Posted by: John Elliott | July 8, 2014

Three books report on crony capitalism, defying crony warnings

In a society ridden with crony capitalism and crony politics, businessmen and politicians inevitably try to stop people writing books that reveal their goings-on. But there is a limit to how much disruption they can achieve

This has has been shown by the recent publication of three books that uncover many of the secrets of the showy but shadowy Sahara Group run by the idiosyncratic and reclusive Subrata Roy (now in jail), the intrigues, spats and influencing of Reliance companies, run by the Ambani brothers, over natural gas pricing, and the fixes and fudges of Air India, especially when Praful Patel, a suave and wealthy Maharashtra politician, was aviation minister in the last government.

Roy took legal action that delayed publication of the book, by Jaico of Mumbai, about him and his Sahara company for several months, while the Ambanis have been complaining and threatening noisily but have not yet taken firm action to have the privately-published book about them and India’s “gas wars” banned. Patel got the Air India book withdrawn by Bloomsbury India, but the author is now publishing it himself.

Such disputes are good for sales – the Sahara book has gone into a reprint after an initial run of 15,000 copies, while Gas Wars has sold 4,000 hard and paperbacks. The (semi) joke doing the rounds is that the Ambanis are trying to obliterate the book buying up all the copies, but it’s not possible to do that to e-books of which 1,000 have been sold.

Sahara’s mysteries

Subrata Roy, the founder of the secretive but publicity conscious Sahara India Parivar group took out a Rs200 crore ($32m) injunction last December that delayed publication of Sahara: The Untold Story by Tamal Bandyopadhyay, an editor of the Mint business newspaper.

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Roy was jailed four months ago on an (unconnected) contempt of court case, and seems to have decided that he was fighting for his survival on too many fronts. He agreed last month that the book should be published, along with a curiously worded disclaimer, which appears on both the cover flap and the first two pages, saying that it “is based on a particular notion, wrong perceptions supported by limited and skewed information. Hence, it does not reflect the true and complete picture”.

Roy is an extraordinary character, apparently employing 600,000 agents to draw savings from millions of the poor for a myriad of financial schemes. He penalises them mercilessly when they fall short on payments and dodges regulators who try to investigate. He invests in massive real estate dreams (claiming a 36,000 acre land bank) and has created and sold a loss-making airline.

He has owned and lost a cricket team, was till recently the official sponsor of the Indian cricket team, and has a share in a Formula One racing team (he invested to help the financially ailing Vijay Mallya of Kingfisher fame).

He owns two hotels abroad, including the famous though faded Grosvenor House on London’s Park Lane, a couple of minutes walk from Mayfair’s Grosvenor Square and nearby streets favoured as fashionable addresses by India’s wealthy. He bought the hotel in 2010 for £470m mysteriously sourced funds.

Roy lives and works in a closely guarded gated compound called Sahara Shaher that contains replicas of world famous buildings and covers an incredible 270 acres in the centre of Lucknow, the capital city of Uttar Pradesh where his political power has been based. He mixes with film stars and powerful politicians of varying shades of respectability, many of whom, it is widely rumoured, invest their money anonymously in his schemes.

Yet oddly the rich and powerful, who ostentatiously partied with him for years, have not managed to rescue him from exasperated and humiliated Supreme Court judges and financial regulators who have eventually trapped him and put him in jail over an alleged Rs24,000 crore ($4bn) bond scam.

For years, regulators have been trying to tie down where his money really comes from – is he caring for the poor or cheating them, or is he mainly laundering money for the rich?

In his book, Bandyopadhyay writes: “Roy, the guardian angel of the group, whose feet are touched by everybody in the Parivar, is an entrepreneur who wants to reach out to a million lives, and who feels claustrophobic in regulations. So, the clash with the regulators is inevitable. But when one regulator slams the door, Roy opens another. This play has been on since 1978 when Sahara was set up”.

Bandyopadhyay asks whether the “poor people actually keep their money with him or are they a front for others?” At the Delhi book launch, he wondered whether “investors really do exist” since none had complained about their treatment, yet Roy had claimed he had repaid 147m investors, which if true amounted to an astonishing “one in nine of all Indians”.

The Ambanis’ Gas Wars

Gas Wars – Crony Capitalism and the Ambanis by Paranjoy Guha Thakurta (below), a prominent business and economics journalist, and two colleagues, was published privately by Thakurta in April and is now for sale on the internet as well as in bookshops. The launch event in Delhi became an occasion for wide-ranging attacks on crony capitalism.

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Reliance Industries (RIL), run by Mukesh Ambani, India’s richest man knew about the book but, says Thakurta, had not tried to stop him publishing it.

However it quickly threatened to sue for Rs100cr (about $16m), serving legal notices alleging defamation on the authors, the book distributors (including Amazon and Flipkart), plus some reviewers and, according to Thakurta, even a young woman who forwarded electronic invitations for the launch event.

That may seem draconian but it is mild compared with what Reliance Industries did in 1998 under Mukesh’s father, Dhirubhai Ambani, when it forced Harper Collins India to withdraw publication of a book, called The Polyester Prince that had been separately published in Australia. The ban pushed the price of hard copies on the net up to more than ten times the original sale price (even now $200-300 and £200-300 is quoted on Amazon.com and co.uk sites), but it was reissued four years ago by Roli Books of Delhi, slightly amended and the family stayed silent. (read the story here).

Thakurta’s book must therefore be regarded by the Ambanis as more threatening than the reissued Prince. It explores RIL’s natural gas finds at the KG-D6 oil and gas field in India’s Krishna-Godavari Basin and a very public row over delivery prices to a power project run by Mukesh’s younger brother Anil’s separate company. It quotes how the India’s Comptroller and Auditor General (CAG) alleged the petroleum ministry “designed contracts and tailored rules” to favour RIL, which was thus able to recoup “excessive capital expenditure” and reduce payments to the government.

There are two detailed scoops in the book, which reveal details not previously published involving two of the main players. One is a long interview with Subir Raha, a former chairman of ONGC, India’s leading public sector gas exploration company, and Mani Shankar Aiyar, a Congress politician renowned for his “clean” reputation who was for a time the petroleum minister. Aiyar and another minister were removed from the petroleum ministry because, it was widely reported at the time, they had not been toeing the Reliance line. The anti-corruption Aam Aadmi Party also attacked Reliance and Ambani last year and started court cases.

Reliance of course denies all the allegations and last week launched on the internet a 56-page presentation and promotional video – a Flame of Truth eBook titled “India Has Never Been Here Before – Facts You Didn’t Know About KG-D6”.

The Ambani family has good connections in all political parties. Thakurta’s book tells the story of how it managed the environment (a neat and often used euphemism) with the Congress-led government of the last ten years. Mukesh is known to be a keen supporter of Narendra Modi, the new Bharatiya Janata Party prime minister, and they both come from Gujarat, but he must now be wondering how to manage with a prime minister who might not be as willing as Congress to appear to be favouring one company – however true or not that may have been.

The government last week adjourned for three months a decision on doubling natural gas prices that would inevitably benefit RIL. Commenting on this at a recent Mumbai Press Club meeting on the book, Aiyar wondered why Modi had kept responsibility for the petroleum ministry and therefore oil pricing, and is reported to have added: “Since we have only one company in the private sector, the ministry of oil pricing has effectively become the ‘ministry of Reliance affairs.”

Praful Patel and Air India

The Descent of Air India, by Jitender Bhargava, a former executive director and pr chief of the airline, was published last October. Patel said it contained “baseless allegations” about him and in November his lawyers brought a criminal defamation case in the Mumbai courts against Bloomsbury India and Bhargava. In January, Bloomsbury apologised, withdrew the book from sale, and agreed to destroy its remaining stocks, though Bhargava is selling ebooks on the internet and plans to publish a hard copy himself soon.

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Patel, who is presumably no longer wielding so much power and patronage at the centre of politics following after the recent general election, does not seem to have tried to stop Bhargava’s sales.

Patel was aviation minister from 2004 to 2010 and then heavy industries minister. His time dealing with aviation was especially controversial because of deals for airport projects and for aircraft purchases and other happenings at Air India, the national carrier, whose finances and viability were declining while well-connected private sector airlines (and airports) bloomed. I once described him on my blog as the “Government’s top Teflon Man”.

Bhargava writes about what he describes euphemistically as Patel’s political interference “on acquisition or leasing of aircraft, purchase of merchandise, appointments, giving out free air tickets and upgrades, and on promotions, transfers, and postings of employees”. These decisions were taken, he says, “without any thought for the airline’s future”. For whatever reason, foreign airlines were given far greater access to India’s airports than was justified by customer demand, which damaged Air India’s ability to generate revenues.

The story isn’t over yet. There has been a case in Canadian courts alleging bribes were paid to Indian officials on a biometric identification system. Bhargava’s book gives details, adding Patel’s denials, but the courts, which were impressed by evidence of money trails, have now convicted a Canadian company official for paying bribes. That has led to calls in India for fresh official investigations into the Biometrics case and other allegations in Bhargava’s book. The Supreme Court is expected to rule on that later this month, unless the CBI files an FIR (first investigation report) against Patel first.

All the people in these stories are accustomed to wielding power and patronage at the centre of government. But a new era has begun and none of them can be sure how things will develop with a prime minister whose general election mandate included cleaning up corruption.


Responses

  1. Many years ago, I read Chinua Achebe’s “A Man of the People”, which told of the rise of a corrupt politician after Nigerian Independence. What struck me was that this seemed to follow a common pattern. Whereas the generation of leaders who achieve independience are generally accomplished and upstanding men, they leave a double vaccuum when they depart. Not only have they not trained a successor generation, but they have also created a system which has rewarded them well for their work. The succeeding generation, however, in attempting to achieve power, finds that all the rewards have already been distributed to the previous leadership, and it must now prove itself. Being by definition the next group of “good guys’ (proven by their election to power if nothing else) they have to reward themselves, and this usually takes the form of corruption. Witness the era of Jacksonian “democracy” in the US after the second President Adams, or the rise of corrupt machine politics in New York and Boston after the old line Yankee families were forced to relinquish power to immigrant groups (Boss Tweed in New York and Mayor Curley in Boston) We are watching a similar phenomenon in India, a bit delayed perhaps, but begun back in the late 50’s with a boast by G. D. Birla that he only paid Rs. 5000 in taxes one year. Not that this is a justification, but it does explain and point to the need to find a better way to handle money, business and politics in the public interest.

  2. Super article, John. So well written and an eye opener.

    Kapil Chopra


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