Economists allay fears of setback if Bengal chit funds close

Published: 10th May 2013 03:20 PM  |   Last Updated: 10th May 2013 03:21 PM   |  A+A-

With the chit fund catastrophe causing a major public uproar, economists feel even if all shady companies operating in West Bengal are closed down, it would not pose any major setback for the economy, though the already crisis-ridden sectors like service and real estate may be hit.

Sectors like entertainment, travel and tourism, and real estate, they said, will face the heat too, as these dubious firms have major exposure in these sectors.

After the scam-tainted Saradha Group collapsed, people in the know expressed fears that at least 60 fraudulent companies are actively operating in Bengal and might have amassed around Rs.10 lakh crore, five times the state's total debt burden.

Economists believe that a large chunk of this huge amount of money has already gone out of the state.

"The recent growth of our state was primarily driven by the service sector, especially entertainment. In the entertainment segment, the shady firms have major contributions. So after the mess, the service sector may suffer a major setback," Dipankar Dasgupta, former professor of Economics, Indian Statistical Institute, told IANS.

Many firms, which are currently under the scanner of Serious Fraud Investigation Office (SFIO) of the Ministry of Corporate Affairs for allegedly duping depositors, have invested heavily in the Bengali film industry. That is one of the reasons for the recent surge in the volume of films released from the state.

The fraudulent companies, including the scam-tainted Saradha Group which has gone bust, also invested considerably in real estate.

Dasgupta, however, felt that closing down of such companies could cause "some losses" to the economy, but it certainly would not be a major setback.

"The firms which run ponzi schemes have very minimum investment in agriculture and manufacturing sectors. So closure of such companies would not be a major setback for the entire economy. It would surely not shatter the base of the economy, which depends on agriculture, industry and service sectors taken together," he explained.

The investment plans for such companies which raise money from investors for various ponzi schemes include daily or monthly instalments and lump sum investment.

Responding to queries in the Lok Sabha, Minister of State for Corporate Affairs Sachin Pilot had said that the government has received complaints against 64 firms, besides nine Saradha Group companies, for indulging in ponzi or multi-level marketing (MLM) schemes in West Bengal.

The corporate affairs ministry has set up a special task force under the SFIO to carry out all investigations into such companies.

The state government, which set up an inquiry commission to probe the chit fund mess, has already sealed the offices of two companies in Kolkata.

Noted economist Ajitava Roychaudhury said sectors like real estate, construction, entertainment and travel and tourism would be affected much, if chit fund companies operating on a large scale in Bengal close down.

According to Roychaudhury, professor of Economics at Jadavpur University, the closure would also cause a major shrink in rural demand for consumer goods like mobile phones, electronic goods and two-wheelers, as agents would lose employment.

Hundreds of thousands of agents of these illegal chit funds generally mobilised thousands of crores of rupees collected as deposits from investors, mainly from the state's rural as well as semi-urban areas. They worked on the basis of 15 percent to 30 percent commissions on funds they generated, and it was spent largely on consumer goods.

"So if agents lose jobs, it would lead to a sharp fall in rural demand for consumer goods," Roychaudhury said, adding that it would not, however, cause major worry for Bengal Inc. as most of the goods they consume were produced outside the state.

However, a large number of agents of such companies are already distressed with anxious depositors making a beeline to get their money back. A number of agents have already committed suicide, unable to withstand the pressure from the depositors.

Byasdeb Dasgupta of Kalyani University said shutting down of all dubious companies in Bengal would trigger some economic losses, but that would be "temporary".

"Any impact would be temporary. Thus we should crack down on the ponzi firms. If we do not take stern action against these, economic loss would be much higher," Dasgupta averred.


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