Once Again a Ponzi Lays Waste

The implosion of West Bengal’s Saradha Group – real estate company, chit fund enterprise or a straightforward Ponzi operation, Saradha defies definition – has led to the familiar blame game. Was it the state government (the present or the previous one?) which turned a blind eye to Saradha’s dizzying growth built on sand? Were the Reserve Bank of India and the Securities and Exchange Board of India guilty of ignoring the flashing signals? Are the regulations of the financial sector perennially behind market avarice? Each time a highly “successful” finance company collapses, the questions posed are the same. Only for the concerns to gradually subside before the next collapse occurs. But the next time is never different.

The financialisation of household savings in India can be traced back to the late 1970s with a shift in the policy preference of the state. Indira Gandhi, in her address to the Federation of Indian Chambers of Commerce and Industry on 25 April 1975 wondered “if industrialists, even those who command the confidence of the investing public, have done all that they can to tap private savings”. This call to tap private savings of the investing public uncannily coincided with the rise of new enterprises that then became the stuff of business lore in the 1980s. Many business groups tapped into private household savings using money circulation schemes and some of these went bust, the most infamous being Sanchayita Investments in the early 1980s. The same period saw a proliferation of chit fund schemes, many of which too collapsed. These became national issues leading to the banning of money circulation schemes in 1978 and the promulgation of the Chit Fund Act in 1982.