Nirav Modi Scam: Why It Should Matter, But Doesn’t

Posted by Ranjeet Menon in Society
February 19, 2018

The Indian economy has been limping after the twin strikes of Demonetization and GST implementation which came on top of sluggish economic growth and ever rising inflation.

The economy did not take that hard a beating as most of the other countries in the wake of the financial meltdown of 2008 because the RBI had smartly manipulated the value of the rupee. But I realized that our currency is not so robust after all when I read about how a change in the value of the government bonds in the US had triggered tremors in the value of the rupee. To add to all of this, two diseases have been plaguing the Indian economy and have prevented it from growing to the levels it should have long back. Black money and scams.

Tax evasion is a part of daily life in India, and all that money goes underground immediately which then flow out to foreign bank accounts in countries like Switzerland and Monaco. There is a reality check that can be done with regards to tax payment in India and it can throw up staggering details.

The agricultural class and religious centres do not have to pay taxes, the business class evades tax as much as they can, and unemployed people and people below the poverty line cannot pay tax. So where does the majority of tax money come from? Just the working middle class. What is their % of the total population of India? 20% max. So taxes from 20% people run the entire country and also supports the rest 80% of the population.

There is another catch here. There is no country in the world that is free of corruption. In developed countries, 80% of taxpayer’s money goes back into the development and maintenance of the infrastructure, and 20% goes into corruption which happens at the highest levels. In India, the percentages are just the opposite. 80% of the money goes into corruption from the grass root to the highest levels, and with 20% of the money, we have still developed so much. Imagine where 80% could have taken us. The black money ends up in the black hole which is lost forever. Some of it is being speculated to be flowing back into the country as FDI.

A scam is like a fashion statement now. Everyone is trying to pull off scams in their own ways. Nigerian scamsters are constantly sending spam emails to trick unsuspecting victims. One reason why the erstwhile Congress government fell away in the 2014 elections was that many of the scams that happened under the noses during their ten-year regime were brought to light. But no political party can wash their hands off and plead innocence here.

For a big scam to succeed, the entire system has to be corrupt, and corruption can nurture where there is unaccounted money. So it all ties together. The recession of 2008 was completely scam driven. Just like black money fraudsters, these scamsters find loopholes in the banking and financial systems to avail massive loans and get away from paying them back resulting in financial collapses of banks and other lenders. Vijay Mallya is the biggest fish under the scanner now, and now a new one called Nirav Modi has leapt into the limelight in the past week.

Banks in India are struggling to contain loans of all categories from becoming NPAs. Most of their pain is because of business loans that become NPAs, and they are simply not able to get even their principal amounts back. This is how the corrupt system rears up its ugly head here. All loans are disbursed through one of the branches of the banks. For normal loans, branches initiate strict checks and ensure that either through timely repayment or recovery procedures, loans can be closed. But business loans never go through the same channel of verification. The top-level executives of the banks are connected to the political and business class, so they ensure that loans are disbursed without enough verification because it is common knowledge that such loans will never pass a thorough verification.

No business deals are completely clean and transparent, so business loans will also have a dark side to it. Vijay Mallya reportedly told the lending banks that Kingfisher airlines was running on losses and there was no way he could turn it around but the lenders kept pumping in more cash with the hope of making it profitable again. I am not aware of Nirav Modi’s background yet. If dug deep enough, he may be connected or related to the top 1% of the population who call themselves the elitists who control all the major businesses and financial institutions in their countries. Without such connections, it is impossible to pull off such big scams and escape from the country so easily.

Now, what is the impact of black money and scams on the country’s economy? If the GDP numbers are good, it indicates a thriving economy where people are earning and spending more, and this translates to substantial cash flow in the system. The central banks increase the quantity of currency based primarily on three critical factors:
1. GDP growth rate
2. Bullion reserves
3. Foreign exchange (FOREX) reserves

When the GDP growth rate is good, central banks get enough cash flow to buy gold and silver and expand their bullion reserves. When international trade is on the upswing, FOREX reserves will grow. Central banks use bullion reserves to settle an international debt and also lends to bullion banks which in turn does trading in the precious metals market thereby generating cash flow. This entire cash flow gets adversely affected when money goes missing through laundering and scams. Central banks will have to lend out more from its bullion reserves to stimulate cash flow thereby shrinking the bullion reserves. A reduced cash flow will affect trade and stall the growth of FOREX reserves. All of this will decrease GDP growth rate and reduce the value of the currency which in turn will shrink the FOREX reserves. Central banks cannot simply print more currency notes because it will lead to inflation.

Back in 2014 during the heat and din of the general elections, when the present PM was claiming to bring back all the laundered black money stashed away in foreign banks, the present CM of Delhi had let out pearls of wisdom to the people and to the media which no one had cared even to hear. He had said that the need of the hour was first to stop any further laundering of black money. There are banks in India that aid the flow of laundered money to foreign banks. These banks have to be neutralized first, and their operations have to be decapacitated. Going after stashed money is the next step. The system we are all in is a Matrix, and no one bothers about anyone who goes against the system. So a Vijay Mallya or a Nirav Modi will be in the limelight time and again. I am sure there are gigantic fish with billions or trillions of dollars in debts to banks but are happily living their lives because they are well protected by the system. This is where the imbalance in the economic structure of capitalism has taken the world to. Nothing exemplifies this better than a palatial mansion in Mumbai right in the middle of a large slum area.

Now how does any of all of these matter to the common people? It does, but no one has time to know about it or ask questions. A struggling economy fraught with inflation and unemployment means people have to constantly and tirelessly work to find ways to make their ends meet and find even an ounce of prosperity.

This effectively neutralises the educated middle class, the ones who are most likely to understand what is going on and ask questions. Questions are the biggest threat to the system to engage people to a level where they do not even have time to understand what is going on. Use the media to blank out truth and reality from the public. Keep the rural population largely illiterate and maintain unemployment and BPL levels. Politicians effectively secure their vote banks, and the elitists have total control over the system.