core sector communique

From Fishery to Film City – selling dreams, duping the dopes.

A recession is gnawing in at the backdrop. The Rupee is in a free fall. The Core Sectors of the economy have been dealt with a body blow. The flow of money has been halted at all possible points. Salaries are being delayed, at places even cut. Fresh Investments are being withheld and the global economy, pundits opine, is tottering towards the edge. These are indeed troubled times.

Switch on the television, to any regional news channel and you will be immediately inundated by an overdose of advertisements – from fisheries to film cities, from resorts to restaurants, from toothpaste to paints – each by a “Group of Companies”.

Who exactly are these “group of companies”? What do they do? Where are they getting such funds to straddle the airwaves, even when the MNC FMCG companies get on to the back foot? Welcome to the sinister world of Multi Level Marketing, aka chit funds aka group of companies.

According to the Wikipedia, Multi-level marketing (MLM) is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of others they recruit, creating a down line of distributors and a hierarchy of multiple levels of compensation. Other terms for MLM include pyramid selling, network marketing, and referral marketing. The system works as in the case of house hold goods the intermediaries are removed, their part of the commission going to the direct sellers.

Most commonly, the salespeople are expected to sell products directly to consumers by means of relationship referrals and word of mouth marketing. Some people use "direct selling" as a name for MLM, although MLM is only one type of direct selling, which started centuries ago with peddling.

“It is anybody’s guess about the number of MLM players operating in West Bengal today, a conservative estimate would be in the region of 4,500 plus” said a MLM functionary who did not wish to be identified. “The primary difference between those operating out of West Bengal and stalwarts like Amway being the fact that, here companies are using the chains to raise monies from the market, which to put things bluntly, is illegal in capital letters.”

The idea is simple – create your chain to reach out to the remotest corners, to the lowest rungs of the economic pyramid and collect the scattered savings – at times as low as a Rupee daily – to build the kitty. But at what cost, you wonder? Is it viable to collect such small savings? “Who cares”, says the MLM operators, “as long as the cash keeps tickling in.” But care they should, for as one accountant explained, the cost of collecting such funds is as high as 50 percent to the companies as they have to pamper the chains with “incentives” and buy peace from the local authorities that be.

“If you are spending INR Rs 50 to raise INR 100, you are in effect undertaking to refund INR 200 after the stipulated period, which is four times the amount you have in your hands to play with!” The field of deployment – which is honestly capable of providing such returns, is, at least on a consistent basis, non-existent!  

“Are you saying that these are businesses, which are void ab initio” I ask? “if not void, certainly doomed to fail” said the accountant, going on to add, ‘the basic tenet of all MLM schemes, that you move recruiting and selling ad infinitum is wrong as sooner or later you are bound to reach infinity.”

“It is akin to being in the business of digging successively bigger holes to fill the earlier ones. As the cost of digging and the return generated by deploying the soil will never meet, at any point of time, there will be the last hole unfilled. This unfilled hole, and the fact that the very business of digging holes is illegal, will attract the hungry hounds who will gnaw and growl at the gates, constantly putting you on the edge and adding to your costs” he continued.

This perhaps explains the mad rush of such companies to either flood the media with advertisements, or better still, to reinvent themselves as media houses itself. “Yes, having an in house publication certainly helps. Apart from the intoxication and the glamour of the media, it also acts as a big shelter from those who think that you are on to easy money and therefore can be cowered into paying up.”

As a matter of fact, almost all the new publications that have come up in the near past can be traced back to some MLM company or the other. The media connection also paves way for entry into the world of politics which, the owners think, is the first step towards political patronage and the license to continue killing.

The idea is to continue growing your chain beyond a certain point, which will give one enough leverage to pass oneself off as a marketing company. Cheap handsets from China, bed covers from sick units, travel options, insurance policies, even sack load of potatoes – everything can be pushed down the collective throat of the “associates” cooking up the books to paint the picture of a thriving, vibrant business conglomerate.

There are other striking resemblances too. Each one of these companies seeks to project their owners as “visionaries, who were moved by the pain of unemployment, especially in the rural areas and dedicated their lives to generating employment opportunities where they are needed the most – the grass roots.” Once they set out to meet their life’s mission, they invariably seek to take a “holistic approach” to business and enter the world of “construction, eco tourism, media and entertainment.” Forays into “milk products, piggeries and poultry farming” follows in quick succession as are a flurry of awards (which can be bought off the shelf if you already did not know), the crowning glory being one that is given away by none other than the Bengali diasporas in the good old US of A, organized by (you got it) a mainline Bengali daily or the other.

The critical mass is attained when you have so many damn business associates (read hapless foot soldiers in your chain) that any Government will be forced to think twice about the political fallout of rubbing you the wrong way. Skeptics point at a certain insurance policy peddler at whose annual meets, held in the Netaji Indoor Stadium, space becomes a constraining factor, such is the reach. “Some prominent politicians, cutting across party lines are among his associates” naturally, he has reached the stage where he gets the ears of those that be.

“However, till you reach such a stage, one has to put on the flashiest best. Multiple gold chains around the neck, preferably another one in the wrist, a mandatory suit (the more garish the better), golden spectacles and white shoes being the customary uniform which somehow wows that agents who make their pilgrimage to the head office from far flung collection centers. Psychotic hanger on’s who mouth platitudes about the selflessness and leadership qualities of the boss, along with blown up pictures of nubile starlets occupying space with the beaming boss add to the effect.  

Such is the flamboyant audacity of the perpetrators of this scam (insiders are putting the figure of upwards of INR 40,000 crores) that even a letter to the Prime Minister by the enfant terrible of congress politics Sri Somen Mitra (now a TMC MP) has failed to cut ice.

Somen Mitra is alleged to have urged the PM to take immediate steps to curb these “unprincipled companies.” “These chit funds are collecting deposits mostly from the guileless rural and semi urban public, unrestrained by any regulatory administrative mechanism, luring them with promise of sky-high returns,” he wrote.

According to him, a fair portion of these funds are channeled into real estate and other high risk ventures such as film production, media, and hotel industries. In his letter to Manmohan Singh, Mitra alleged that “these chit funds do prosper with patronage of politicians who have even helped some ‘chit fund’ owners to enter the illustrious House of Parliament.”

When asked about this allegation, Mitra justified his claim by saying that some of the MPs from West Bengal were either in the board of some chit funds, or regularly getting lucrative fees from the chit funds against some unspecified services.

While narrating the negative role played by the chit funds in the state, Mitra warned in his letter to Prime Minister that “if corrective action is not taken in time, the guileless rural and semi urban segment of West Bengal will soon be exposed to heavy losses.”

It will not be out of place to mention here that it is not the first time that the chit fund business has become a cause of concern in the state. In the early ‘80s thousands of people lost their life’s savings when a chit fund ‘Sanchaita’ went bust. The company’s managing director died in mysterious circumstances in police custody. In the 90’s also a number of chit fund companies suddenly wound up their business and their proprietors went underground causing many people lose their savings. Bengal with her high rate of savings in the rural sector, and easily gullible population has always been the happy hunting ground of charlatans and the faster these crooks are exposed the better. 

It will not be out of place to state here that the previous Finance Minister of the state, Sri. Ashim Dasgupta had gone on record umpteen number of times, threatening these funds with dire consequences. His dislike for this mode was universally known however despite his best intentions (and efforts) he could not make much headway against them, some say because of the strong lobbying power of the funds who bought out support from within the party. Allegedly, a bill passed in the Assembly for protection of investors in financial establishments in 2009 is still awaiting the President’s nod.