Showing posts sorted by relevance for query special report. Sort by date Show all posts
Showing posts sorted by relevance for query special report. Sort by date Show all posts

Tuesday, December 02, 2008

APs New Initiative - Guards Against Terror

By M H Ahssan & Swati Reddy

Political insulation and latest equipment can prevent the State Security Guard from becoming another Octopus.

Reeling under the Mumbai terror attack the Andhra Pradesh government has prompted the establishment of a State Security Guard (SSG) along the lines of the National Security Guard (NSG) to combat terror. But, former super cops and security experts warn that it would be an exercise in futility if it is not a wellequipped, professionally trained force that is insulated from politics in general and politicians in particular.

While some believe such a force will be effective in tackling terror and other disasters, others fear that it could be another model on paper (like the Octopus) or a gimmick to cater to the whims and fancies of politicians.

Experts believe that such a squad needs the armour of sophisticated equipment like laser weapons and night vision glasses, advanced training and adequate funds for tackling terrorist attacks, bomb threats and hostage situations.

But what is the government plan so far? “Initially, a group of 200 SSG cadres for Hyderabad and Cyberabad and about 100 for Vishakapatnam will be required to guard the coastline. They will be equipped with the best equipment and will be trained along the lines of Greyhounds training but to fight urban terrorism. They will also deal with first response services like natural or manmade disasters when not engaged in combat,” says a senior police official, detailing the SSG exercise.

Impressive? Perhaps. But there are several suggestions that former senior officials would like to make from their numbers to their duties. “There is a need for a special force with a special purpose to work round the clock. A group of about 500 men should be raised and trained with special techniques to tackle urban terrorism like the firepower technique that enables terrorists to be flushed out without actually entering the room,” says former police commissioner R P Singh.

Most agree that such a special force would be available at short notice to respond to emergency situations. “The squad should be in a constant state of alert with, ideally, a response time of 30 minutes, unlike in Mumbai where it took the NSG a few hours to reach the spot. In order to do so, regional quarters must be set up to avoid any waste of time,” says former director general of police MV Bhaskar Rao. “The force should operate with focus and shouldn’t be given other jobs and misused for other purposes,” he adds.

Most cops however, admit, that this is a tall order given that even the high profile NSG is treated shoddily when it comes to equipment and protection gear, among other things.

However, it hasn’t stopped a handful from hoping that the SSG will be insulated from external influences, largely political. Others feel that it would be difficult to keep the two apart and with elections approaching chances are that they would be reduced to security guards of politicians. “Even if the squad is exclusively meant for a particular job it would always be under political influence,” feels former director general of police R K Ragala.

Bhaskar Rao adds for good measure, “Skilled black cat commandos are engaged to guard politicians in times of emergencies. This is a gross misuse of their abilities. Politicians should stop using police machinery for personal purposes.” He goes on to suggest that the move would be most effective if the government puts an act in place that specifies clearly the role of this new force and its functions.

Nevertheless, heads of prominent establishments in the city, particularly star hotels and multiplexes, welcome this initiative of the state government and say a highly trained and motivated force of individuals with the best of equipment is the need of the hour. “If two to four commandos visit the hotels on special occasions, even if they are in plain clothes, it makes a lot of difference. It would effectively convey the message across that there is high level security. Also they should be asked to take a tour of hotels so that they can get acclimatised to the surroundings and become familiar with their layout,” feels Veer Vijay Singh, president, Hotel and Restaurant Association of Andhra Pradesh.

“Although we undertake strict security checks we would still appreciate the functioning of a special security team as it would ensure extra protection,” T Srikanth, general manager (operation), Prasads Imax.

SSG not the first of its kind: Hyderabad has been on the target of terrorists since 1992, the year Babri Masjid was demolished. The following year in December the city witnessed a series of tiffin bomb blasts.

Also, in the early nineties the city police came to know about the infiltration of some Kashmiri militants and for the first time AK47 was used to gun down a Special Intelligence Bureau SP in Tolichowki area.

The city in 2005 experienced the first ever suicide bomb attack at no ordinary place but the Task Force headquarters of the city police. In 2007 the roots of the city were shaken when terrorists exploded three bombs, one in May at the historic Mecca Masjid, two in August at Lumbini Park and Gokul Chat Bhandar, killing about 60 innocents.

For the last 16 years the police has been talking about the existence of terror modules, sleeping and otherwise, in the city. Besides, the city has also been on the hit list of Leftwing Extremists who have killed two senior IPS officers, in the same period in the city.

But the responses of the political leadership and police bosses have never been concrete. The politicians, cutting across party lines, have shown no comprehension of the magnitude of danger lurking over the city. The police, on the other hand, demonstrated little ability to read the writing on the wall and kept repeating the same old rhetoric of manpower crunch and budgetary constraints.

According to sources, between 1990 and 1993 when H J Dora was the city police commissioner he had announced the formation of City Guards. It was a team of 60 well trained boys that later fell to politicking in the police and the indifference of politicians. The City Guards exist no more.

Following last years’ bomb explosions, the government, after obtaining a comprehensive report from the then director general of police M A Basith and his team, had announced the formation of Octopus. At that time some senior officers had pessimistically said that the announcement was nothing more than cooling down the frayed public temper. Unfortunately, that pessimism turned out to be true.

Octopus, the elite force to fight urban terrorism, has strong components of operation and rescue teams. The Octopus plan envisages vigorous training and as well as high value weaponry for these teams. Why should the government waste taxpayers’ money in setting up a new force, State Security Guard, when it can revive the Octopus, internal security experts ask?

Another example of insensitivity of the ruling party and the top police echelons is the transfer of a battle-ready Greyhounds unit from Hyderabad to Gandipet and beyond.

According to a source one Greyhounds unit comprising about 30 highly skilled young men had always been kept ready at its former headquarters in Begumpet. The members of this unit can start leaving their location in their own special vehicles within five minutes of notice. The men in this unit have the training to secure an endangered place and tackle hostage situation. In spite of the IG Greyhounds insisting that the unit should be allowed to stay in some place in Hyderabad, the Director General gave it marching orders, sources said.

In a situation like this what is required on the part of politicians and the police officers is the understanding of the need to have a specialised force in the city to combat terrorists and raise it as quickly as possible. Only that kind of action would restore the faith of public, nothing less, analysts said.

Saturday, March 30, 2013

'Too Many Spooks Spoil The Case'

Liaquat Shah’s case is a symptom of the colossal anti-terror mess. Dozens of agencies, turf wars, power centres, crossed wires. Is the NCTC the answer?

On22 March New Delhi woke up and counted its blessings. Officers of the Delhi Police Special Cell claimed they had averted a major terror strike by arresting Hizbul Mujahideen commander Liaquat Shah on the Indo-Nepal border near Gorakhpur in Uttar Pradesh. A cache of arms and ammunition, including AK rifles and grenades, too had allegedly been recovered from a guesthouse in old Delhi. As 24×7 news channels showed a haggard-looking man, shouting his innocence, in the grip of gun-toting Special Cell men, the National Capital Region and perhaps the whole country heaved a sigh of relief. Memories of the twin blasts that rocked Hyderabad on 21 February were still fresh in their minds.

The police claimed that Liaquat, a resident of Kupwara in Jammu & Kashmir, had slipped into Pakistan-occupied Kashmir in 1997 and received arms training. They said Liaquat had returned to oversee a terror attack to avenge the hanging of 2001 Parliament attack convict Afzal Guru.

The terror story ruled the airwaves for a few hours before it exploded in Delhi Police’s face. As soon as news of Liaquat’s arrest went public, his family and the J&K Police debunked Delhi Police’s claims. According to the J&K Police, Liaquat was a reformed militant coming home to start a new life. His relatives claimed they had notified the cops on 5 February 2011 about Liaquat’s planned surrender. The route that he had taken, entering India through Nepal, is the most preferred one for reformed militants and many who availed of the state’s surrender policy had used it.

J&K Police also claimed that two policemen had gone to Gorakhpur to pick up 9-10 people, including Liaquat, and had kept the Intelligence Bureau (IB) and the Delhi Police in the loop. When the handover happened, the J&K Police allege that the Delhi Police didn’t allow them to take Liaquat into custody. Two days later, he was paraded as a terror mastermind.

However, a Delhi Police officer begged to differ and made some counter-claims.

• If the J&K Police had received the surrender application in February 2011, then why did they file an FIR against Liaquat in March for waging war against the nation?
• Why is the J&K Police refusing to reveal the identity of the two personnel who had gone to pick up the contingent?

The Delhi cop also wondered whether his colleagues were foolish enough to jeopardise an operation in which both the IB and the J&K Police were kept in the loop.

The Kashmir Valley, which was already reeling under curfews imposed after Guru’s hanging, erupted in protest. Chief Minister Omar Abdullah was quick to remind the Centre that Liaquat’s arrest might deal a big blow to its flagship programme aimed at bringing back reformed militants who had crossed over to POK. PDP leader Mehbooba Mufti added that Kashmiris are nabbed without evidence and treated as fodder for rewards and medals.

Two days after Omar made the demand, the Union home ministry announced that the National Investigation Agency (NIA) will probe the curious case of Liaquat.

This is not the first time such claims and counter-claims have exposed the lack of coordination between various intelligence agencies. And it won’t be the last.

As a home ministry official puts it, “Intelligence agencies have a ruthless desire to put one’s interest before everything and make sure they get all the credit. The nation’s interest can go to hell for all they care.”

So, how does one explain Liaquat’s arrest? Was it due to a bad intelligence input or an insatiable greed on the part of the security agencies to have a terror arrest against their names so that their annual confidential report looks good? There are close to 23 security agencies, 35 state anti-terror cells and special units operating in India on hundreds of cases in which people have been branded as terrorists, only to be found innocent after a trial extending from five years to eternity. By that time, the officer concerned has moved on in his life, with a gallantry medal pinned on his chest for exemplary courage. INN has relentlessly chronicled the plight of such innocents, who were falsely implicated. INN has also tracked the alarming chaos and difficulties faced by India’s anti-terror establishment. 

When P Chidambaram took over as home minister after the 26/11 attacks, it was seen as a welcome relief. He touted the National Counter-Terrorism Centre (NCTC) as a magic wand that will rid Indian intelligence agencies of their turf wars. Four years later, the NCTC has turned out to be the biggest bone of contention between the Centre and the states. The fate of Chidambaram’s pet project will be known at the internal security meeting of the chief ministers to be held in Delhi on 15 April. So, with the NCTC’s dilution, are we once again taking one step forward and two steps back in the fight against terror?

“If everybody in the intelligence community had shared inputs, 70 percent of the terror attacks would not have taken place,” says an intelligence officer. “But then, given the stakes involved, it is also asking for the impossible.” This sums up the attitude of the intelligence agencies, who are busy fighting a turf war rather than the war against terror.

When two blasts rocked Dilsukhnagar, a crowded locality in Hyderabad, on 23 February, terror made its first visit to India in 2013. The twin blasts killed 17 people and injured more than 100. What followed was something that has played out again and again after every terror attack.

Within no time, the Union home ministry issued a statement that it had shared intelligence inputs with the Andhra Pradesh government, which they “failed” to assess and act upon. Not wanting to be left out of the action, Delhi Police Special Cell officers told friendly journalists that two Indian Mujahideen (IM) operatives had confessed in late 2012 that Dilsukhnagar was one of the areas where they had done a recce. The officers claimed they had passed on the information. But the AP Police rubbished those claims, saying the intel inputs were not that specific.

Forty-eight hours later, the NIA took over the probe. A crucial piece of information emerged when CCTV footage revealed a man visiting the spot on a bicycle. He was seen leaving a bag and fleeing just minutes before the blasts. Going by the modus operandi, the NIA suspect that IM operatives Tabrez and Waqas, who were part of the 13/7 Mumbai attack, had a hand in this operation as well.

However, 12 days before the blasts, something interesting had happened in Mumbai. On 11 February, the Mumbai Anti- Terror Squad (ATS) had announced a reward of 10 lakh each for information on four IM operatives alleged to be behind various terror strikes across India in the past couple of years, including the 2012 Pune blasts. They were Yasin Bhatkal, the founder-leader of IM and one of India’s most-wanted terrorists, Asadullah Akhtar alias Tabrez, Waqas alias Ahmed and Tahseen alias Raju bhai. For a long time it was believed that Tabrez and Waqas were Pakistanis, but the Mumbai ATS claimed that they were, in fact, Indians.

But the Mumbai ATS failed to disclose that had it not been for a major goof-up, involving the Delhi Police, IB and Mumbai ATS, three out of the four IM operatives would have been behind bars and maybe the lives of the 16 people in Hyderabad could have been saved.

Chronicles of a Terror Foretold
Five cases where lack of coordination among the security agencies cost the country dear 

1. Hyderabad 2013 The 21 February blasts in Hyderabad could have been averted if the Mumbai Police had not arrested Naqi Ahmed Wasi in January 2012. Wasi, a Delhi Police informer, was on the verge of leading the police to Indian Mujahideen operatives Waqas and Tabrez, when he was nabbed for his alleged role in the 2011 serial blasts that rocked Mumbai. Security agencies suspect that Waqas and Tabrez were instrumental in the Hyderabad blasts

2. Kolkata 2009 Indian Mujahideen founder-leader Yasin Bhatkal was arrested by the Kolkata Police in 2009 on charges of carrying fake currency. But he was set free after only a month in jail as he could convince the police that his arrest was a case of mistaken identity. Unfortunately, the police had no way of cross-checking with a national database

3. Mumbai 2008 Despite having concrete intelligence, the investigators could not join the dots, leading to audacious terror attacks on 26/11. The Research & Analysis Wing (RAW) knew of the training and sea movements of Lashkare- Toiba terrorists and the IB had a list of 35 cell phone numbers, but those leads were not pursued. The role of the Mumbai ATS also came under the scanner for its inability to access the information

4. Kargil 1999 The IB had 45 specific intelligence inputs. The most concrete input received in June 1998 said that Pakistan was building bunkers, but it was not shared with everybody. The then RAW chief Girish Saxena was livid enough to put his displeasure on record, saying that the turf war had cost the country dear

5. Purulia 1995 In the Purulia arms drop case, where automatic weapons and ammunition were dropped from an aircraft in West Bengal to be used by a militant group, RAW had the information at least a week prior to the incident. “We gave the information to the home ministry 4-5 days in advance. The ministry sent it by registered post to Calcutta,” says a former RAW official

On 20 November 2011, the Delhi Police Special Cell announced that they had busted a homegrown terror module and arrested six people. They were Mohd Qateel Siddiqi, Mohd Irshad Khan, Gauhar Aziz Khomani, Gayur Ahmed Jamali and Abdul Rahman (all from Bihar) and Mohd Adil (from Karachi). This module was allegedly behind the terror attacks at German Bakery in Pune, Chinnaswamy Stadium in Bengaluru and the Jama Masjid in Delhi.

It was a joint operation by the Delhi Police Special Cell and the IB, but what was not revealed in the press conference was the identity of the seventh person, Naqi Ahmed Wasi Shaikh, who was also arrested. Naqi was a resident of Darbhanga district in Bihar and owned a leather-processing unit in Byculla, Mumbai.

Naqi told the Special Cell that he knew about the hideout of Bhatkal and two other IM operatives in Mumbai and could lead the police to it. Though Bhatkal and his accomplice had vacated the place, they were yet to collect their advance of 1 lakh. The Special Cell had put the phone line of Rubina, the landlady, on surveillance. On 1 January, they got a lucky breakthrough when one of the “Pakistanis” made a call to Rubina, who asked him to call back in an hour. The suspect called after three hours but Rubina told him that she needed more time to return the money. The call was traced to a phone booth in Dadar. The sleuths were confident that they were on the verge of effecting a big breakthrough.

On 23 January, the Mumbai ATS announced to the world that they have arrested two people from Bihar in connection with the 13/7 Mumbai blasts. One of them was Naqi. A stunned Special Cell then leaked the news that Naqi was their informer, triggering a war of words between the Special Cell and Mumbai ATS. The moment Naqi’s arrest was made public, all the clues simply disappeared.

This is touted as a classic case of how lack of coordination, inflated egos and the constant game of one-upmanship are compromising the fight against terror.

However, this was not the only embarrassing story that emerged out of that breakthrough. During the course of interrogation, the revelations made by Mohd Irshad stunned and embarrassed the Delhi Police. Irshad told them that Bhatkal had lived in New Delhi for 8-9 months in 2011.

Bhatkal was married to Irshad’s daughter and was living in the industrial belt of Meer Vihar, in west Delhi’s Nangloi area. When the police raided the area, they found a small ordnance and weapon factory. The locals told police that Irshad and Bhatkal mostly kept to themselves and didn’t interact much with others. The police believe that Bhatkal was in the city even after the 2011 Delhi High Court blast.

But if you thought that the intelligence agencies’ tryst with embarrassment and Bhatkal ended here, think again.

In late 2008, on an alert given by the IB, the Kolkata Special Task Force busted a fake currency racket and arrested Bhatkal. He claimed that he was Mohammad Ashraf from Darbhanga in Bihar and showed a voter’s ID card as proof. The address and other information checked out to be true. After a month in jail, he was let off.

However, when the footage of the German Bakery blast was released by the IB, the Kolkata Police was shocked to find that the person they thought was a petty thief was India’s most-wanted terrorist.

Intelligence officers and security experts agree that in cases like these, if even a little cooperation is extended, big results can be achieved. Bhatkal is not the only case where lack of coordination botched up the case, it’s just the latest.

“The 2006 Mumbai train blast is yet another example of how the lack of coordination led to this situation,” says a senior IB officer. “RAW was aware of the movement of the LeT module, which came to do the recce, and even the IB knew this. However, none of them shared the information with the higher-ups and therefore a golden chance was lost to prevent that attack.”

Months before the 1999 Kargil War, the IB had 45 specific intelligence inputs. In June 1998, the IB had intelligence that Pakistan was building bunkers but they did not share the information with anyone. The result was there for everyone to see.

The disconnect is also illustrated by Riyazuddin Nasir’s arrest. In 2008, a sub-inspector in Bengaluru saw Nasir carrying several car number plates and enquired about it. Unable to get a satisfactory reply, he booked him under a vehicle theft case. In a chance encounter, the SP crosschecked Nasir’s details with the IB, and found that they had arrested one of the country’s most-dreaded terrorists.
Even the 26/11 attacks, one of the most audacious that the country has ever seen, is not without its share of goof-ups.

“We had a lot of information about 26/11 and that too well in advance,” says SD Pradhan, former chairman, Joint Intelligence Committee and former deputy National Security Adviser (NSA). “In 2006, RAW knew that 150 LeT men were undergoing training in water tactics. In June 2008, we got inputs that the Taj Mahal hotel and Leopold Café were going to be attacked. But the biggest problem was that these inputs were with different agencies — RAW or IB or DIA. In mid-November, another input was given to the Coast Guard, Indian Navy and the Mumbai Police that 10-12 people were coming towards Mumbai from Karachi. They scanned the coast but didn’t find anything. Another alert was sounded on 19 November, but they thought they had already checked. There was plenty of intelligence to be acted upon. If only somebody had connected the dots.” Even these inputs were not shared with the NSA.

Incredibly, highly-placed sources have told INN that the cell phone numbers used by the 10 LeT terrorists were available with the IB at least five days before the attacks. The sources shared the contents of a ‘secret’ note that mentioned 35 cell phone numbers. Of the 35 SIM cards, 32 had been bought from Kolkata and three from New Delhi by LeT’s “overground workers”, and sent to POK by mid-November. The precise contents of the ‘secret’ note could not have been more direct. “The numbers given below have been acquired from Kolkata by overground workers and have been sent through Pakistan-trained militants based in Kashmir to POK,” the note said. “These numbers are likely to emerge in other parts of the country… and need to be monitored and the information taken from these numbers regarding the contents of the conversation and call detail records are required for further developing the information. The monitoring is possible at Kolkata.”

Sources reveal that this crucial piece of information was received by the IB on 21 November, at least five days before Ajmal Kasab and his nine accomplices got off the inflatable dinghies on the evening of 26/11. Both the prime minister and the home minister were aware that the numbers were available, but they were not being monitored. The lapse is all the more critical because at least three of the 32 numbers contained in the secret note were the exact same cell numbers that the terrorists used to keep in touch with their handlers in Pakistan. It is possible that the terrorists only activated their cell phone numbers after reaching Mumbai but why were the numbers not put under surveillance despite the knowledge that they had been sent to terrorists in POK?

Former Uttar Pradesh DGP Prakash Singh agrees that had a national commission like the one formed by the US after 9/11 been appointed by India after 26/11, several heads would have rolled.

After 26/11, the then home minister Shivraj Patil resigned and Chidambaram took charge and advocated the NCTC’s formation. However, the plan ran into rough weather. It was scuttled by at least seven non-Congress CMs. The biggest stumbling block proved to be the NCTC’s power structure. That it would be reporting to the IB director and have the power to arrest people without informing the local police made non-Congress CMs see red. After stiff objection, the Centre decided to place the NCTC under the home ministry and clarified that whenever any arrest is made, it will inform the local police. Besides, the DGPs of respective states will be on the NCTC board, so that any action will have their consent or be in their knowledge.

When Sushil Kumar Shinde took over, he sounded out a conciliatory message that until all the CMs’ concerns are addressed, the NCTC won’t become a reality.

Experts like Pradhan feel that since the Indian model of NCTC has been borrowed lock, stock and barrel from the US, there was no need for Chidambaram to change it. The US NCTC makes it abundantly clear that the agency will have no power to arrest or assume operational responsibilities. “The NCTC is a very powerful body. The states are legitimately worried. Only the KGB had the power to arrest and needless to add, it was grossly misused,” he says.

VK Singh, former Joint Secretary (technical wing), RAW, narrates how multiple agencies work at cross-purposes. “After I took over, I had a chat with the army. We knew what equipment the Pakistan and Chinese forces were using and I offered to exchange information. When I told my superiors, they didn’t buy the idea.

“The aim of the NTRO (National Technical Research Organisation) was to bring all technical resources under one umbrella. Everyone is doing the same job, monitoring radio or microwave link. Besides duplication, it’s resulting in a wastage of effort. The aim almost became a reality during APJ Abdul Kalam’s time but RAW refused to play ball. The IB and army also did the same and we were back to square one.”

But former RAW chief Vikram Sood questions the very need for NCTC. “Whenever we are in a crisis, we create a new agency,” he says. “After 1962, we had the ARC and SSF. After the Mizo mess in 1965- 66, we created RAW. In 1971, we won the Bangladesh war, so nothing was created.

In 1999, after Kargil, we created the NTRO. After 26/11, the NCTC proposal came up, which has still not taken shape. Have you thought through the concept? It has to be a bottoms-up, not a top-down system.”

A serving senior IB officer agrees with the potential of misuse. “Even in the IB, there are various stories of misuse,” he says. “After 1977, the Shah Commission had documented the IB’s misuse during Emergency, and this is when the agency didn’t have any power to arrest. So you can understand the fear of these states when the powers of arrest and independent investigation are given to the IB.”

Security experts are also of the opinion that instead of creating more bureaucratic hurdles and agencies, the government should concentrate on beefing up the existing system. “How will the NCTC be helpful in preventing attacks?” asks noted security expert Ajai Sahni. “Show me anything the NCTC brings to the table that does not already exist in the IB or the Multi- Agency Centre (MAC). All they are doing is cannibalising existing institutions to create a new and weak institution. In a country with 1.2 billion people, how can you be successful when you have barely 300-400 people committed to anti-terror intelligence gathering in the IB?”

The crippling shortage of manpower in the IB is also manifest in the response of Minister of State, Home, RPN Singh in the Rajya Sabha on 12 February. Reflecting the apparent state of disarray, he said, “Despite a sanctioned strength of 26,867, the IB has only 18,795 personnel. Nearly 1,500 slots in the deputation quota could not be filled due to non-availability of suitable officers.”

The figures mean the IB is functioning with only 70 percent of the required manpower and the gap is increasing every year. The minister added that the “actual induction figures are much less because many selected candidates don’t turn up”.

But experts like Prakash Singh are in favour of setting up the NCTC as they feel that without it the individual agencies will keep indulging in turf wars. “If the states feel that the NCTC is encroaching on their territory, then why do they ask for Central forces after terror attacks?”

Intelligence experts also question the need for vesting investigative powers with the NCTC when the NIA already exists. The NIA was created in 2008 to ensure that all terror-related investigations are streamlined. Four years later, the NIA is still grappling with internal issues. The government’s seriousness about its creation can be gauged from the fact that the agency was initially operating out of a shopping mall in south Delhi. The agency also got a taste of the turf war during the probe into the 2011 Delhi High Court blast when the police was left fuming after the home ministry transferred the case to the NIA.

“A major flaw in the current proposal is that the sub-structures needed for the NCTC’s functioning have not been included,” says Pradhan. “It must be understood that the mere creation of the NCTC won’t suffice. Unless the sub-structures are created at the state and district levels, it won’t be able to function efficiently.

“There is a need to create district-level collation centres (under district police chiefs) for examining the collected inputs from thanas, which are needed for counter- terrorism. Such inputs should be sent to the subsidiary MACs for examination and integrating related information. These centres should be chaired by the state DGs to ensure that they are fully aware of the developments and place their resources for further action or developments of leads.”

Following the outrage over Liaquat’s arrest, the Centre has announced a new policy framework for the rehabilitation of surrendered militants, as the arrest is seen as a symbol of the lack of coordination among security agencies. In the coming months, the Centre is expected to consult with the states to firm up the policy.

Thursday, September 15, 2011

Special Report: The Great Drain Robbery

India has lost nearly a half-trillion dollars in illegal financial flows out of the country, says a new study by Global Financial Integrity. P Sainath writes.

India is losing nearly Rs.240 crores every 24 hours, on average, in illegal financial flows out of the country. The nation lost $213 billion (roughly Rs.9.7 lakh crores) in illegal capital flight between 1948 and 2008. However, over $125 billion (Rs.5.7 lakh crores) of that was lost in just this decade between 2000-2008, according to a study by Global Financial Integrity (GFI). These "illicit financial flows," says GFI, "were generally the product of corruption, bribery and kickbacks, criminal activities and efforts to shelter wealth from a country's tax authorities."


GFI is a programme of the Center for International Policy, Washington D.C. It is a non-profit research and advocacy body that "promotes national and multilateral policies, safeguards, and agreements aimed at curtailing the cross-border flow of illegal money."
In just five years from 2004-08 alone, the country lost roughly Rs.4.3 lakh crores to such outflows. That is - nearly two and a half times the value of the 2G telecom scam now exercising Parliament and the media. The Comptroller and Auditor General of India (CAG) pegs the 2G scam at almost Rs.1.8 lakh crores.

Accounting for the rate of return on those illegal outflows, the present value of that $213 billion reaches $462 billion (Rs.21 lakh crores) says GFI. Astonishingly, over $96 billion of that amount left the country between 2004 and 2008. As the report's author, Dev Kar, says, "India is losing capital at an average rate of $19.3 billion per annum ... India can ill afford to ignore such a loss of capital."

As the report puts it: "Had India managed to avoid this staggering loss of capital, the country could have paid off its outstanding external debt of $230.6 billion (as of end-2008) and have another half left over for poverty alleviation and economic development."

At the 2004-08 pace (if it has not gone up), the economy is haemorrhaging at a rate of nearly Rs.240 crores every day on average. And even the total $462 billion, says GFI Director Raymond W. Baker in a letter prefacing the report, is "a conservative estimate. It does not include smuggling, certain forms of trade mispricing and gaps in available statistics." Factor these in, and "it is entirely reasonable to estimate that more than a half-trillion dollars have drained from India since independence."

The study
The GFI study is titled "The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008." Authored by Dr. Kar, formerly a senior economist at the International Monetary Fund (IMF) and now Lead Economist at the GFI, it defines 'illicit flows' as "comprised of funds that are illegally earned, transferred, or utilised - if laws were broken in the origin, movement, or use of the funds then they are illicit." Such fund transfers are not recorded in the country of origin for they typically violate that nation's laws and banking regulations.

So massive are these illegal outflows, says the study, that the "total capital flight represents approximately 16.6 per cent of India's GDP as of year-end 2008." Its estimate falls far short of the $1.4 trillion figure cited in the India media prior to the 2009 general elections. But, says the report, "the figure still represents a staggering loss of capital." Illegal flight of capital, it says, "worsens income distribution, reduces the effectiveness of external aid, and hampers economic development."

That does seem an obvious outcome in a country where according to the National Commission for Enterprises in the Unorganised Sector (NCEUS), 836 million human beings live spending Rs.20 a day or less.

The illegal outflows also account for most of India's parallel economy. "The total value of (such) illicit assets held abroad represents about 72 per cent of the size of India's underground economy which has been estimated at 50 per cent of India's GDP (or about $640 billion at end-2008) by several researchers. This implies that only about 28 per cent of illicit assets of India's underground economy are held domestically." It also strengthens arguments that "the desire to amass wealth without attracting government attention is one of the primary motivations behind the cross-border transfer of illicit capital."

The GFI study makes two vital points amongst others that will surely stoke ongoing debates in the country. One: the drain bloated massively in the era of economic liberalisation and reforms starting with 1991. Two: "High net-worth individuals and private companies were found to be the primary drivers of illicit flows out of India's private sector." Conversely, "India's underground economy is also a significant driver of illicit financial flows."

Tax havens
As Mr. Baker says: "What is clear is that, during the post-reform period of 1991-2008, deregulation and trade liberalisation have accelerated the outflow of illicit money from the Indian economy. The opportunities for trade mispricing have grown, and expansion of the global shadow financial system accommodates hot money, particularly in island tax havens.
"Disguised corporations situated in secrecy jurisdictions enable billions of dollars shifting out of India to "round trip," coming back into short and long-term investments, often with the intention of generating unrecorded transfers again in a self-reinforcing cycle." Interestingly, the points about high net-worth individuals (HNWIs) and corporates and 'mispricing' take the debate way beyond the clichéd 'corrupt politician' explanation.

Lauds reform
The report, while stressing these factors, says that given the limitations of available data, it found "scant evidence that imprudent macroeconomic policies drove illicit flows from the country." It lauds the post 1991-reform era. And praises Prime Minister Manmohan Singh for launching "India's free market reforms that saved the country," in its view, "from financial ruin and placed it on a path to sustained economic growth." On the role of macroeconomic policies in the outflows, it says there is yet work to be done, data to be generated.

But its own evidence on how the outflows escalated post-1991 is pretty damning. And India's liberalisation itself - in which period the GFI study records the greatest drain - was about a sea change in macroeconomic policies. The study notes a rise in inequality in the reform period. And acknowledges, in its summary, that "A more skewed distribution of income implies that there are many more HNWIs in India now than ever before." It implies that governance issues, deregulation without new oversight and a complex web of other factors were more to blame.

GFI calls for measures that would require country-by-country reporting of sales, profits and taxes paid by multinational corporations. It recommends India should curb 'trade mispricing.' Because "transfers of illicit capital through trade mispricing account for 77.6 per cent of total outflows from India over the period 1948-2008." It advises steps that would require automatic cross-border exchange of tax information on personal and business accounts. And actions that would harmonise vital matters under anti-money laundering laws across nations.

Saturday, September 06, 2014

Why Intel Agencies Are Wary Of Hiring Muslims And Sikhs?

SPECIAL REPORT: In the third year of UPA-2, the then prime minister Manmohan Singh called a meeting of top officials of the Special Protection Group (SPG), the Research and Analysis Wing (RAW) and the Intelligence Bureau (IB) to seek advice on whether the representation of Muslims in the intelligence agencies could be increased, whether they should be allowed to join RAW and whether to end the ban on the entry of Sikhs and Muslims into SPG. The officers reportedly pointed out that any such move would be risky. They asked who would take the blame if something went wrong after the established system was tinkered with. Nothing came out of that meeting and the issue was never raised again.
Intelligence agencies in India have long followed an unwritten ‘no entry’ policy for Muslims (though there have been a few Muslim officers in the IB), while Sikhs are banned from SPG, formed in 1984 to provide security to the prime minister, and the National Security Guard (NSG), the elite anti-terror force functioning under the Union Ministry of Home Affairs. “This is not a new policy. There have been no Muslim officers in RAW since its formation in 1969,” says a former RAW officer. “It has its own reasons for following this policy.”

Saturday, March 07, 2015

Special Report: A Story Of 'Bhang' And 'Hangover' In India

From the Vedas to Holi today, bhang has been a key part of Indian life and culture.

What coffee was to the American television sitcom, Friends, the cannabis drink bhang was to Hindi’s greatest satirical novel, Raag Darbari. Set in an Uttar Pradesh village during the 1960s, bhang is ubiquitous in the novel and even the children of the village, some of whom are too poor to even know what milk tastes like, are familiar with it.

Friday, June 14, 2013

Special Report: Rotting Food Grains In Hungry India

By Astha Prakash (Guest Writer)
   
It is hard to believe that India is the same country that transformed from a “begging bowl” to a “bread basket”. After high-yielding varieties of seeds were first introduced in India in 1968, the wheat production rocketed from 6.4 million tonnes in 1948 to 20 million tonnes. The Green Revolution converted India into a shining new nation brimming with success and sufficient wheat stalks. But 45 years after the hopes of converting a country that was once on the brink of mass famine to a self-contained nation, the situation continues to be shaky.

Friday, February 22, 2013

Did Home Ministry Sit On Crucial Info That Could Have Prevented Hyderabad Twin Blasts?

Every time terror strikes the country, questions over failure of intelligence and information sharing crop up. Thursday's twin blasts in Hyderabad may well be yet another such instance. Did the Home Ministry sit on crucial information? CNN-IBN accessed a key interrogation report of an Indian Mujahideen (IM) suspect where he confessed to doing a recce of Dilsukh Nagar in 2012.

Four months ago, Delhi police had arrested a suspected IM operative Maqbool who informed the interrogators about a possible blast in Hyderabad. Maqbool and his associates conducted a recce in three areas of Hyderabad on a motorcycle. The areas included Dilsukh Nagar, Begum Bazaar and Abids in Hyderabad. He also provided details of who all he was in contact with locally and how he trained many in assembling bombs using urea, diesel and cracker powder.

The suspect even told interrogators that they wanted to prepare IEDs so that blasts can be triggered near theatres. Maqbool and his associates were involved in explosions in Hyderabad and Nanded.

Significantly, Thursday's twin blasts took place near two old city theatres - Konark and Venkatadri. The police's interrogation report also states that Maqbool was an associate of the Riyaz Bhatkal and his targets included Bodh Gaya in Bihar. The report states his involvements in blasts in Lamba theatre in Secunderabad in 2000. Sharda theatre in Maharashtra's Nanded in the year 2000 and blast in Lal Darwaza area of Hyderabad in the same year.

This interrogation report now raises a big question mark - was all this was shared with Hyderabad Police and whether the fresh inputs Home Minister Sushil Kumar Shinde spoke of were different from what was already known four months ago. Or, was this an intelligence failure again?

Here's the full text of the Delhi Police Special Cell interrogation report:
  • The Special Cell, Delhi Police had busted an Indian Mujahideen Module with the arrest of four persons, namely, Asad Khan (aged 33 years) r/o Tawakkal Nagar, Naigaon, Distt. Aurangabad, Maharashtra, Imran Khan (aged 31 years) r/o Peer, Bhurahan Nagar near Masjid-e-Saalehind, Nanded, Maharashtra, Sayed Feroz @ Hamza (aged 38 years) r/o Shukarwarpath, Pune, Maharashtra and Landge Irfan Mustafa (aged 30 years) s/o Landge Mustafa Usman r/o Raj Nagar Dargah, Darya Road, Mukund Nagar, Ahmed Nagar, Maharashtra and explosives, detonators and other incriminating material had been recovered. With their arrest the serial blasts of 1stAugust, 2012 were worked out.
  • Sustained interrogation of the accused arrested by us revealed that a person, namely, Sayed Maqbool @ Zuber, S/o Syed Haji, R/o Samtam Nagar, Near Madina Masjid, Dharmabad, Nanded, Maharashtra was in close association with them and together they planned to commit fiyadeen attacks on the Buddhist shrines in Bodh Gaya in Bihar as retaliation to the alleged atrocities being committed upon Muslims in Myanmar. Their plan had the approval and support of the Bhatkal brothers. Sayed Maqbool was arrested after great deal of efforts on 23rd October 2012 from Hyderabad where he had been hiding to evade his arrest.
  • Maqbool came in contact with Imran through a common friend. The latter introduced Maqbool to Asad and Irfan. Maqbool taught them how to make a bomb by using urea, diesel and fire cracker powder at Asad's farmhouse in Aurangabad. In April 2012, Imran introduced Maqbool to the Bhatkal brothers. Before the Pune serial blasts of 1st August, Maqbool, Irfan, Imran and Asad had discussed their plan of carrying out a fidayeen attack on Buddhist shrines at Bodh Gaya, Bihar. Since Bhatkals wanted to avenge the death of Qateel Siddiqui, they decided to carry out bomb blasts at Pune first.
  • About a month before Ramzan in 2012, Maqbool helped Imran in doing a recce of Dilkhush Nagar, Begum Bazar and Abids in Hyderabad on a motorcycle. This was done on the instruction of Riyaz Bhatkal.
  • Maqbool began his criminal career along with one Azam Gauri @ Aleem r/o Warangal, Andra Pradesh (killed in a police encounter in 2000). His first criminal act was the murder of Krishna Moorthy (FIR No. 220/1999, u/ss. 302/120-B/34 IPC read with sec. 25/27 Arms Act, PS Bodhan, District Nizamabad in which he has been convicted for life. However, he was released from jail in October 2009 after commutation of his sentence.
  • His next criminal act was the murder of one Devender (Case FIR No. 195/1999, u/ss. 302/120-B/34 IPC read with ss. 25/27 Arms Act, PS CID, Andhra Pradesh), who had allegedly encroached on a Masjid land in Uppal, A.P.
  • Maqbool was also involved in the murder of Mahaveer Prasad (Case FIR No. 172/2000, u/ss. 302/34 read with s. 6 Explosive Substances Act, PS Afzal Ganj, Hyderabad City), a jeweller. Here the motive was robbery.

Maqbool was instrumental in the formation of IMMM (Indian Muslim Mohammadin Mujahidin; a terrorist organization) at village Mancharia in 1999 alongwith Azam Gauri and Roshan Baig. They worked under the garb of social reformists by showing that their objectives were -

(1) To stop dowry system in society.
(2) To fight against corruption and
(3) To stop pornographic films.

Azam Gauri had taught Maqbool how to prepare IEDs so that they can cause blasts in those theatres where blue films were being shown.

Maqbool alongwith others were involved in the following bomb blast cases:
  • Bomb blast at Kaketiya Hotel, Lal Darwaza (FIR No. 01/2000, u/ss. 4/5 Explosive Substances Act, PS Moghalpura, District Hyderabad City)
  • Blast at Sharda theatre (FIR No. 28/2000, u/ss. 307/120-B IPC read with ss. 3/4/5 Explosive Substances Act, PS Itwara, District Nanded.
  • Blast in Lamba Theatre, Secunderabad (FIR No. 31/2000, u/s. 120-B IPC read with ss. 4/5/6 Explosive Substances Act, PS Begumpet, Secunderabad, Hyderabad City,
  • Blast in the House of Azam Ghori while preparing IEDs. (FIR No.28/1998 u/s 307 IPC read with Sec. 3/4/5 Explosive Substances Act, PS Dharmabad, District Nanded.
  • Other cases in which he is involved are as below:-
  • FIR No. 39/2000, u/ss. 120-B/153-A IPC, PS CID, Andhra Pradesh (a case of conspiracy).
  • FIR No. 28/2000, u/s. 25 Arms Act, PS Dharmabad, District Nanded (recovery of fire arms only).
  • Maqbool is also close to Abdul Rauf, r/o Shahidabad (leader of AIMIM - All Indian Majlis Itehad-ul Muslimi, a political party) and one Nashruddin. Both Abdul Rauf and Nashruddin have been involved in Hiren Pandya murder case of the year 2003. Maqbool was appointed as the Dharmabad District President of AIMIM by Abdul Rauf.
  • Further investigation is going on.

Wednesday, June 03, 2009

SEZs: It's really a damp squibs?

By M H Ahssan

A study by the Hazards Centre shows that only 19 of an approved 366 SEZs are functional. And within many of these, the number of manufacturing units actually set up and the number of people employed is much lower than expected

A village elder, evicted from the village of Akalmegh in West Bengal in order to facilitate the creation of the Falta Special Economic Zone (FSEZ) located on the banks of the river Hoogly at Diamond Harbour, is still trying to pick up the threads of his life.

“Before moving here, I do not remember a single villager having to go to bed on a hungry stomach. We had paddy, fish from the pond in front of our house, palm, coconuts and different types of citrus fruits. There were few quarrels and if one took place, an elder helped resolve it,” he said.

“Moving to High Land (the name of the resettlement colony) has seen a change of lifestyle. Everyone is worried about his livelihood and there are frequent disputes,” he added.

Around 420 families were resettled in High Land 25 years ago. Today, 12,000 people live in the colony and they echo the regret and pain expressed by all those who have been displaced by the Special Economic Zones (SEZs) being created by governments across the country ostensibly to boost development and increase revenue.

In 1992-93, villagers belonging to eight villages outside Jaipur in Rajasthan were forcibly evicted so that the Sitapura Industrial Area could be created. Land began being bought from farmers in 1992 at the rate of Rs 1 lakh per bigha (though some claim they were paid just Re 1), much below the market rate.

The displaced villagers regret that the peace and harmony that marked their earlier lifestyle has been replaced by what could at best be described as a slum life.

“We were assured we would be given employment in the factories that came up here and that RIICO would provide us with water, electricity and good roads, but all these promises have been belied,” said Ram Singh, a villager from Khusdar village.

The Jaipur Special Economic Zone (JSEZ) was set up primarily to decongest Jaipur by removing the gems and jewellery industry from the heart of the city. But the jewellers chose to move the workers along with the units, so that although 4,200 workers are working here, only 2% of them are local villagers, employed mainly in menial positions as sweepers or daily wagers.

These are some of the findings of the first systematic study on the functioning of SEZs financed by Action Aid and undertaken by the Delhi-based Hazards Centre.

‘Special Economic Zones: How Special and how Economic’ highlights how SEZs, which are 30-40 years old (they were earlier known as Free Trade Zones), suffer from several major drawbacks, the main one being that they have not attracted the kind of foreign direct investment (FDI) that the government had anticipated.

The study quotes extensively from an American study of FDI flows in China (Lee and Fritz Foley’s study ‘Facts and Fallacies about US FDI in China’, 2007), which shows that FDI flows into China have been grossly overestimated. Moreover, 90% of the production from these SEZs caters to the local market and is not export-oriented.

Although the Indian government has approved 366 SEZS, only 19 are functional. They have attracted FDI worth Rs 525.70 crore against private investment of Rs 4,649.94 crore. Investment by the central and state governments till 2007 was Rs 1052.25 crore.

Of the 19 functioning SEZs, the Hazards Centre monitored the performance of Kandla in Gujarat, Falta in West Bengal, Vishakhapatnam in Andhra Pradesh, Jaipur in Rajasthan and Manesar in Haryana.during 2007-08.

According to the study, four of these SEZs were not manufacturing the goods they had originally set out to manufacture. Kandla was developed as a textile and garment hub but had switched over to manufacturing chemicals and fertilisers. Falta, set up to export plastic and rubber, was presently doing business in textiles and garments. Vishakhapatnam, set up to manufacture fine chemicals and engineering goods had switched over to export of high value gems and jewellery. Jaipur alone continued to fulfil its original objective, which was to work in gems and jewellery.

Says Dunu Roy, director of the Hazards Centre, “It is obvious that there was poor assessment of market demand at the time these SEZs were created because today they are making something completely different.”

The older SEZs with the lowest per unit investment (Jaipur and Kandla) were found to have the best export figures.

The survey also found that not enough market research had been done before setting up these zones. The result is that in most SEZs, the number of manufacturing units has come down drastically.

In Kandla, only half of the original 362 units that were set up are functioning. Prestigious units belonging to the Mafatlal and Milton groups have shut down. And while the SEZ claimed to employ 16,581 people, a field visit to the district commissioner’s office in Kandla showed the exact figure was 14,299.

In the same way, the Falta SEZ has 127 functioning units although more than 200 units had been approved originally. Local workers pointed out that only 90 units run on a daily basis. The factory inspector admitted that only ten industries in this SEZ have been registered under the Factories Act.

Vishakhapatnam has generated direct employment for 4,200 people, though the state government had promised employment in a ratio of 60 persons for every acre of land that was acquired. This, the report points out, would have meant the creation of 21,600 jobs.

The Sitapura Industrial Area near Jaipur has been developed on 1,646 acres of land. Villagers from eight villages were evicted to create this SEZ. Lack of employment and gross underpayment of those who do manage to find jobs continues to be a major problem.

In Falta, casual labourers were being paid as little as Rs 30 per day and if a worker took two days of leave, he was fired. “Six months ago, workers launched an agitation and blocked the roads preventing goods carriers from entering FSEZ. Under pressure, the SEZ authorities increased the daily wages to Rs 68 per day and provident fund of Rs 10 per day would be deducted from the salary of the more experienced workers. No industrial unit is willing to take responsibility for on-site accidents,” says Dunu Roy.

In no SEZ is labour hired on a permanent basis, nor is any healthcare provided, the report found. Children are known to be employed in several industries in contravention of labour laws. They are being smuggled in early in the morning and smuggled out late in the evening. Since labour inspectors are not allowed to inspect SEZs, increasing numbers of children are being sucked into the labour pool at lower wages.

Another big source of concern according to the report is that these SEZs are producing huge amounts of toxic waste that is being dumped indiscriminately in the agricultural fields of villagers living outside these zones. The official stance is that only ‘non-polluting’ units have been permitted in SEZs, but this is belied by the complaints of villagers who find a huge reduction in agricultural productivity in their fields which have been inundated by industrial effluents.

The Development Commissioner of West Bengal admitted that no treatment plants have been built to treat solid or liquid waste, and that effluents were flowing out “anywhere outside the boundary wall”, draining into agricultural land and ponds where fishing was practised. Fisherfolk in this area complain that the fishing stock has been hugely depleted in the past one decade.

Villagers complain about the deterioration of their natural environment and the sharp increase in diseases. They also point out that while the state authorities have developed some infrastructure within the economic zones, they have failed to provide any facilities for the surrounding areas.

The Manesar SEZ has been allotted to a private developer -- the Uppal group -- and is not yet functional. The Uppal group had proposed an investment of an estimated Rs 6,500 crore but given the way the market has crashed, it is difficult to see how the group will raise the money to start the numerous knowledge-based industries visualised earlier.

Roy points out that “SEZs begin with high public investment and only when they stabilise does the private entrepreneur step up his investment. Foreign investment comes in at a much later stage when the risks have been covered. It is for this reason that most developers want to use these zones for the purposes of land transaction so they can cover their investment.”

He adds, “Export growth has been slow except in the case of dedicated single-product SEZs that have remained true to their objectives. It can therefore be said that they have fallen far short of their stated objectives.”

The report concludes that SEZs prove categorically that private profits cannot be married to public benefit. The government is using a fallacious argument when it believes that public benefit will come out of private enterprise because this has not been the case.

Sunday, November 02, 2014

Indian Urdu Media: Fanning Minority Fears In Tears

Of all categories of people in our societies, journalists understand meanings of words instinctively and the societal context in which they are understood by common readers. Shahid Siddiqui is the chief editor and owner of Nai Duniya, an Urdu newspaper that has been read by Indian Muslims for over 41 years. 

Siddiqui controls the weekly newspaper and decides images, headlines and articles that are published. Since it is generally accepted that Muslims have low literacy levels and cannot evolve enlightened responses to emerging issues, it is reasonable to expect Siddiqui’s newspaper to show a positive path for Indian Muslims.

As a school-going youth in the 1980s, this writer watched Siddiqui’s newspaper arrive regularly in bookstalls at railway stations with cover pages that would leap to our eyes with messages such as: Islam is in danger; Muslims are under siege; the West is hunting Muslims; Jews are evil. It hasn’t changed. 

Wednesday, September 04, 2013

Did Asaram’s Arrest Turn Vanzara Against ‘God’ Modi?

By Kajol Singh / INN Bureau

While it was his despair at the lack of support from his ‘god’ Gujarat Chief Minister Narendra Modi that ostensibly led suspended IPS officer D G Vanzara to write his explosive resignation letter, reports suggest that the arrest of his ‘guru’ Asaram Bapu in a case of sexual assault may have had something to do with that letter being formally dispatched. 

A complex triangle A known supporter of the self-proclaimed godman just like Modi himself was until some time back, Vanzara is believed to revere Asaram intensely.

Saturday, February 28, 2009

By M H Ahssan



Subhiksha is India's largest retail chain -- or some would prefer to say "it was." Over the past few months, the network of neighborhood discount shops has been coming apart at the seams. Most of the outlets are now closed. The company -- Subhiksha Trading Services -- has been unable to pay salaries and statutory dues for the past few months. With the unpaid security agency staff also not reporting for work, many of the stores have been vandalized. "The properties have become vulnerable targets," founder and managing director R. Subramanian told The Financial Express. The vandals, he said, could include "disgruntled vendors, employees, anti-social elements taking advantage of the situation, and even owners of the real estate" rented by the retail chain.



Subhiksha -- which means "prosperity" in Sanskrit -- is coming apart in other ways, too. In fast-moving developments, one of the investors -- private equity company ICICI Ventures -- has asked the government to step in and order an independent audit of the company's accounts. Another investor -- the high-profile Wipro chairman Azim Premji's personal investment firm, PremjiInvest -- has approached the Madras High Court to stop the proposed reverse merger between Subhiksha and Blue Green Constructions & Investments, a listed company Subramanian had acquired last year. Subramanian's objective was to get listed through the back door after the plan for an initial public offering fell through because of adverse market conditions. ICICI Ventures holds a 23% stake in Subhiksha and PremjiInvest another 10%, which was sold to it by ICICI Ventures last year for around US$50 million. In addition, the Employees Provident Fund Office recently said that Subramanian will be held personally responsible for non-payment of statutory dues to the staff.



Previously, Subramanian was the poster child of India's retail revolution. Others, like the Future Group's Kishore Biyani (who started Big Bazaar, Food Bazaar and Pantaloon) may have made a bigger splash. But Biyani had a business background; Subramanian's father was a Reserve Bank of India official and Subramanian was a first-generation entrepreneur, a product of liberalization and India's answer to Wal-Mart's Sam Walton. "Subhiksha was a value-focused retailer born at a time when organized retailing was only for the elite," said Subramanian in an email to India Knowledge@Wharton. "From 150 stores in September 2006, all of which were in Tamil Nadu [a state in South India], the company grew rapidly to over 1,600 stores [across the country] by September 2008."



The big question: Is Subhiksha shutting down? "We are in pain but we are not shutting down," Subramanian wrote. "We had expanded rapidly; most of the growth was debt-led. The company had planned to raise equity during 2008 and was close to doing so in September when calamity hit the global markets. The company's lenders, while supportive, were also unable to extend further lines unless the equity was raised. The banks were not lending to each other, forget about lending to us.... It became a chicken-and-egg story with the company running out of cash by October. We were making money up to September, so the business is viable; it's just that the balance sheet was not.... Money is like blood. If the blood flow stops, the entire brain stops working."



Subramanian acknowledges that employees, landlords and vendors have not been paid. "It's not because we do not want to pay; it's because we can't pay." Is the Indian retail story over for now? "In a market like this, there will be pain," Subramanian wrote. "However, people with long-term interest in retail and a sane cost structure will survive and thrive. Subhiksha will be there, too."



Lack of Demand

Subhiksha, of course, is not alone in facing a recent reverse. The woes of India's organized retail sector -- or "modern trade," as it is called -- have many causes and casualties. Even well-financed companies or those that have wealthy backers are feeling the heat.



"Lack of demand is the major problem," says Mathew Joseph, senior consultant with Delhi-based think-tank the Indian Council for Research on International Economic Relations (ICRIER). "Real estate prices are falling, and organized retail would like to wait until the bottom is reached. Finance is also difficult to come by in the context of falling demand and low profitability as banks are becoming risk averse." Gibson Vedamani, director of the Retailers Association of India (RAI), adds: "Like everyone else, the business groups in modern retail have been hit by the global recession by way of a credit squeeze [and a lack of] funding and working capital. The slump in real estate has been a big issue. Those who had big expansion plans had [acquired] real estate earlier at much higher prices. They are now re-looking at their expansion plans and renegotiating the rates."



One example is Reliance Fresh, backed by Mukesh Ambani, the world's wealthiest Indian and chairman of Reliance Industries. Ambani considers retail the next big thing both for his group and the country. Reliance Retail, a subsidiary of Reliance Industries, launched its first store in November 2006 through its convenience store format, Reliance Fresh. At the end of the last fiscal year (March 2008), the group had 590 stores across 13 states. (It is close to 1,000 now.) This includes other formats such as Reliance Digital, Reliance Mart (hypermarkets), Reliance Trends (apparel), Reliance Footprints (footwear), Reliance Jewels (jewelry), Reliance Timeout (books, music and other lifestyle products), Reliance Autozone (auto accessories and service) and Reliance Wellness (health and wellness).



There were problems from day one. Vegetable sellers stoned Reliance shops in Ranchi, Jharkhand, claiming their businesses would be killed. There was a dawn-to-dusk shutdown of all major markets in Bhubaneswar, Orissa. In West Bengal, Reliance Retail ceased operations after widespread protests. In Uttar Pradesh, the government ordered the closure of the chain following eruptions of violence and the ransacking of some outlets. In Mumbai, traders, farmers and shopkeepers moved into the streets, bringing the city to a near standstill. They were protesting not just against Reliance, but organized retail as a whole. "This is a do-or-die battle for us. Either they go, or the small traders and farmers perish," says Dharmendra Kumar, director of India FDI Watch, an organization that seeks to prevent Foreign Direct Investment (FDI) in the retail sector in India. Kumar says his mandate is to prevent multinationals like Wal-Mart, Tesco and Carrefour from entering the Indian market. As they are not yet in India -- or are present in very restrictive formats -- companies like Reliance Retail have become the substitute targets.



Much of this battle took place in 2007. Today, organized retail is downsizing by itself. Reliance has reassessed its plans and closed some stores; it is in consolidation mode. According to the Future Group's Biyani, growth has moderated. "While urban consumers have the ability to spend, we believe their confidence level has been low leading to disproportionate savings levels," says a report by equity research firm Enam Securities. "Weak same-store sales have cast doubts on the retail consumption story." According to The Economic Times: "Almost all retailers, listed and unlisted, are putting off or curtailing large-scale expansion plans announced earlier."



Yet just a short while ago, the kirana (mom-and-pop) stores seemed to be fighting a losing battle. Groups like FDI Watch, along with the media and politicians, rose to the defense of the huge farmer-trader-shopkeeper segment.



The Future of Kiranas

But there are many who believe that both large and small retailers can thrive. According to Arvind K. Singhal, chairman of retail consulting firm Technopak Advisors: "The battle, if any, was being fought only by politicians and the media. In India, the kiranas will coexist with modern retail for many decades to come." Adds S. Ramesh Kumar, professor of marketing at the Indian Institute of Management Bangalore (IIMB), who has recently done a study on the retailing sector: "Kirana shops, which number around 15 million to 20 million, are part of Indian shopping culture. They are spread throughout the length and breadth of the country and cannot be completely displaced by modern retail formats in the foreseeable future."



The future of the kiranas caused so much concern that the Union Commerce Ministry appointed ICRIER to do a special study to find out the impact of modern trade on these small outlets. The ICRIER report, released in the middle of last year, found that it was "a positive sum game in which both unorganized and organized retail [could] not only coexist but also grow substantially in size." The study found that:



The total retail business in India would grow at 13% annually, from US$322 billion in 2006-07 to US$590 billion in 2011-12.



The unorganized retail sector would grow at about 10% per year, with sales rising from US$309 billion in 2006-07 to US$496 billion in 2011-12.



Organized retail, which now constitutes a small 4% of the total retail sector, is likely to grow at a much faster pace of 45% to 50% per year and quadruple its share in total retail trade to 16% by 2011-12.




Joseph, who led the ICRIER research team, says that some numbers have had to be whittled down since the report was published. "There is a general slowdown in the economy due to the global crisis and that is expected to affect the growth of organized retail in the country," he says. "We had assumed a GDP growth of 8% to 10% during 2007-12 in the report. This is now impossible, at least for the current year 2008-09 and the coming year. Organized retail cannot therefore grow at 45% to 50% as we envisaged."



ICRIER was not alone in painting a rosy picture for organized retail. A November 2005 PricewaterhouseCoopers (PwC) study in tandem with the Confederation of Indian Industry (CII) said that one of the largest marketplaces for modern trade -- India -- was about to open up. "To reach its potential, the Indian retail sector requires significant capital, technology and best practices to bridge the existing productivity gap and achieve scale in operations, which are critical to the sector's success. One of the key steps towards facilitating the development of the retail sector and in accelerating its growth would be to allow foreign direct investment." Titled "The Rising Elephant," the report concluded that the organized sector share would account for 9% to 10% by 2010. Increased employment, efficiency in agriculture and increased exports through sourcing from India were the three most significant benefits of modern trade, the study said.



Another PwC-CII report, released in December 2008, said that the real beneficiaries of organized retail will be "the government, consumers, unorganized trade participants and producer-farmers." Mom-and-pop stores could become part of the system, benefiting everybody. Only about 100,000 "mid-category" stores would take a hit in the medium term.



Yet another report in September 2008 was titled, "The Great Indian Bazaar: Organized Retail Comes of Age in India." The study, by consulting firm McKinsey, said that by 2015 India was likely to be a US$450 billion retail market. Organized retail would grow from 5% to 14%-18% by 2015. The report made two other important points. First, "mom-and-pop stores will continue to remain relevant across large and small towns." Second, "retail in India can be profitable, but not with cut-and-paste global formats." The four mantras for success included innovative "local" formats; customer-backed merchandise platforms; an efficient supply chain; and an empowered front-end sales team, said McKinsey.



A Welcome Shift

Are these strategies and projections destined for the dustbin as India joins the global slowdown? The experts say no. "This is a passing phase but it could last for another year," Singhal of Technopak says. Adds Vedamani of RAI: "This is a temporary phase when many adverse forces are working together and organizations are therefore becoming very cautious. The boom in retail will surely return."



Many see this as a welcome shift to neutral gear, because Indian retail had been growing so quickly. "This calendar year will see companies consolidating their operations rather than looking at expansion," says Vedamani of RAI. "In the earlier retail rush, they were too busy to get their act together. They are now looking at putting their processes in place and getting their houses in order for when the market picks up."



Joseph of ICRIER notes that the slowdown has given the mom-and-pop shops some breathing space, too. "They now have more time to adjust and compete with organized retail," he says. "There are several cases of traditional retailers modernizing and successfully competing with organized retailing. We believe in the co-existence of both big and small retailers in the country, as each one has its own comparative advantages vis-à-vis consumers."



"The situation here is very different from the one in the U.S.," says Kishan Bhat, engagement manager at Zinnov Consulting, a Bangalore-based management consulting firm. "India is a market where everyone can coexist. The culture of kirana stores in a country like ours can never become obsolete. It is deeply rooted in the system and definitely has an edge over the organized sector in terms of convenience and personalized customer experience. The kirana stores today are also adapting to the growing competition from the organized sector. We do foresee them eventually organizing their way of business."



Bhat sees a mutual learning process which will benefit both eventually. "The organized retailers are also learning from the kirana stores and trying to provide a better customer connection," he says. "Besides this, both formats are implementing the best practices of each other. Hence, the two formats will definitely coexist as long as customers are the winners."



"Small retailers in India have inherent advantages," says the PwC-CII "Rising Elephant" report. "They are located next to the consumer, making it convenient for top-up purchase. They know them well, some even by name. They give credit too -- which no large retailer does. Their fixed costs are so low that their breakeven point is as low as 46% of sales."



Finding a Model

Kumar of IIMB says there are opportunities now that may look more attractive for organized retailers. "Segmenting consumers on price sensitivity and lifestyles along with multiple retail formats holds the key for a retail chain in the Indian context," he says. "Organized retail, instead of competing with the unorganized sector using price cuts on branded offerings and short-term sales promotions, should get into private labels that provide good quality at relatively lower prices as compared to established brands. The economic slowdown is probably the ideal time for such retailers to launch these private labels. Private labels with limited merchandise will be an effective approach to target the middle-class consumers who shop almost every day as a part of their culture. Besides, since most residential areas have kirana shops, it is unlikely that consumers will drive long distances for their regular shopping cycles."



"Modern retail is a less-than-20-years-old phenomenon in India," says Singhal of Technopak. "It has attracted a diverse set of entrepreneurs and business organizations, and each one is trying to find out and develop its own unique business model. Some of these models are fundamentally flawed; in some cases the execution is flawed. However, overall, the growth of modern retail in India has been very steady and there is increasing width and depth [in terms of product categories, formats, etc.]. Modern retail trade in India is still in an evolutionary phase and will be in this phase for at least three-five more years before the winning formats and the winners stand out. Then, there will a consolidation and growth phase led by these winners."



Will the winners be Indian companies or MNC majors? There are no easy answers. "India's landscape is fundamentally unique," says Singhal of Technopak. One can't transport Western models and expect them to automatically succeed, he notes. For instance, infrastructure is in very bad shape. During the initial euphoria of the retail boom, several companies imported retail professionals from the West, who came armed with just-in-time and other cost-saving techniques. They realized, to their dismay, that none of this would work in a country where it could take days for a truck to traverse a few hundred miles, he adds.



"The large players usually try to gain on economies of scale and lure customers by reducing the margins," says Bhat of Zinnov. "This would [require] elimination of middlemen and brokers along with established logistics and infrastructure support. However, in the current scenario, lack of infrastructure and inefficient logistics services have dampened the growth of organized retail while providing continued shelter to the middlemen. As a result, organized retailers have not been able to provide higher value. On the contrary, unorganized retailers leverage the inefficiencies of the system and encourage consumers to drive a hard bargain, which enables a win-win situation for both."



One example of the potential pitfalls is the Piramal Group, which opened an upmarket outlet in downtown Mumbai, the first of a planned chain. It proved to be a tourist attraction for visitors to a nearby religious shrine. Most visitors came to look, but not to buy. The company tried to insist that all who came to the mall should possess a mobile phone or a credit card to gain entry, but the idea was quickly withdrawn after a public outcry against discrimination. (The mall closed down shortly thereafter.)



These are problems that no amount of multinational expertise or FDI can likely address. "FDI is not so relevant in the current context, but technology can certainly help retailers understand their customers better," says Vedamani of RAI. Bhat of Zinnov disagrees. "The entry of foreign multinationals would make the market more competitive," he says. "Indian consumers will definitely benefit." But money or new technology will not help, he adds, "unless customers become the utmost priority."



"FDI in retail is extremely relevant," says Singhal of Technopak. "As India's consumption basket changes, new retail businesses have to be started to take care of emerging consumer needs. For this, both capital and know-how [in sourcing, distribution, etc.] is needed. From a consumers' perspective, they also need more choice in terms of retail options, and FDI can give them access to more choice of formats and value propositions." Adds Joseph of ICRIER: "Inexplicable restrictions on FDI investments in the sector are preventing even Indian retailers from raising global capital."



Early in February, the government announced major changes in its FDI policy through two "Press Notes." The ban on FDI in multi-brand retailing such as supermarkets seems about to expire, but "the 10 pages of unintelligible officialese" leave many unanswered questions, according to The Financial Times. There have been no clarifications as political parties prepare themselves for the coming general elections. Subramanian of Subhiksha is certain he will be there when the MNCs arrive. The problems for both organized Indian retail and his own venture will pass. "After all, challenges make boys into men," he says.