Scams and Scandals - Controversies that Marred Rao’s Political Legacy by H.N. Bali SignUp

In Focus

Photo Essays


Random Thoughts

Our Heritage


Society & Lifestyle


Creative Writings

Book Reviews
Literary Shelf
Analysis Share This Page
Scams and Scandals
- Controversies that Marred Rao’s Political Legacy
by H.N. Bali Bookmark and Share

Continued from “Dark Side of the Moon - Who Demolished Babri Masjid?”

Between the idea
And the reality
Between the motion
And the act
Falls the Shadow – T.S. Eliot, The Hollow Men

Theoretically, the model of free enterprise that Prime Minister Narasimha Rao painstakingly ushered in, presupposes a value system of its own, whose one central value, of course, is freedom – freedom of unhindered operation within a given economic framework. Indeed fairness and fair play are the basic assumptions of the system. Each of these values can, however, be abused, especially when the central vigilance mechanism isn’t yet firmly in place.

Such abuses characterize the seamy side of capitalism – the proverbial shadow between the idea and the reality. And this indeed is what happened fairly early after the demolition by Rao of the corner stone of the system embodied in “permit-license-quota-raj”  –  that stinging phrase of C. Rajagopalachari

Cash for Votes Scam

Roa’s political vulnerability was unmistakably obvious. His was an unstable government in so far as he didn’t have a majority in the Lok Sabha. And that weakness was exploited by the opposition at its choosing. The BJP, supported by the Left and Janata Dal, brought a no-confidence motion against the Congress government in July 1993. The minority government had only 244 MPs. The Congress required the support of 269 MPs to survive.

The motion of no–confidence was moved by Ajoy Mukhopadhyaya of the Communist Party in July 1993. Rao and his Congress Party were accused of corruption, ignoring rising tensions between Hindus and Muslims, and mismanaging the economy. Three days of vigorous public debate followed accompanied by intense private political bargaining. For the first time in Mr. Rao’s tenure, all the opposition parties, some of them self-declared political enemies, joined together to defeat the Government. Most political commentators believed that it was a touch-and-go affair.

Just a month before the Parliament debated the motion of no confidence Harshad Mehta, once the country’s biggest stock broker, said that he had delivered a suitcase stuffed with $371,000 in cash to the Prime Minister in exchange for reining in a criminal investigation into the broker’s activities. That had added grist to the opposition mill.

Replying to the motion, the Prime Minister spoke extensively about India’s agricultural development, including an extended discourse on fertilizer prices and subsidies. He also made a broad appeal for religious tolerance in an elliptical attack on the Hindu nationalist Bharatiya Janata Party, then the largest opposition party. He also defended his shift away from India’s socialist economy.

But in his 40–minute speech, he avoided any mention of the corruption charges leveled against him by Mr. Mehta in particular and the opposition in general.

As the voting approached, there were a few moments of high drama. A Congress Party lawmaker was taken into the chamber in a wheelchair. A doctor hurried to her side to take her pulse and blood pressure. Then, as the Speaker of the house called on members to vote, she shakily pushed the button on her desk to support Mr. Rao. Finally, the Government of Prime Minister P. V. Narasimha Rao survived the parliamentary vote of no confidence. The tally was 265 to 251.

The margin of Mr. Rao’s victory was much larger than many Congress members had expected. This prompted renewed charges from the opposition that Mr. Rao’s supporters had bribed members to vote for the Government. George Fernandes, a Socialist Member of Parliament and a critic of the Prime Minister, said after the vote, “By buying a few M.P.’s he may have saved his Government, but he has lost the moral authority to govern.”

As the Bard had it: All’s well that ends well. Rao did win the confidence motion. What’s significant, in what the Germans call realpolitik, are primarily the considerations of given circumstances and factors, rather than implicit and explicit ideological notions or moral and ethical premises. What finally matters is victory and not the price paid for it.

There is, however, a sordid story behind the victory. And any assessment of Rao’s Prime Ministership has to reckon with it.

Prime Mover

The person, who was assigned the crucial task of marshaling the magic figure to survive the motion of no confidence, was the then parliamentary affairs minister, Vidya Charan Shukla. In his later years he recalled in an interview with the New York Times how after the 1991 election, Congress government was in minority, needing over 10 MPs to cross the danger mark. “I had to keep myself vigilant during Parliament session and off it. I had four able ministers of state – Jayanthi Natarajan, Margaret Alva, Rangarajan Kumaramangalam and Mukul Wasnik – who used to meet people and bring them over to me,” stressing that “people” stands for MPs.

According to Shukla, the Rao government drew its sustenance from Ajit Singh’s Lok Dal, which had 20 MPs. “I had made informal arrangement with Ajit Singh that he would never issue whip. He kept his word and I used to draw from his 20 MPs.”

But the real crunch came during the no-confidence motion of June, 1992. “It was a high-voltage drama,” he recounted. He remembered sitting with then Speaker Shivraj Patil for number crunching only to find that ayes and no’s were evenly balanced. “Patil’s casting vote would have helped us. But it was a dishonorable position. I wanted to change that,” he reels off. He remembers getting a chit from the PMO that said four Jharkhand Mukti Morcha MPs would also vote in favour of government. “Including them we were equal,” he explains.

What made it worse for Congress was pressure from a large section of Lok Dal MPs, who wanted a whip be issued. “To avoid the expulsion we needed seven Lok Dal MPs to side with us. My job was to find out who were against the whip. It included Ram Lakhan Singh Yadav,” Shukla remembers. Yadav was contacted by Shukla and promised a Cabinet berth and an assurance on this from Rao. A day before the no–confidence motion, Yadav came with six other Lok Dal MPs. But despite Shukla’s insistence, Yadav did not let his MPs be kept under government’s safe custody.

Next day, as the debate began, Shukla to his “horror” discovered one MP from Yadav’s camp was missing. “I told the Speaker to let every member speak for as long as they want and give chance to everyone.” Hectic backroom parleys had begun. Shukla and his four lieutenants began searching for one MP who would bail the government out, and found a member from western UP. On being brought to Shukla’s room, the MP immediately asked what he would get in lieu of support. “I promised him chairmanship of parliamentary committee, foreign trips. I used permissible inducements under parliamentary system. No money was discussed. Finally, Ghulam Nabi Azad was roped in to convince the MP.”

Twist in the tale happened minutes before voting. It was discovered that an MP from Odisha was in “no position to understand the voting system”. “MPs sitting on his either side were opposed to Congress. We had no way out. So, he was told the colour of button that had to be pressed. But his fingers went on the middle button, so it was read as abstention.” As many MPs could not cast their vote, Vijayaraje Scindia of BJP took control of the Odisha MP. Wasnik and Kumaramangalam followed her. Even as Scindia was arguing with ministers, tellers (parliamentary staff who were collecting voting chits from MPs) came and asked the MP about his vote. He said he was in favour of government. “We won by 14 votes,” Shukla remembers with a glee. Shukla’s name did not figure in any subsequent investigation. His manipulative skills had worked wonders. Nonetheless, the stigma of blatant horse trading cannot be wished away.

Harshad Mehta Scam

Any narration of Rao’s intended or unintended misdemeanors must also include the name of Harshad Mehta and the havoc he wrought in 1992 with the Indian stock market.

And to understand that fully, imagine a gold jeweler who’s also (as it invariably happens) a pawnbroker. Now imagine someone called Mehta pawns a gold necklace for 30 days and the pawnbroker gives him Rs.25,000. He invests it in stock market and earns around Rs.45,000. But the necklace which he pawned was a fake one. Since he has earned Rs.20,000 profit, after 25 days he returns some Rs.27, 000 (with interest) to the pawnbroker who returns the necklace to him.

After two months, he again pawns it for 30 days and is given Rs.26,000. This time also, he invests this money in stock market. But unfortunately, stock market crashes and he loses all his money. So, this time he cannot take back that fake necklace and runs away. The pawn broker, obviously after 30 days would sell the necklace thinking he can earn some profit. But then he discovers that it is a fake one and he had been duped.

This, in essence, is what happened in the notorious Harshad Mehta Scam.

The crucial mechanism through which the scam was effected was what’s called in the banking parlance, the ready forward (RF) deal. The RF is in essence a secured short-term (typically 15-day) loan from one bank to another. Simply put, the bank lends against government securities just as a pawnbroker lends against jewelry. The borrowing bank actually sells the securities to the lending bank and buys them back at the end of the period of the loan, typically at a slightly higher price.

It was this ready forward deal that Harshad Mehta and his cronies used with great success to channel money from the banking system. And a typical ready forward deal involved two banks brought together by a broker in lieu of a commission. The broker handles neither the cash nor the securities.

Another instrument used by Harshad Mehta in a big way was the bank receipt (BR). In a ready forward deal, securities were not actually moved back and forth. Instead, the borrower, i.e. the seller of securities, gave the buyer of the securities a BR. And this confirms the sale of securities. It acts as a receipt for the money received by the selling bank. Hence the name – bank receipt. It promises to deliver the securities to the buyer. It also states that in the meantime, the seller holds the securities in trust of the buyer.

Having figured out the intricacies of the banking system, Metha needed banks, which could issue fake BRs i.e., BRs not backed by any government securities. Two small and little known banks – the Bank of Karad (BOK) and the Metorpolitan Co–operative Bank (MCB) – came in handy for this purpose.

Once these fake BRs were issued, they were passed on to other banks and the banks in turn gave money to Mehta, obviously assuming that they were lending against government securities when this was not really the case. This money was used to drive up the prices of stocks in the stock market. When time came to return the money, the shares were sold for a profit and the BR was retired. The money due to the bank was returned.

The game went on as long as the stock prices kept going up, and no one had a clue about Mehta’s modus operandi. Once the scam was exposed, though, a lot of banks were left holding BRs which did not have any value – the banking system had been swindled of a whopping Rs 4,000 crore.


Mehta’s illicit methods of manipulating the stock market were exposed on April 23, 1992, when veteran financial columnist Sucheta Dalal wrote an article in The Times of India. The exposure of Mehta’s modus operandi led banks to start demanding their money back, causing the Sensex to plunge almost dramatically as it had risen.

What haunted Rao was the allegation of Harshad Mehta, that he had personally delivered illegal cash contributions of 10 million rupees, worth $371,000, to Rao.

In 1992, Harshad Mehta was arrested in relation to a stock market scam worth Rs 5,000 crore. Mehta was charged with 72 criminal offences while over 600 civil action suits were filed against him. The Harshad Mehta security scandal also became the flavor of Bollywood too with Sameer Hanchate’s film Gafla.

Mehta had also alleged that he had paid Rao Rs 1 crore to get him off the hook in the case. Rao denied the allegations. However, he never denied meeting the tainted broker. His son Prabhakar Rao (director of Goldstar Steel and Alloys Ltd) was also accused of receiving a loan of Rs 2 crore from Hiten Dalal, an accused in the securities scam.

Hawala Scam

Another scam marring Rao’s political reputation surfaced almost incidentally. In 1991, a routine arrest linked to militants in Kashmir led to a raid on some hawala brokers. It revealed telling evidence of large-scale payments to national politicians. And those accused included the names of L. K. Advani, V. C. Shukla, P. Shiv Shankar, Sharad Yadav, Balram Jakhar, and Madan Lal Khurana.

In 1995, the hawala broker Jain brothers were arrested in the Hawala scam. They named three ministers – VC Shukla, P Shiv Shankar and Balram Jakhar – as beneficiaries of Rs 65 crore pay offs through the hawala route. Rao’s name also cropped up as allegedly receiving Rs 3.5 crore.

The Jain Hawala story was broken by two Delhi–based journalists Ram Bahadur Rai and Rajesh Joshi, working for the Hindi daily Jansatta. It was followed by the journalist Vineet Narain, who later filed a public interest litigation in the Supreme court of India.

However, all the court cases of the Hawala scandal eventually collapsed without convictions. Most of the accused were acquitted in 1997 and 1998, partly because the hawala records (including diaries) were judged in court to be inadequate as the main evidence. However, the Central Bureau of Investigation’s role was criticized. The Supreme Court of India directed that the Central Vigilance Commission should be given a supervisory role over the CBI.


Yet another scam surfaced when an NRI, Lakhubhai Pathak alleged that he paid $100,000 to god man Chandraswami in return for a contract for supply of newsprint and paper pulp in India as promised by Rao. A charge sheet was filed before the chief metropolitan magistrate in April 1996, a month before Rao ceased to be the prime minister. In 2003, after a long–drawn–out battle, Rao was acquitted.

Towards the end of his term, in March 1996, Rao was charged of hobnobbing with Chandraswami to forge documents to show VP Singh as the main beneficiary of a secret bank account of $21 million held in St Kitts. In October 1996, he was arrested at his residence by the CBI and later released on bail. This was the first time in India’s political history that an incumbent or a former prime minister was arrested on criminal charges. He was later acquitted in December 1999.

These scams and controversies marred the pro–development image of Rao to a great extent and negated the good work done by him to rescue the economy.

Understandably, corruption became a major issue in the 1996 Lok Sabha elections and the Congress received a sound drubbing.

Personal Culpability?

With all the charges of financial irregularities occurring during his tenure, was Narasimha Rao personally guilty of any financial malfeasance or he was merely overlooking all the financial skullduggery happening around him only to remain in power?

The question whether Rao personally gained from the financial scandals around him has often been debated without any conclusive evidence against Rao. That he was personally an upright is proved by the well-known fact that despite holding many influential posts in Government all through his life he faced many financial troubles. One of his sons was educated with the assistance of his son-in-law. He also faced trouble paying fees for a daughter who was studying medicine. According to PVRK Prasad, an IAS officer who was Narasimha Rao’s media advisor when the latter was Prime Minister, Rao asked his friends to sell away his house at Banjara Hills to clear the dues to lawyers. He died owing lakhs.

Why then did he connive at all the scams and scandals that happened under his nose? May I hazard an explanation?

Jekyll & Hyde

You’ll recall, dear readers, the famous novella, Strange Case of Dr Jekyll and Mr Hyde by Robert Louis Stevenson. It is a story of a London lawyer named Gabriel John Utterson who investigates strange occurrences between his old friend, Dr. Henry Jekyll and the evil–minded Edward Hyde. Huge indeed has been the impact of the story so much so it has become a part of the English language, with the very phrase “Jekyll and Hyde” coming to mean a person who is vastly different in moral character from one situation to the next.

In fact, many people who haven’t even heard of the name Robert Louis Stevenson can offer a reasonably acceptable meaning for the term “Jekyll and Hyde,” to denote a person:

  • One who has quasi–schizophrenic, alternating phases of pleasantness and unpleasantness

  • A person having a split personality, one side of which is good and the other evil.

You may be surprised to hear the names of Jekyll and Hyde have even been used in alcoholism manuals to describe the behavior of a sober person who is kind and gentle but who unexpectedly changes into a vicious, cruel person when drunk. The contrast in the behavior of a drunk and sober person is therefore commonly referred to as the “Jekyll and Hyde Syndrome.”

I believe Rao was prepared to pay any price to remain in power. This is indeed a common failing of politicians. In Rao’s case, this probably stemmed from his years of political wilderness and the ongoing efforts of his opponents like Arjun Singh, N D Tiwari and Sharad Pawar to pull the rug of power under his feet. This also explains why despite his declared intentions to step down from the Presidentship of the Congress Party he tenaciously clung on to office.

The Jekyll part of his persona was the indomitable courage to break away from the Nehruvian socialist legacy and introduce market economy, laying thereby the firm foundations of economic growth. However, the Hyde side of his personality was to turn the blind eye to untoward goings-on in the polity.

As the story has it, in the naval battle of Copenhagen in 1801 Nelson led the attack of the British fleet against a joint Danish/Norwegian enemy. The British fleet of the day was commanded by Admiral Sir Hyde Parker. The two men deeply disagreed over tactics. At one point Hyde Parker was forced to send a signal (by the use of flags) for Nelson to disengage. Nelson was convinced he could win if he persisted. And that’s when he ‘turned a blind eye’, and won.

Wasn’t Rao doing exactly the same thing? Even when he knew that the murky financial deals weren’t right, deeming them to be the price to be paid to bring about market reforms and to remain in power, he, like Nelson, turned the blind eye. In Nelson’s case, however, it was the blind eye that he turned. Rao turned both the eyes away. Kleio the Muse of History, holding an open scroll is unlikely to do the same in the final judgment on Rao.

Continued to “Narasimha Rao Tenure: An Evaluation”

Share This:
More by :  H.N. Bali
Top | Analysis
Views: 2075      Comments: 0

Name *
Email ID
 (will not be published)
Comment *
Verification Code*
Can't read? Reload
Please fill the above code for verification.
1999-2022 All Rights Reserved
No part of this Internet site may be reproduced without prior written permission of the copyright holder