"Barter Trade" or Terror Funding

by Harish Gupta, National Editor, Lokmat Group

"Barter Trade"  or Terror Funding 

NIA raids J&K Trade centers, exposes Rs 300 crore  hawala racket 

Harish Gupta

New Delhi, Jan 23

The National Investigation Agency is investigating whether two barter trade centers between India and Pakistan are generating hundreds of crores of “Hawala” operation helping terror groups.

In a massive operation recently, the NIA seized records of over 350 traders from Kashmir and also in Delhi to investigate whether barter trade route was used to fund separatists and terror activities in the Valley and elsewhere.

The NIA sleuths raided barter trade centers in Uri and Poonch earlier this month after getting intelligence inputs that barter trade resulted in under-invoicing and over-invoicing. The NIA estimates that Rs 300 crores of undue profit was made by traders operating in Uri and Poonch centers which was passed onto the separatists and terror groups. Essentially, Pakistani traders sold their goods cheap to their Indian counter-parts so that they can make a killing. Since this trade is cash-less and goods can only be exchanged only by goods, the value is fixed mutually. Once the traders in J&K get the goods, these are sold to wholesale merchants in Delhi, Jammu and Punjab. These goods are sold to merchants at 40% of the prices while rest of the money is paid in cash.

It may be mentioned that barter trade between India and Pakistan started during the Manmohan Singh regime in October 2008 through a special agreement. The two centres were opened in Uri and Poonch to held the traders of these regions on both sides of the line of control. Under the agreement, no cash will be involved and only 21 items were permitted for mutual trade and exchange of goods. The value of the items is to be fixed  by the traders.

The NIA sleuths are now scrutinizing the documents seized from Uri, Poonch and whole-sale markets in Delhi and other parts. A highly confidential report has already been sent to the Ministry of Home Affairs. The Barter trade agreement is monitored by the Ministry of Home Affairs and not by the Commerce Ministry. It has been pointed out by NIA that an amount of Rs 300 crores was made in excess by traders in Uri & Poonch and this money reached in the hands of the separatists.

The NIA is also finding out if some bureaucrats in the J&K government and politicians are also behind the inflated transactions and benefited in either way.

The Custodian of LoC trade Farooq Ahmad Shah has told the sleuths that on average the trade between two parts of Kashmir is worth over Rs 30 million ($440,000) per day: “On average we are allowing 40-50 trucks each day, four days a week from both the sides.” He said that the need for banking facilities has been brought to the notice of the higher authorities.

Nemesis rides a Bicycle

by Harish Gupta, National Editor, Lokmat Group

It is the last week-end before the fate of the Maha Gathbandhan or Grand Alliance of the non-BJP parties in Uttar Pradesh is decided. While the SP and Congress have finally agreed to a seat-sharing arrangement, others have yet to chip in. In the state with 403-strong assembly, the young SP supremo and Uttar Pradesh Chief Minister Akhilesh Yadav inarguably holds an image hugely surpassing that of Congress’ Rahul Gandhi. While SP won 224 seats in the 2012 election, the Congress got only 28, or a little over a tenth of the former. However, while SP bagged 29.13 per cent of votes, Congress tally was 11.65 per cent, which is not so abysmally low in relation to the winner. While the ‘grand old party’ had very few strong candidates in any region, including Awadh, its historical forte, it had, and possibly still has, flocks who’d still swear by the centenarian party.

And that perhaps explains why the 2017 alliance between SP and Congress is crucial for both SP and Congress. Akhilesh has just maneuvered his way out of the grip of old-timers led by his father Mulayam Singh Yadav, SP’s founder, and his crafty brother Shivpal Singh. Despite being the young, affable and smart CM of UP much of Akhilesh’s inability to pull it out of its disappointing image of being a lawless land lies with his father and his associates. These old-timers had imposed their authority on the young leader. After a lot of public spat, and jousting with an army of “uncles”, Akhilesh has finally secured the liberty to shape his legislative party the way he wishes. But he is neither cut in the mould of the Yadav clan’s rebellious child, nor would it give him any electoral percentage if he does so. SP under Akhilesh has to be a ‘compromise’ with SP of his father, who still enjoys some following. It’s a necessity that has driven Akhilesh to offer a ticket even to Shivpal and Azam Khan.

That is quite a tight-rope walk and is risky as Akhilesh alone cannot bring about an image makeover of the SP, which is identified with patriarchy, misogyny and gangster-worship. An alliance with Rahul, the young leader of an old national party, is expected to go a long way in wrapping up the Akhilesh-led combination in an aura of youthfulness. Besides, the Congress party’s traditional link with the state’s large Brahmin community (12 per cent) is a bonus.

The alliance looked wobbly until the last minute as Congress was playing pricy by demanding more than it deserved based on the 2014 Lok Sabha polls. The Congress won just two seats, those of Sonia Gandhi and Rahul Gandhi while the SP managed to win 5 against the ‘Modi storm’ and the decline in its vote share was much less than Congress’ cliff diving.  To nurture its pocket-boroughs, the VIP Lok Sabha constituencies of Amethi (Rahul Gandhi) and Rae Bareli (Sonia Gandhi), Congress demanded maximum assembly seats in that area.  

In the tough bargaining between Akhilesh and the Gandhi clan, the latter’s leverage is the Brahmin support it has always attracted. In Uttar Pradesh, Brahmins are more than a caste. They’re opinion makers as they interface with the public—be it in the local media, educational institutions or the bar associations or religious institutions. It is from these platforms that the hawa, or the popular consensus, moves as to which side is ‘winning’. And this verdict motivates fence-sitters, who represent majority of voters in a state like Uttar Pradesh where ideology, unlike, say, in Kerala, counts for very little. In 2007, it’s the hawa fanned by the upper caste that had made fence-sitters believe it was Mayawati’s turn, and she made it to the top office. In the last Lok Sabha election, the upper caste voters including Brahmins voted overwhelmingly for Narendra Modi as they saw him as a symbol of both conservative Hindutva and a modern reformer. But, over the years, BJP in Uttar Pradesh is perceived as an outright communal party with OBC groups at its core. Keshav Prasad Maurya, an OBC leader, now holds the post of BJP state president. BJP MP Yogi Adityanath, much criticised for his communal hate-mongering, has been chosen among the party’s main campaigners. Besides, the memories of riots at Moradabad and Saharanpur are still raw. It peeved the educated class that expected Modi to usher in a wave of modernisation, but got communal slugfest in its place.

From Akhilesh’s perspective, Congress’ demands of 125 seats were undoubtedly irksome. But the dividend he can expect from an SP-Congress unity, extending to JD(U), RLD and even Mamata Banerjee’s TMC being on board, goes a very long way. If the future alliance ultimately trounces BJP in India’s most populous state—and that too three years after BJP had grabbed 73 of its 80 Lok Sabha seats—it will get flagged as evidence of the 2014 victory of Modi being a purely temporary phenomenon, something like a flash flood. If the BJP-Akali Dal combine also flounders in Punjab, it will lead to considerable diminution of Modi’s stature as winner in 2019.

By emerging as the new face of his party to defeat the old cabal of men with backward ideas and orthodox mindset, Akhilesh has already positioned himself as an icon of young voters. If he can forge and lead a powerful alliance in the next two years, he can  become the unquestioned national alternative. That should make BJP see its nemesis coming on a bicycle (SP’s poll symbol). 

THE BUSINESS OF POLITICS

by Harish Gupta, National Editor, Lokmat Group

While the Supreme Court has, in its indisputable wisdom, held it unnecessary to probe the mysterious scribbling on confiscated files of Sahara and Aditya Birla Group officials regarding payments made to politicians, the cloud of suspicion will not lift anytime soon. It is largely because that politics in India is fuelled almost entirely by illicit financing from corporate. In the 2013 CBI raid on Hindalco, the ABG company, a set of documents was recovered from the computer of the CEO which read: “Gujarat CM—Rs. 25 crore. 12 paid. 13?” Yet another Income-Tax Department raid in November 2014 on the Noida office of the Sahara Group led to seizure of computer data pointing to distribution of Rs 115 crore to political leaders specifically identified. Rs 40 crores given at Ahmedabad to “Modiji”. Rs 10 crores given to “CM Madhya Pradesh”. Rs 4 crore to “CM of Chattisgarh”. Rs 1 crore to “CM of Delhi” (Shiela Dixit at that time). The attempts by the companies to make these appear to be innocuous business transactions were ludicrous. The Hindalco CEO told investigators all he meant by “Gujarat CM” was “Gujarat Alkalis and Chemicals.” Then what did “C” and “M” stand for? The official had no answer.

Published in LokmatTimes on 17th Jan

The honourable Supreme Court, however, has found these papers to be of “little evidentiary value” as there was no “corroborating evidence”. In the context of Indian politicians, I don’t see how rational it is to expect that politicians would accept illegal payments and issue signed receipts. Nor will the alleged payment show up on the list of assets of the payee. Even if it did, it would not be an easy job for the investigator to access the VIP account book. On the other hand, the practice followed from Jain Hawala case in the 90’s is to let investigators carry on with their job regardless of proof of receipt. In the Jain Hawala case, the court issued “continuousmandamus” to CBI to find evidence for prosecution. It is another thing that the exercise was a blot on the judiciary as everything was done at the instance of the SC and it was thrown into the dustbin by the SC later.

More significantly, to close investigation into such doubtful payments on the ground of their inadmissibility as evidence may weaken the government’s case against, say, the Trinamool Congress (TMC) in West Bengal. The party’s MPs Sudip Bandyopadhyay and Tapas Pal were in CBI custody and now in judicial lock up. Their detention is largely due to jottings in a diary reportedly belonging to Gautam Kundu, owner of Rose Valley Corporation, a Ponzi-scheme firm (much like Sahara) which is alleged to have had collected nearly Rs 20,000 crore by duping the public with promises of unrealistic returns. Until sufficient evidence is obtained to prosecute the MPs, it will not only weaken CBI’s case but add credence to TMC chief and West Bengal chief minister Mamata Banerjee’s charge. It was Ms Banerjee who charged that her party is a victim of witch hunt as she was the first to oppose Prime Minister Narendra Modi’s November 8 decision to scrap 500- and 1000-rupee notes.

Published in LOKMAT on 17th Jan

It is obvious that the ‘great Indian swindle’ of winning elections and extending political influence with corporate slush funds and, increasingly, with money collected from ordinary people by modern avatars of fraudster Charles Ponzi a century ago, is not easy to go. It is linked with a section (29C) in the Representation of the People Act that allows donors under Rs 20,000 to go anonymous. It is not difficult to see that the invisible donors, who contribute nearly 70-80 per cent of the funds of political parties, are channelling either tax-evaded cash of business houses, or it is, as is increasingly evident, a large share of ordinary people’s savings.

Can this evil be fought off by streamlining the election law? The Prime Minister has lent (verbal) support to a move to bring down the limit of ‘anonymous donation’ to political parties from Rs 20,000 to its one-tenth, Rs 2,000. Alternatively, there are suggestions to change the law by making all political donations open to public viewing, as is the practice in most western democracies. It may be a good beginning for cleansing the political system. But is it enough?

Published in Lokmat Samachar on 17th Jan

I doubt it. Electoral politics in India was always expensive due to the country’s size, not to speak of its topographic and cultural diversity. Over the decades, it has been witnessed that mere cost of election campaign is a fraction. On the other hand, it involves coaxing and cajoling pressure groups to stay on board, which is costly. Caste leaders or clan heads need to be kept happy. The hands of support are extended to the highest bidder. Election also involves winning over a sizeable chunk of the bureaucracy. On the election day, a ‘friendly’ police chief or an ‘amiable’ magistrate is worth a thousand ordinary party workers.

It is obvious that the funds required for such a gigantic operation cannot be sourced from nameless ‘well-wishers’. Nor can corporate houses alone bear the cost, as the chief source of their expendable black wealth, is shrinking following trade contraction worldwide. The tax evasion through over-invoicing or under-invoicing is becoming extremely difficult world-wide. The future of political funding will, therefore, rest on Ponzi operations like those of Sahara, Rose Valley or the infamous Saradha Finance, also involving the TMC party. Investigation of Saradha and Rose Valley have shown that their tentacles have spread far and wide—to Haryana, Odisha, Andhra Pradesh, Telangana, Assam and Jharkhand, not to speak of West Bengal. The ordinary Indian has strong saving instincts but few instruments to save. Banks are rare, a stark fact that came to light in the wake of the recent demonetisation. Poor man is dependable on these swindlers in every nook and corner of the country as banks were never for the poor. That makes the common man a prey of fund swindlers, so long as they are ready to share the booty with politicians powerful enough to protect them.

Is Modi losing the Plot?

by Harish Gupta, National Editor, Lokmat Group

With the passage of 31 of the 60 months for which Narendra Modi got elected as Prime Minister, and after a disruptive monetary exercise which he loves to call “reform”, the machismo he exuded till recently seems suddenly sagging and the old swagger of “56-inches chest” is a thing of the past. The confidence curve of political leaders drop due to factors beyond their control—like the recent ‘Brexit’ that former UK prime minister David Cameron didn’t invite yet it cost him his job. But Modi’s November 8 move to scrap 500 and 1,000-rupee notes, amounting to 85 per cent of the currency in circulation, is an entirely self-inflicted injury to his image.

The decision has prima facie failed on its basic justification that it would whack black money. Going by the figures issued by the Reserve Bank of India, a little over 15.40 trillion rupees worth of currency was dropped out of legal tender by the de-monetisation decision, whereas cash amounting to 14.97 trillion rupees was back into the banks’ chests by December 30. This was after two months of deleterious disruption in citizens’ life.

With time still left for those disenabled by circumstances—like being abroad in the concerned period—to return their invalidated bank notes, Modi’s entire operation was founded on a wrong presumption. He was led to believe that there would be a good 3 to 4 trillion rupees that would escape the round tripping as these are “black” so would not show up.

Of course there being no discrepancy between the number of notes issued and those received does not per se prove that there is no black money in the economy. It is quite likely that a chunk of the notes that returned to the banking system will fail to be accounted for in later probes by Income Tax & ED officials. But the success of such a convoluted mode of catching the thief will depend on an army of taxmen which is not in place currently, and legal processes that may be tediously long. Its net political gain for Modi is yet to be proved though BJP claims it won 8000 out of 10,000 seats in municipalities, byelections and other bodies since November 8. Half way through his tenure, Modi and his “core team” is a worried lot.

In fact, its effect is treading in the negative zone, with businesses suddenly having slammed brake on growth and, consequently, bank credit growth in December has hit 5.1 per cent, its slowest in 19 years. Its impact, according to a financial analyst quoted in The Economist magazine, is “significant but not catastrophic”. It has been roundly criticised by many top-ranking economists, from Nobel winners Amartya Sen and Joseph Stiglitz to former World Bank chief economists Kaushik Basu, with most of them wondering at the utter amateurishness of the move. Sen’s criticism may be ignored for obvious reasons. But no one can buy the theory propounded by Bibek Debroy of the NITI AAYOG that criticism is anecdotal. Let alone consulting his party, it is obvious that Modi over-rode RBI as an RTI petition filed by an individual has brought out that the central bank’s board had met only three hours prior to the Prime Minister’s declaration on national television. RBI refused to divulge details of the consultation. And going by the desultory observations by Chief Economic Advisor Arvind Subranamiam, nor does he seem to have been consulted in advance. Obvious suspicion: Is Modi sitting at the cockpit of a rudderless boat, where the compass is replaced by ill-informed advice from his favourite set of bureaucrats?

Such misgiving has an ominous ring in the context of rising headwind globally, with the advent of Donald Trump and his protectionist posturing threatening to whittle down India’s meagre share of global trade. India’s domestic economy, on its part, is creeping along without growth of employment. Even before Trump’s inauguration, a bill has been admitted to the US Congress for a sharp rise in the minimum wage of immigrant employees armed with H1B visa. It is a move meant to act as a disincentive for employers to import immigrant workers. If the bill gets passed, there may be adverse impact not only on remittance but on growth of white collar jobs across the country.

Also important is the likely fallout of an inwardly drawing America retreating from most of the global theatres of conflict—be it Syria, Afghanistan or South China Sea—and leaving China nursing its ego as the future number one super-power; its economy will surpass that of the US as early as 2020. With the historic bond between China and Pakistan now stretching well past military linkage into strong economic cooperation, and Russia, India’s “trusted friend”, having already moved to the diplomatic no-man’s-land between India and Pakistan, India under Modi is living in a friendless state it never experienced in the past, not even in the Cold War years.

India is now buying arms at a feverish pitch and testing ballistic missiles that, as its Defence Ministry says, can reach the farthest corner of China. However, the real competition lies in the GDP of China being three times that of India in PPP terms, with India’s northern neighbour resolutely on the reform path to turn its ancient land into a modern country with a caring state. As reform, that’s a lot more valuable than canceling the currency and crying wolf.

But all this will be behind if Modi is able to swing UP in BJP’s favour. He has an Herculean task in hand. He has to sell digitization to the poor and illiterates in rural India and make them rich on the back of demonetization within the next 40 days. The demonetization has already brought the 16 parties together in Parliament and TMC’s Mamata Banerjee has established a hot-line with arch rival CPM’s Sitaram Yechury. Akhilesh Yadav has virtually emerged as an iconic figure in UP while the BJP is grappling with a local face.

Little promise of break-out

by Harish Gupta, National Editor, Lokmat Group

2017 has begun on a heap of misconfigurations from the year that is just over. Brexit, Donald Trump’s victory in the US presidential election, rise of ultra-nationalism, and potential ‘great dictators’, at all corners of the world. 

At home, Prime Minister Narendra Modi’s aggressive foreign policy has begun losing its sheen, with traditional India-baiters China and Pakistan wresting old ally Russia from India’s embrace. Trump’s entry into the White House still a few days ahead, and with his legendary unpredictability, events in 2017 may put India in a diplomatic isolation it never experienced. On the economic front, the post-2010 stalemate continues, with demand subdued, exports stunted and consumer prices ruling high. There is little promise of the new year being a break-out year either for India or the world. 

However, Modi’s shock move on November 8 to scrap the high denomination notes of 500 and 1,000 rupees has come with the promise of bringing about a series of systemic changes in the economy. The demonetisation exercise has brought large amounts of money into the banking system, thus enabling the government to take a host of fiscal measures to address India’s enduring problem of inequality. It looks like note-scrapping is only the first of a series of measures on the anvil, and may extend to locking up the channels through unmonitored cash flows—property, gold, etc. The biggest distortion caused by unaccounted money is in politics as the untold cost of elections is met from illicit ‘donations’ from persons and organizations with elaborate post-poll agenda. Much of UPA-2’s (2009-14) troubles over price and distribution of natural resources, for that matter, had originated from shadowy poll financiers insisting on their demands being met by the government after election. Under Representation of the People Act, a political party is not liable to disclose identities of donors below Rs. 20,000. Modi, in his new year’s eve speech, has used strong language to remind all parties of their moral duty to help change the elections laws so that election finance becomes transparent, thus clogging perhaps the most toxic outflow channel of unaccounted cash. There is a possibility that some action may follow in the days to come.

Modi’s position in the world, which looked robust till last year, may be badly amiss now. Apart from the diplomatic isolation which I mentioned at the beginning of this article, what he may face is some chilling after-effect of growing protectionism which is threatening global trade and, consequently, the hope of India using FDI as fuel of future growth. 

It is evident that Modi is not without an early apprehension about global investment drying up. That may be the real trigger for his de-monetisation move, as all that he wanted, perhaps, was to mobilise domestic cash for giving a push to the economy. May be it will work even in the medium term as the promises he has made in his new year’s eve speech focuses on housing for the poor which, by itself, can be catalyst for general growth. The government banks, reeling under bad debt (the stressed advances to gross advances in June 2016 being 12%), were compelled to shut their doors to all sorts of borrowers, including the small and medium sector, in the recent past, that being the main reason for economic slow-down. 2017 may witness the banks resuming advances to the SME sector which contributes 40% to exports and 45% to the total manufacturing output.  

However, in the rapid course corrections the Centre will be forced to make this year on practically all fronts, its success will greatly depend on Modi’s ability to ride out the political storm at home. It appears that the Congress had put all its eggs on the single basket of de-monetisation, thinking that it could not but fail miserably, leading to a massive backlash. Congress vice president Rahul Gandhi happily stayed in this bubble of illusion, and was supported by Mamata Banerjee and Arvind Kejriwal. But Rahul’s de-monetisation ‘bomb’ turned out to be a damp squib with no visible backlash. As he is reportedly holidaying abroad, there is slender chance of his party clawing its way back to a respectable height in near future. 

In Uttar Pradesh, the election is likely to be bellwether for general elections in 2019 owing to its size and also due to the closeness of the race between BJP and the ruling Samajwadi Party. In 2012, SP won over half the 403 assembly seats and Akhilesh Singh Yadav, the young chief minister, became the poster boy of the party founded by his father, Mulayam Singh Yadav. But the Yadav family’s primacy was severely dented when, in 2014, BJP grabbed 73 of the state’s 80 LS sets. Trouble erupted in the Yadav clan since then, as Mulayam and his aides began doubting Akhilesh’s capability to measure up to BJP’s challenge while Akhilesh held his father, and his proneness to drive the government from back seat, squarely responsible for the defeat. 

The state’s third player, Mayawati, has somehow lost the charisma that enabled her in 2007 to cobble together a multi-caste canvas in which upper castes coexisted with the jatav—her own caste. It did not last in the 2012 election. Nor is there much indication of its revival this time round. Akhilesh is still a leader who commands respect for bringing about some improvement in the quality of life in Uttar Pradesh—a so-called ‘bimaru’ state—by investing in electricity, roads and girls’ education. But doubt persists about his family feud ending before elections, thus giving BJP a valuable edge in a state which is home to a fifth of the country’s population. Armed with Modi's December 31 largesse and project the PM as  messiah of the poor, the Sangh Parivar has launched massive blitzkrieg in UP. Undoubtedly, round one has gone to Modi post-demonitization.