India’s Q2 GDP growth was reported to be 4.5%, the lowest in six years. Much of the country’s slowdown woes can be ascribed to the liquidity squeeze caused by the financial system’s asset quality strain, which in turn has been caused by, amongst other things, the challenges in the real estate sector. Turns out, the real estate issues have resulted in another set of scams in the country – as the attractiveness of real estate as an asset class has waned in recent years, opportunities opened up for scamsters to lure investors who were in search of an alternative investment avenues. Thus were born credit cooperative societies, the hub of which appears to be Rajasthan’s capital city of Jaipur.
“The PACL scam amounting to an estimated 49,100 crore—considered to be one of the biggest chit-fund scams in the country affecting nearly 56 million investors—hides a larger tale about a silent transformation that has been under way in Rajasthan.
Hints about that hidden tale tumbled out a few weeks ago when the National Crime Records Bureau (NCRB) released its long-delayed 2017 report documenting the nature of crimes across the country. Surprisingly, the rate of economic crimes (cases per 100,000 people) in Rajasthan’s capital city, Jaipur, topped even Delhi and Mumbai. Despite having only one-sixth of the population of Mumbai, the pink city recorded almost as many cases of economic offences as the country’s financial capital (about 4,400 or 12 cases a day). In 2017, Rajasthan also accounted for the highest share of economic crimes (cases of forgery, cheating and fraud) in the country, pushing the more populous Uttar Pradesh to second place.
How and why did Jaipur become the country’s economic crime capital? And what does it say about the nature of economic transformation that is currently under way in India’s emerging cities?
…Due to its proximity to several economic corridors, in Rajasthan, the credit bubble was inevitably linked to land, at least initially. PACL’s business model, for example, was to buy tracts of agricultural land using investor funds and hope for a swift appreciation in value. It worked well as long as land prices soared. And then came demonetization.
The widely-held perception in Jaipur’s business community is that once the real estate-fuelled economic growth bubble went bust around 2016-17, people who used to invest in land began to park surplus money in credit cooperative societies, which promised roughly the same returns that land speculation used to. Here, the Rajasthanis’ innate ability to take risks came into play.
“Rajasthanis are genetically disposed to accumulate wealth despite the desert conditions—to make money out of nothing. Personal wealth creation comes naturally to them,” says D. K. Taknet, author of The Marwari Heritage and a business historian.
Insiders in Rajasthan’s state police department say that around 2016-17, the rate of economic offences started to spike. Police claim that several key players in the erstwhile booming real estate sector, which was filled with a network of dubious people, spilled on to other fields—with some even launching credit cooperative societies of their own. The number of those duped over the past few years in the state is now estimated to be more than 500,000.”

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