King of chit fund scams: Why Saradha collapse is unique

The Saradha chit fund scam in West Bengal is snowballing into a grievous scandal involving politicians across parties. From Trinamool Congress leaders to Union finance minister’s wife, Nalini Chidambaram, many have been dragged into the controversy surrounding the scam.

The estimates of amounts raised by various such companies in West Bengal are going up day by day. Yesterday a report in the Indian Express said it could be about Rs 4,000 crore, while today it has been increased to Rs 7,000 crore.

The official figure, which is definitely going to be paltry, is never going to consider a large portion of the amount paid by investors in black. The actual ‘worth’ of the scam is not going to be known to the public ever.

Though there have been similar scams earlier,this scam is unique for the following reasons.

_1)_Chit fund scams have been regional pains more than national. It is for the first time such a scam is hogging national limelight. The reason for this could be the political overtones and the blame game between the Trinamool Congress and the Congress. For reasons known to all, the controversies surrounding Sahara and its schemes have never become as explicitly political. The latest salvo in the Saradha scam has been fired by none other than Mamatadi. She has asked the Congress why Nalini Chidambaram, FM Chidambaram’s wife, was fixing deals for the controversial firm Saradha. “Caesar’s wife must be above suspicion,” she has been quoted as saying. But, unfortunately for her, the needle of suspicion is more pointed towards Trinamool Congress leaders than others.

2) This is the first time the government is showing a resolve to probe such companies. According to reports, the ministry for corporate affairs has decided to set up a special task force under the Serious Frauds Investigation Office to probe other suspiciously run chit funds. However, according to a Mint report, as per the filings with the Registrar of Companies by those companies that are under scanner, they are not chit funds at all. All these firms, including Saradha, were registered with the RoC as commercial and industrial enterprises. So they are not essentially chit funds. Had they been chit funds, they would have come under the state legislation. This is the bone of contention between the West Bengal government and the Centre.

3) The scam, thus, offers a chance for the state and central governments to put their head together and fill a vacuum in the regulatory framework by deciding who should regulate such companies. For this, they have to cooperate with each other and conduct the probe with due seriousness. The present SFIO probe is highly unlikely to yield any result because some of the companies have already got court orders to continue with their collective investment schemes. According to this report, the best solution is bring about a state-level legislation. West Bengal had put one such in place, which was sent to the Centre for approval and held back for reasons unknown, the report says. And then the Trinamool government withdrew the law to “add more teeth” (which is in full display now).

4) The scam is also giving the Central government an opportunity to study why the middle class is flocking to such schemes. Is there any reason other than greed? According to this article, the reason is the lack of decent investment avenues. If Finance Minister P Chidambaram’s wish to attract investors away from physical assets such as gold and real estate is earnest, he has to act now.