So far, , Kerala and West Bengal seemed to have two things in common — a fondness for soccer and sea-food. Now, we can add ‘scams’ to that list. The solar scam was unearthed in Kerala months after the Saradha chit fund collapse in West Bengal. It has all the elements of a typical financial scam — a claimed allegiance with politicians and exotic returns promised on even more exotic projects.

History of scams

The irony is that these have occurred in a State with the highest literacy ratio. It is apparent that literacy does not necessarily mean financial literacy.

It is not that scams are new to God’s own country. The palmolein oil case, where irregularities in the import of palmolein through the Power and Energy Limited Company; the SNC Lavalin scandal in which renovation of three hydro-electric projects were made despite the recommendations of the Central Electricity Authority (CEA) to only upgrade the capacity of these projects; the Idamalayar case which alleged that there was a loss to the State electricity board by awarding contracts for the construction of a power tunnel and surge shaft at extraordinarily high rates are some instances.

Sometime back, Apple-a-Day properties, a real-estate developer, attracted customers with their cheque books in hordes by printing colourful brochures and arranging live music concerts in hotel rooms promising five-star apartments with seven-star facilities at three-star rates. All that the prospective buyers got were zero stars.

Getting carried away

The solar scam was perpetrated by two known scamsters who lured people into paying significant sums of money, promising stellar returns from solar and wind energy projects.

They also laid claim to the fact that the scheme had the blessings of the Chief Minister, whose open office style of functioning and human resource skills seem to be going against him in the case. Employees at the chief minister’s office have been sacked as they were in regular contact with the perpetrators.

There seems to be shades of a Ponzi scheme too, as the scamsters also sought deposits, posing as employees of the Asian Development Bank. The deposits were a sort of security for loans to be granted by the bank.

The fact that ADB officials do not traverse Indian streets seeking deposits does not appear to have raised a red flag with anyone.

However, it is not too difficult to fathom why people invest in such schemes — the returns promised offer an excellent hedge against inflation and beat the dull returns from fixed deposits, other traditional modes of investments and the eccentricities of the stock markets.

Caveat emptor

The learnings from such scams are as old as history itself. Any scheme that promises exotic and stellar returns needs to be looked at with a microscope, especially if the returns are from investments in not-so-normal assets such as teak trees or solar panels. It is easy to be hoodwinked into any scheme that has political patronage, but there is enough historical anecdotal evidence to prove that while the scheme may sound good, the motives behind it could be ulterior.

Insurance companies would shy away from insuring claims against such financial losses as the diversity and regularity of such occurrences vitiate the very concept of insurance. Even if they do bring out such policies, there would be impossible terms and conditions to fulfil and the premium would be prohibitive.

The timeless doctrine of caveat emptor (Let the buyer beware) would apply to all contracts, even ones in which significant sums of money have been lost.

This may not be the last of the scams we hear of, but every scam reduces the number of people who could be misguided with another. The sheer population of India makes this a time-consuming task.

Over a period of time, investors would realise that staid, but regular, returns from the usual fixed deposit with the neighbouring bank are better than dubious promises of doubling one’s money from an exciting, far-flung solar panel project.

(The author is Director, Finance, Ellucian.)

Related Topics