children and for their daughters," says Agarwal. “For a retired government servant like me, ₹16 lakh is a huge amount. I am not sure whether I will get it back in my lifetime. I should not have listened to my son and should have stuck to the good old post office."
His son, Hanuman, also in government service and an investor in Adarsh Society, says: “The company has been around for over 20 years. We know a number of family members, friends and colleagues who invested in the company. After we invested in 2015, we never felt anything was wrong because we got all our returns on time through cheques. Our 15% dividend was also regular."
But something changed by mid-2017. Hanuman says the demonetization of 2016 had a spiralling effect in the last three years. With the cash flow erratic, deposits fell. And as these credit cooperative firms had invested in real estate, their money got stuck. With no money rolling, the company’s usual strategy of asking investors to reinvest a major part of their deposited money took a hit.
Despite this obvious point of no return, many of those who have been duped, like Hanuman, still expect to get their money back once the state of the economy improves.
Dhabhai, the political science professor, reasons: “Owing to the strong presence of a mercantile elite in the city, ‘money’ has assumed a dimension that is more than simply material and need-fulfilling. Rather, it seems to be connected to a popular understanding of finance and speculation. It seems the financialization of the economy that many cities have seen recently was part of Jaipur’s popular culture even earlier. This historical and cultural embeddedness of money as finance perhaps explains the overt absence of a public discourse about financial misdemeanours."
But whether there is a public outcry or not, the estimated size of the unfolding fraud is staggering. Adarsh Society, which is one of the three big credit firms currently under the scanner in Rajasthan, is accused of siphoning off ₹14,000 crore. While the Sanjivini Society has conned investors of around ₹1,100 crore, the Navjeevan Society has indulged in fund embezzlement to the tune of another ₹1,000 crore.
Of Adarsh’s 806 branches, 309 are in Rajasthan. Although a multi-state firm, 75% of its depositors are from the desert state. Adarsh started its operations in 1999 primarily catering to the rural agricultural masses.
With most investors in these schemes being agents themselves, people believed them easily. And with interest being paid on time and reinvestment policies easy and fair, people never had an inkling of the big scam that was coming.
J.P. Yadav, professor in the economic administration and financial management department of Rajasthan university, says: “This credit ‘cooperative’ term incorporated in the names of these societies often mislead villagers to believe that they have some backing from the government. Coupled with higher interest rates offered on deposits, it is easy for agents to convince the public, especially in rural areas."
But there is definitely at least some government culpability. The societies, after all, have to register with the cooperative department before starting operations. A yearly audit is mandatory as well. Many defrauded investors are now pointing fingers at government apathy when it comes to regulation of these societies.
But, ultimately, the genius of these scams, which have hit many parts of the country, is that they play on the fundamental element of trust, says C.B Yadav, president and spokesperson of the All Investors Safety Organisation. “The main problem we faced while trying to get the affected investors together is that the investors themselves are commissioned agents. So, getting them to realize the fraudulent ways of their company has been difficult. Working on a multi-level marketing system, agents earn big incentives for luring in more people into the network. In western Rajasthan, wherever these chit fund societies have thrived, there is less connectivity, the villages are scattered, and the agents are known, trustworthy people in the villagers."
In the end, many of the traits that made Rajasthan successful—from a keen sense for business opportunities to a deep reliance on kinship networks—came together to create a perfect storm and sent crime figures soaring. And within that cautionary tale perhaps lies lessons not just for Jaipur, but every emerging city looking for a quick economic boost.
Rakhee Roytalukdar is a freelance reporter based in Jaipur.