Are India’s Probing Agencies Becoming Political Puppets?

Last month the Jammu & Kashmir People’s Democratic Party (PDP) president and former chief minister Mehbooba Mufti said the Centre was “weaponising” central investigating agencies such as the Central Bureau of Investigation (CBI), National Investigation Agency (NIA), and the Enforcement Directorate (ED) by using them to probe and harass her, her friends and family, and her party leaders. She scathingly remarked that the ruling regime, led by the Bharatiya Janata Party (BJP), was using these agencies as its “mistresses” to target her and her party.

Jammu and Kashmir is now administered as a Union Territory under the terms of Article 239A (which was initially applied to Puducherry is now also applicable to the Union Territory as per The Jammu and Kashmir Reorganisation Act, 2019) of the Constitution of India. Before that Act was passed, J&K was administered by a coalition government that was formed by an alliance of the PDP and the BJP. That alliance was ill-fated and in June 2018, it broke down, leading J&K back to Governor’s Rule.

Ms Mufti’s remarks alleging that the Centre is using the government’s investigation agencies to target the ruling regime’s political opponents is not an isolated one. This is not the first time that CBI, NIA, ED, and other central investigative agencies have been accused of being used politically by ruling regimes in India. The CBI is India’s premier investigating agency and functions as a national investigating and security organisation as well as an intelligence agency; the NIA acts as the Central Counter Terrorism Law Enforcement Agency; and the ED is a law enforcement agency and economic intelligence agency that is responsible for enforcing economic laws and fighting economic crime in India.

Targeting political rivals or opposition leaders by using the services of such agencies is not new in India. Successive ruling regimes have been observed to have done it. However, the rising concerns are about the alleged spread of the practice since 2014 when the incumbent BJP-led coalition came to power at the Centre and, subsequently, was re-elected in 2019. The BJP’s clearly-stated objective is not only to make India emerge as a country “freed of the Congress” (Congress mukt Bharat, in Hindi) but also to wrest control in as many of the Indian states as it can. So, its political rivals include, not only a national party such as the Congress, but also several regional parties that hold sway in the states.

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The first of the apparently politically-motivated actions by investigating agencies during the BJP-ruled regime began early. Soon after the BJP-led coalition came to power in 2014, investigative agencies swung into action. There were raids at the Delhi chief minister (and vocal opponent of the BJP) Arvind Kejriwal’s office; and old cases against Uttar Pradesh’s Samajwadi Party leader Akhilesh Yadav and Bahujan Samaj Party president Mayawati were revived. In 2019, just before the general elections, the CBI raided the Kolkata police commissioner’s office without a warrant in what was an action quite clearly directed at undermining the Trinamool Congress’ Mamata Banerjee who is the chief minister of West Bengal and also a huge critic of the ruling regime at the Centre.

The list of such political targeting by investigative agencies is long. In 2019, former Haryana chief minister, Bhupinder Singh Hooda, faced raids in connection to old cases of alleged corruption in land deals; Congress MP and political secretary to Sonia Gandhi, Ahmed Patel (who passed away in 2020) was linked to a money-laundering scheme in Gujarat; and the homes of leaders close to the Biju Janata Dal leader and Odisha chief minister Naveen Patnaik were raided before panchayat elections in that state. These are only a few examples of what Indian political parties, particularly those who oppose the BJP, call “political vendetta” against them. Last month, when the ED summoned a Shiv Sena leader’s wife in Mumbai for questioning in connection with a bank fraud, the party’s workers put up a banner in front of the city’s ED office, which proclaimed that it was a BJP office.

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It should not be anybody’s case the charges that are levelled by the investigating agencies against opposition politicians are rigged or false. Some (or perhaps, even all) of them may have some basis for investigation. But it is the concerted manner in which the agencies are used that is of concern because it smacks of government interference in the role of the agencies that are supposed to be autonomous and apolitical.

One of the most high-profile cases was the one involving former finance minister P Chidambaram in 2019. He was accused of being involved in the INX Media scandal. Chidambaram was charged with allowing an irregular transfer of overseas funds to the media company. Chidambaram was arrested and the CBI tried to extend his custody many times. But that case has now gone nowhere.

That is the other thing. Many of the cases on which investigative agencies have based their actions against opposition political leaders have either died down, reached a dead-end, or not been pursued after the initial raids, arrests, and so on. While that could reinforce the opposition parties’ allegations that the ruling regime is using the agencies for political vendetta, the more serious issue is about what such a practice could do to the reputation and autonomy of India’s central investigating agencies, which are, by law, meant to be non-partisan, apolitical, unbiased, and independent. If these institutions and their functioning are prone to political interference, not only will their functioning be eroded but Indians will lose their faith in the establishment and its ability to function without fear and favour.

Yes Bank Debacle & Crony Capitalism

The recent debacle of the Indian private sector bank, Yes Bank, whose board was suspended and superseded by the Reserve Bank of India (RBI), once again brings into sharp focus the extent and depth to which crony capitalism continues to prevail in the country’s economy.

Yes Bank was founded in 2004 by Rana Kapoor and his brother-in-law, the late Ashok Kapur. Early this month, the Central Bureau of Investigation (CBI), registered a criminal case against Kapoor, who was the CEO of Yes Bank; Dewan Housing Finance Ltd. (DHFL), a non-banking financial services company; and its promoter, Kapil Wadhawan. The CBI charged them with criminal conspiracy, cheating and corruption under the Indian Penal Code and the Prevention of Corruption Act.

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The allegations are that between April and June 2018, Yes Bank subscribed or invested Rs 3700 crores in DHFL’s short-term debentures. This financial assistance subsequently turned into non-performing assets as the bank was unable to recover the funds. More seriously, the allegations are that in lieu of the amount extended to DHFL, a company, Do it Urban Ventures, promoted by Kapoor’s three daughters, and received kickbacks in the form of loans amounting to around Rs 600 crores. In other words, the CBI alleges that Kapoor and DHFL entered into a conspiratorial quid pro quo: DHFL got the assistance (that have now turned into bad loans) and he and his family benefited from the kickbacks.

Rana Kapoor in custody of Enforcement Directorate

The agency has alleged that Rana Kapoor extended financial assistance to DHFL to get substantial undue benefit for himself and his family members via companies held by Kapoor and his family. On March 5, India’s central bank, the Reserve Bank of India, announced that it had suspended and superseded the board of Yes Bank. Customers were prevented from withdrawing more than Rs 50000 from their accounts and rating agencies downgraded the bank’s core bonds.

Yes Bank’s debacle turns the focus sharply on the continued prevalence of crony capitalism in India’s economy: an unholy nexus between banks, financial institutions (FIs), and business enterprises. Banks and FIs—and not only privately owned ones—in India are known to have cosy relationships with promoters of large and medium sized Indian companies and quid pro quo arrangements of the sort that Kapoor and Yes Bank are accused of are not uncommon. Rather, it is quite the opposite. Examples of misuse of bank funds are galore in the Indian economy.

One high-profile case is that of liquor baron Vijay Mallya who is currently in the UK while the Indian government is trying to get him extradited so that he can face investigation into charges levelled against him. Mallya is accused of misusing around Rs 9,000 crore (US$1.3 billion), which are loans that his companies, including a now-defunct airline that he started, took from 17 Indian banks. The allegations are that Mallya siphoned off these funds to 40 other companies that he controls around the world.

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In another headline-grabbing case in 2018, the CBI began an investigation into Nirav Modi, a high-profile Indian jeweller, on allegations that he and his partners defrauded the Punjab National Bank of Rs 28,000 crore, which he is alleged to have siphoned overseas by fraudulently obtaining letters of undertaking for making payments to overseas suppliers. Modi is absconding and is believed to be in the US even as the Interpol is looking for him.

More recently, in December 2019, another high-profile executive, Jagdish Khattar, the former managing director of Maruti Udyog Ltd., India’s largest carmaker, was booked by the CBI for charges against him of cheating the Punjab National Bank of Rs 110 crore. That case is still being investigated although Khattar has not been arrested.

These few examples are really the tip of the iceberg. Nefarious deals between banks and influential entrepreneurs abound in India. Not long ago, a private sector steel company was embroiled in a similar controversy when a partly government-controlled financial institution was believed to be lending it vast sums of money although past loans taken by the company had turned into non-performing assets.

The curious paradox about such cases is that in many of the cases, the authorities, including investigative agencies, wake up when it is already too late. In Yes Bank’s case, the RBI has been issuing warnings about financial inconsistencies in the bank’s reports. Doubts about Mallya’s ability to run his airline and manage his finances have been floating around long before he fled India.

The other, more disheartening, aspect of all this is the hagiographical treatment that the media have meted out to some of these controversial promoters and businessmen. Vijay Mallya, now 64, has had countless laudatory cover stories or “puff pieces” about him. Rana Kapoor, an aggressive publicity seeker, has found similar success with the Indian media. Jagdish Khattar was routinely lionised by India’s business press during his stint as managing director of Maruti between 2002 and 2007.

The truth is that India’s institutions, particularly in the financial sector, are prone to misuse—either because of the clout of powerful corporate borrowers or because of complicit bank officials, or both. India’s government has various laws, organisations and agencies that have been established to prevent financial fraud. Yet, with regular frequency, shocking instances of brazen misuse of the financial system come to light. What is needed is a will to break the cronyism that plagues the nexus between financiers and their corporate clients. And when frauds come to light, swift dispensation of justice could work as a deterrent.