Tanvir BusinessEconomics 24th January 2015
GOVERNMENT OF INDIA RUN HARSHAD MEHTA SCAM AND MONEY LAUNDERING CORRUPTION
There are many kinds of corruption and degrees of corruption. By any yardstick, India is one of the most corrupt countries in the world, be it degree or scale of corruption. In this article, it’s my endeavour to analyse and highlight one of the corruptions conducted by none other than the government of India. This is the “Government of India run Harshad Mehta Scam”.
But before the reader can grasp and understand the scale and degree of this corruption, I will have to analyze another corruption, which took place more than 23 years ago in India. It was the year 1992. The news broke out that the ‘Big Bull’, as Harshad Shantilal Mehta was known in the broker circle was involved in a financial scandal of unheard proportions.
Actually, Harshad Mehta was born in a low middle class Gujrati family. He involved himself in commerce and moved to Mumbai to involve himself in stock market and slowly established himself as a broker at Bombay Stock Exchange (BSE) and developed his own broking firm, “GrowMore Research and Asset Management Company Limited”. He learned the weaknesses in Indian financial system while working as a dispatch clerk at New India Assurance Company.
He bought heavily in Associated Cement co. (ACC), Apollo Tyres, Reliance, Tata Iron and Steel co. (TISCO), BPL, Sterlite, Videocon.
It was April 23, 1992, journalist Suchita Dalal exposed the dubious ways of Harshad Mehta, in a column of Times of India. But, she was only able to touch the tip of the iceberg. Even the later CBI enquiry did not bring out all the people and the magnitude of the fraud because of the people and politics involved in it.
I must inform that CBI is Central Bureau of Investigation and is directly controlled by the central government and hence is political in its control and hence its investigations. Now, I will try to explain what Harshad Mehta was doing wrong.
You must understand that the period 1989 to 1993 was a politically unstable period in Indian politics and government. During this time and till 1998, there were non BJP minority governments supported from outside and hence very prone to outside manipulation.
The reader must also understand that by 1989, RSS (Rashtriya Swamsevak Sangh, the parent of BJP) and hence BJP (Bhartiya Janta Party) had established themselves as a political force. From 1989 onwards, the RSS and hence BJP has been playing a very active and important part in controlling the central governments in India, when in 1998 and 1999, they managed to form their own government.
Now, in 1989, when in actuality Harshad Mehta started the fraud, there was a weak minority government of Janta Dal in the center, which depended on BJP (and hence RSS) for survival.
This was during this time that the RSS under the guise of BJP pressurized Janta Dal government to pass certain bills under the guise of socialism, which virtually brought the whole banking sector, including public, private banks and RBI (Reserve Bank of India) under the central government.
The Law mandated that each bank should hold certain minimum amount of government bonds or securities. This made the government bonds costlier and necessary for the banks to keep under the new laws. This minimum amount of government bonds was to remain above a certain ratio of the bank’s holding. This ratio was known as SLR (Statutory Liquidity Ratio).
But banks, whether private or public are driven by interest and profit. The introduction of SLR or Statutory Liquidity Ratio meant that government could dump its incompetence and overvalued paper (bond) money on the banks, both private and public, and indirectly on the public.
Initially the banks had to show their SLR to RBI everyday. During the 1989 to 1993 period, it was relaxed to every week and than to every 15 days.
The relaxation was enforced by the RSS (BJP) so that it will give a window of opportunity to manipulate the SLR show period. Keeping SLR meant that banks had to depend on brokers like Harshad Mehta to buy government bonds or securities when they were short before show time or sell it if they were in surplus. It was a burden imposed by the government and nobody wanted any excess of it than necessary.
In this selling and buying of government bonds or securities to keep the mandated SLR, brokers like Harshad Mehta flourished. But, he was not the only one. He was the one who was caught.
Under the than existing laws, the bank selling the securities should physically transfer them to the buying bank and the buying bank should transfer the money directly to the selling bank. But in many cases, the buying bank issued the cheque to the broker and than the broker made payment to the selling bank. Also, in many cases, instead of physically transferring the securities to the buying bank, the selling bank issued a ‘Bank Receipt’ to the broker, which testified the securities were there with the selling bank. The buying bank took this ‘Bank Receipt’ and paid to the selling bank the money, many times through the broker without actually ever receiving the securities.
The money that a broker like Harshad Mehta received to give to the selling bank in lieu of the ‘Bank Receipt’ was kept by him for a few days. He accumulated money this way from many banks and bought shares at the Bombay Stock Exchange. Once the price of the shares rose, he sold the shares, made a profit, and paid the selling bank its due. But
the profits from this method, even though significant, were not huge.
The next step that Harshad Mehta did was that from the profits he made by the above method, he bought shares at the Bombay Stock Exchange in good reputed companies. Later, he used these shares as collateral to get loans from banks. With these loans, he bought shares in selected companies along with his partner brokers and promoters from such companies. In many cases, the prices of the shares rose drastically because of this buying pressure. Once, the shares rose very high with public demanding such shares, he sold his shares, earning massive profits and money. This he again used to finance the same scheme again and again.
But, even after earning huge profits this way, Harshad Mehta did not let go in dealing with relatively minor profits he earned in acting as a broker of government bonds and securities between banks. This greed became his undoing. When he was unable to pay the money he owed to a bank (State Bank of India), the scandal broke and he was caught.
But in reality, Harshad Mehta was a small fish in a big pond called corruption.
During the same time (1989 to 1993), there were hundreds (if not thousands) of brokers and other persons who were indulging in the same thing, booking profit at the expense of public money. Harshad Mehta was caught but others continued the same work and are still doing it.
People must also remember that in June 1991, a minority government of P.V . Narsimha Rao came to power. It was also dependent on outside help to survive. The RSS (BJP) used this opportunity to pressurize the government to protract and hurdle the trial of Harshad Mehta. They also asked it not to catch other thieves in the finance market, who were doing the same things. Most of these thieves were acting as front for the RSS. Later many from the congress joined these thieves.
Actually, Harshad Mehta was never tried fairly and he died in Thane Jail custody in 2001.
By now it would have become apparent to the reader that Harshad Mehta was just one spoke in a big corruption wheel. Taking out one spoke did nothing to stop the wheel of corruption from advancing as outside supporters, to themselves come to power.
Harshad Mehta was glorified by the RSS backed media as Big Bull and his extravagant lifestyle was splashed all over the media to lure many more of foolish Indian public to buy worthless shares in the Bombay Stock Exchange and make huge profits for the RSS, to finance their ambitions both in India and aboard. He was used by the RSS to attract others into the corruption pool or quagmire called Indian financial system.
He was also highlighted and made famous so that others could continue the same work behind him and if ever the scandal broke out, he will the one who will be caught while others will escape to continue their corruption at a later date. This was the aim and this is what has precisely happened.
I must also inform the readers that until the 1989 to 1993 period, RSS had many cadres but was short of money necessary to come to power and spread it agenda outside the confines of India. Thus, what Harshad Mehta did and others are still doing was and is masterminded by the people in RSS with help from the British Intelligence (GCHQ). After the passage of bills by the Indian Parliament in November 1998 and again November 1999, pertaining to me, the congress has also joined this fraud wholeheartedly.
In essence, the scam was and still remains of obtaining huge amounts of public money, use it to buy selected company shares, hike their prices and than sell them at their peak, making massive profits for the people involved in the scam.
But, since 1989, the scam scheme has undergone many modifications and changes so that this illegal action is not caught. By passing the November 1998 and Novermber 1999 bills, pertaining to me, which allows people to bet on me, the RSS in particular and government of India in general assured another means of extracting money from the foolish Indian public and finance this massive “Government of India run Harshad Mehta scam”. This is why the bill makes sure that everything around me is strictly controlled and that the government always wins the bets and hence the money.
Now, because the government of India is involved in this scam so the shares are held much longer and profit booking is done slowly, so that the share prices do not fall too dramatically and in this way the government is able to maintain the average BSE Sensex at very high levels. The very high levels of Sensex are maintained to attract Foreign Direct Investment (FDI) and to keep the ignorant public interested in the share trading.
Many FDI foolishly believe that very high Sensex levels are signs of very robust and dynamic economy. Many times, they buy shares of shell or almost worthless companies.
But the Indian government is not just interested in FDI to buy junk shares, which further hike the prices of these shares and make even more profit for the Indian government through this “Government of India run Harshad Mehta scam” scheme. After all it’s the government of India! India! A country of 1.5 billion people, mostly Hindus!
The government projects a very rosy picture of Indian economy so that the FDI can invest in true Indian economy as well. They invest in infrastructure, public health etc, bringing some respite to the Indian people, from the corrupt government of India.
But the good question is that from where does Indian government get such massive amounts of money, so that it can keep the Bombay Stock Exchange (BSE) index, on an average above 20,000.
The true worth of Indian economy and the companies, which contribute to the BSE Index is such that the Index will never breach 7000, without this “Government of India run Harshad Mehta Scam” uplift. And even 7000, is a higher side estimate.
So, how can an Index worth 7000 points at best be evaluated at 20,000 or above and attract massive investments from aboard. The reasons I have already given above which can be summarized as the Government of India run Harshad Mehta Scam scheme.
Now, its time to give the ways in which the Indian government gets the money needed to finance this massive rigging and scam.
The primary source of such massive funds is Taxes. Yes Taxes. Taxes are normally collected by a government to run the government and country smoothly and efficiently. Its also used for welfare schemes for the public. Instead of these legitimate uses, the Indian government collects Taxes to finance probably the biggest corruption scam that is going on anywhere in the world.
To give an example, in 2013-2014, the gross tax collection of the center amounted to rupee 13.64 Trillion or USD 226 billion. While converting from rupees to US dollars, I have made allowance for the fact that almost all figures given out by the Indian government are untrue and needs correction. I have taken into account the real size of the Indian economy and growth.
Though it’s expected of a government that the taxes it collect are used for governance and welfare. But, that will be expecting the moon from the Indian government. A large and significant part of the Taxes collected by the Indian government is illegally channeled by it to finance the Harshad Mehta type scam to book huge profits, by first buying shares in selected companies and hiking their prices artificially and than selling it at their peak. When due to reasons beyond the control of Indian government, the share prices do not rise to expected values, it has to wait. And, than many people have to wait for their salaries and public services, until such time government of India gets enough profit from its Tax investment to pay the salaries and provide services expected of it.
This has been going on a massive scale since November 1998 and November 1999, when the Indian parliament illegally passed bills pertaining to me and legalized betting on me. Incidentally, the same bills exempt me from paying Taxes either on my salaries or my private earnings. But this part of the illegal bill has never been implemented.
Though Taxes are the largest source of funding for this illegal investment in this “Government of India run Harshad Mehta Scam” scheme, but there are other sources as well.
Now, TDS is Tax Deduction at Source. This mainly applies to salary class people where the Tax is deducted every month from the salary and deposited with the central government. In many cases a flat rate is deducted, irrespective of the fact as to how much the maximum Tax such a person has to pay.
To give an example, suppose a person is earning a salary of Rs 50, 000 per month. In 12 months, the total salary comes to rupees 6 lakhs (Rs 600,000). Now as per Taxation slab, first 200,000 is rebate and non-taxable. For the amount between 200,000 to 500,000, the Tax rate is 10% , which comes to Rs 30,000. For amounts between 500,000 and 1000000, the Tax rate is 20% and for the person under discussion, it comes to Rs 20,000. Thus, the maximum Tax that is due to such a person is Rs 30,000+Rs 20,000 =Rs 50,000.
But the Tax Deduction at Source (TDS) for such a person is levied at the flat rate of 10% per month. Thus, Rs 5,000 per month TDS every month is cut from the salary of such a person and deposited in the coffers of the Indian government. This is each month. In a year it comes to Rs 60,000.
Thus, every month the Indian government is getting Rs 1000 extra per person as futile TDS. Considering that India’s population is 1.5 billion and there are more than 20 million government employees in India. Rs 1000 is about $ 16.6. Thus from the 20 million employees, the government of India is getting $ 16.6 x 20000000 = $332000000 or 332 million US dollars above the Tax that is due collectively to all these persons combined every month.
This means that the even if the Indian government does not touch the Tax money as I had described previously, it has a minimum of 332 million US dollars every month to run the “Government of India run Harshad Mehta scam” for a minimum of one year because TDS refund is due only after filing of Income Tax return. Its true that as we go down the months, the time available for the government of India decreases. This, the government of India makes up by delaying the payment of TDS refund by at least one year in most cases and in some by 2 or more years.
To stop this illegal use of Tax Deduction at Source (TDS) money, each person should be asked to pay the exact amount of Tax at the end of financial year. Tax Deduction at Source or TDS should be abolished.
But Taxes and Tax Deduction at Source (TDS) are not the only money that Indian government is abusing in this “Government of India run Harshad Mehta scam”.
The total number of government employees in India is well over 20 million. Each has to be paid the salary every month. Apart from the above discussed ‘Tax’ and ‘TDS’ fraud, the Indian government is also using salaries in a ‘Harshad Mehta’ way. There are only very few cases of government employees getting salaries on first of every month. In most cases its delayed by a few days. In some cases, it’s delayed by weeks and in some by months. Particularly the contract employees get their salaries delayed by months. All this time the money is with the government of India. The government of India fraudulently invests this money in the ‘Government of India run Harshad Mehta scam’. But, this is slightly different from the Tax and TDS induced government of India run Harshad Mehta scam. This is for shorter duration, as salaries have to be paid. So, the government invests this money in the shorter form of the government of India run Harshad Mehta scam. This can be called the ‘salary induced government of India run Harshad Mehta scam’.
Though there are other methods by which the government of India gains public money to run these ‘Harshad Mehta’ scams but they can be take up at a different forum or article.
I am sure that by now the reader must have got an idea as to how big and massive this’ government of India run Harshad Mehta scam’ is.
The continuation of his modus operandi is testimony to the staying power of his methods and his technique in manipulating the stock and financial market. This is the legacy of Harshad Mehta. He was Big Bull. Government of India is Bigger Bull!
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