By D Raja
On February 18, 1958, T T Krishnamachari (TTK), the then finance minister of the Union government, resigned from his cabinet position. What led to his resignation was the LIC-Mundhra Scam, in which the newly formed Life Insurance Corporation of India invested Rs 1.26 crores in the firms controlled by Haridas Mundhra, a Kolkata-based industrialist.
It was alleged and proven that the LIC invested in Mundhra firms at an overvalued price to help the troubled businesses owned by Mundhra. The charge against TTK and the LIC was of cronyism. The allegations being made today against the Adani Group and their proximity to the incumbent regime have uncanny similarities with the LIC-Mundhra scam. We must look back and draw parallels between the Mundhra scam and what is happening now. It is important that the people of the country recall the lessons learnt back then.
Investigative journalist and able parliamentarian, Feroze Gandhi brought to the fore the irregularities and corruption in the private insurance sector through his maiden speech in the Lok Sabha in 1955. The charges he leveled against Ramkrishna Dalmia of the Dalmia Jain Group were proven and led to a two-year jail term for him. The extent of corruption in the private insurance sector was such that the Nehru government had to nationalise over 250 private insurance companies and thus, formed the Life Insurance Corporation of India through an Act of Parliament. Due to this, Feroze Gandhi called LIC “a child of the Parliament”. It’s saddening that it is being made to be the instrument of cronyism again, forgetting the Mundhra scam.
In June 1957, the LIC invested over Rs 1 crore in six companies owned by Haridas Mundhra. The invested amount looks small now, but at that time it was the largest investment that the newly formed LIC had made. However, the investment committee of the LIC had not been consulted before taking the decision.
Feroze Gandhi, who was on a crusade against institutional corruption, broke ranks with the Congress benches and rose against the government led by his father-in-law Jawaharlal Nehru and exposed the scandal in Parliament. The Nehru Government ordered the M C Chagla Commission to probe the scandal and the commission did its job in a remarkable time frame of 24 days. Its hearings were public and conducted transparently. The commission found the allegations to be true and the finance minister T T Krishnamachari had to resign. His proximity to the Prime Minister did not save him from fierce scrutiny and accountability.
In the early 1990s, another financial scam shook the Indian economy. CPI Leader Gurudas Dasgupta exposed several irregularities in the stock markets relating them to the tainted stockbroker Harshad Mehta. The P V Narasimha Rao government had to form a Joint Parliamentary Committee (JPC) to probe the allegations which led to the complete exposure of what remains one of India’s biggest financial frauds. During the investigation, the then Minister of State for Commerce P Chidambaram resigned after disclosing that he owned shares in one of the several dozen companies being investigated as part of the Harshad Mehta Stock Exchange scam. Several individuals and institutions close to power centres were examined by the JPC and many were found complicit. The investigation also led to a complete overhaul of market regulations in India, and accountability mechanisms were put in place.
Coming to the revelations that have surfaced from the murky waters of the Adani Group, one thing is clear: transparency and accountability, both are lacking. According to the Hindenburg findings, almost all listed companies that are part of the Adani Group are seriously overleveraged and overvalued. In at least two Adani companies, the relationship between price and earnings is more than 800 times which is significantly greater than the industry average. Promoter ownership is just under permissible limits. These simple facts, put together, present a picture of a conglomerate which is opaque and worthy of closer scrutiny.
Coming to Gautam Adani — according to Forbes, his net worth was estimated at 6.4 billion dollars in 2009. This grew to 7.1 billion in 2014 but more than doubled to 15.1 billion dollars in 2019 when the Modi government completed its first term in office.
Thereafter, Adani became the second-richest person on the planet with a reported networth of 124 billion dollars adding 47 billion dollars to his fortune only in 2022. Whether it was gaining airport operations without any experience, getting mines in Australia or getting power contracts from Bangladesh, Adani’s name was everywhere.
This extraordinary concentration of wealth of one individual is indeed concerning. His overvalued companies are a threat not just to institutional and retail investors but are also against the interest of the country as a whole due to the gain the Adani Group has made in several key sectors like defence.
Premium and leading financial institutions like the LIC and SBI have significant exposure to the Adani Group which can endanger the financial integrity of the country. Both the LIC and SBI have tried to underplay their exposure to Adani, showing that they have a diversified portfolio. However, the question of keeping too many eggs in one basket does not arise here since the basket itself seems to be rotten. The demand to probe this rot by a Joint Parliamentary Committee is completely justified. The truth must come out, and no one should be afraid of it. Initiating the Lok Sabha discussion on the Mundhra affairs, Feroze Gandhi had said, “When things of such magnitude, as I describe to you, occur, silence becomes a crime.” If we need to know what occurred and how, if we are to fix accountability, then a JPC is required. (IPA Service)
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