West Bengal chief minister Mamata Banerjee may think she’s come up with a winner in terms of setting up a R500 crore relief fund for Saradha Realty’s small investors, but the plan is ill-advised, ill-financed and irrelevant. For one, there is no reason why cigarette smokers in the state should have to finance those ignorant enough to have invested in real estate schemes which didn’t even mention where the land/flats were located. Two, given how higher taxes on cigarettes only help increase smuggling, there is no guarantee the state will even collect the R150 crore Banerjee is aiming for. Three, where is the cash-strapped state going to find the rest of the money from? Four, even if R500 crore is collected, given the thousands of crores the Saradha Group is supposed to have decamped with, it will serve little purpose in terms of compensating investors for their losses. Nor has Banerjee come up with a plan that says, for instance, that only depositors who have paid R10,000, or R20,000, will be compensated—nor can she since, as of now it is not even clear as to how much money Saradha Realty collected and from whom. Nor is it clear as to what papers will be used to authenticate the claims for compensation as and when they are made.
The larger point, as our lead story brings out, is that the process for tackling such frauds is riddled with problems. The fact is that Saradha did not happen while no one was watching. Sebi had been investigating the company for three years. That Saradha continued to raise money from investors speaks volumes about how inefficient the regulatory process is. During this period, the Saradha Group ran circles around Sebi, offering it 63 boxes of useless documents and, finally, even said the data was recorded in servers in Boston to which the group had no access. Sebi even brought up the matter with the highest authority on financial matters, the FSDC, but this did nothing to bring such schemes under its purview. In other cases, Sebi has been stymied by various court decisions. In each such case, and there have been many, the pattern has broadly been the same, of large cracks in the regulatory system allowing scamsters to get away. This is what needs to be fixed and R150 crore from cigarette taxes isn’t going to help.