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Welcome to the IVM Podcast Network.
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You are taking a leisurely walk in a quiet neighborhood of Ahmedabad when suddenly you
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see a queue of people, a long queue that reveals its length as you walk alongside it.
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It snakes around the corner, goes to the end of the next road, turns left, then turns right,
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then left again, then up a flyover, down the flyover, around a gold chakkar and finally
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it ends at a small photo studio.
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You go to the head of the queue and ask the first person in the line, hey what's going
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The gentleman looks at you and says, haven't you heard?
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This photo studio is offering free passport photographs to everyone, no strings attached.
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That is why we have all lined up.
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You scratch your chin, you think for a few moments and then you say, wait a minute, there
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There is no such thing as a free lunch.
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Just then a lady in the queue offers you a dhokla.
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You accept her dhokla gratefully for you are hungry after this long walk.
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The dhokla tastes amazing.
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Is it really such a thing as a free lunch?
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Welcome to the seen and the unseen.
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Our weekly podcast on economics, politics and behavioral science.
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Please welcome your host Amit Verma.
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Welcome to the seen and the unseen.
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I'm your host Amit Verma.
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In today's episode, I'm not going to talk about a specific public policy from a Wonks
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Instead, I'm going to tell you a little story.
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A few days ago, I was in Delhi staying over at my friend Mohit Satyanand's place.
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We were drinking tea and talking about this and that when his office assistant came over
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and handed Mohit a thick bunch of papers.
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Mohit leafed through the papers and he sighed.
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Then he said to me, this is all because of ruppal ban.
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So tell me who is this ruppal ban and what has she done?
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Well, you know, you have to rewind to the 2005, 2006 era when there was this enormous
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flurry of IPOs, initial public offerings when shares get placed on the market.
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And it seemed as though every IPO, when it actually came onto the market, offered a huge
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premium between the price of the IPO and the launch price on the stock exchange.
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So it seemed as though all you had to do was get hold of some shares in that allotment
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Now the catch obviously was that every IPO was oversubscribed five times, 10 times, 50
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times, a hundred times.
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So it's not as though you could get as much as you wanted at the time of the IPO.
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Now the story you told about the snaking line, it reminds me of Soviet Russia.
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And one of the things that was wrong with Soviet Russia was bad incentives.
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And that's usually the story of every bad economy.
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So now government in its infinite wisdom said that people benefiting from IPOs should not
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just be the rich people, the small person, you know, that overriding concern for the
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Must be benefited as well.
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And so for every IPO, they had a separate category for the small investor called the
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And I think at that point in time, the retail investor was defined as somebody who put less
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than one lakh application because the number of retail investors was always fairly small
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in comparison to the people who had money and wanted to go into it.
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So chances of getting allotment in the retail were much higher.
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So what Rupal Ben Panchal did was that in the Yes Bank IPO, it was later detected that
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she had fielded, I have the figure here, something, 6515 applications under the retail segment.
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And out of that 6,221 had the same address, 402 to 403, Shashwat building opposite Gujarat
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Now, obviously this could only be done in collusion with a bank.
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So bank was obviously involved, the bank which opened the bank account, which allowed them
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to pay the money, which allowed them to open a DMAT account.
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But there was one issue, which is that the forms had to be complete and the forms required
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a photograph, how do you produce 6,515 photographs?
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Enter the free passport photograph.
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Tell me more about this.
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Well, that's the answer.
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So everyone who went in got that two free passport photographs, but Rupal Ben Panchal
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and her husband and their Kabal also kept copies of that photographs, put them onto
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the application, had any kind of arbitrary signature, but at least, you know, this concept
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we have of Khanapuri means you tick the boxes.
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The bank had ticked all the boxes.
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In those days, you didn't require a PAN card for any application under 50,000 rupees.
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So PAN card was not required, you had a photograph, you had an address, the bank manager ticked
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all the boxes and you made this application.
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So this is what they did and though it came to light in the Yes Bank application, in the
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Yes Bank IPO case, as the investigation proceeded, they discovered that this Kabal had applied
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in 21 IPOs and in one of those IPOs, it's not clear whether, you know, there was a fixed
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number of operators, but there were a lot of common elements.
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In one particular application, there were 21,000 forms which were felled up by this
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That is a lot of passport photographs.
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And hence, you're probably right, that line really sneaked through all of them.
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So what happened as a consequence of her getting caught?
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Why does Rupal Ben bother you so much today?
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She bothers me for two reasons.
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She bothers me for two reasons because now what has happened is that as you started the
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story is that compliance issues have gone up.
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And this is a larger phenomena that I face as a businessman and even as a honest tax
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paying citizen, which is that compliance issues have gone up massively.
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It takes me an enormous amount of time to comply with issues relating to know your customer,
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with issues relating to filing my tax returns, my tax returns, then I have to get audited,
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The effort that goes into opening a new bank account, this impacts everybody, not just
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It's a huge opportunity cost and the amount of time that people spend doing this, they
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could be doing something else which is productive for their economy.
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The reason that it bothers me is that our economic history is littered with bad incentives.
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You take another area that I'm familiar with, which is the grain trade.
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So you have a public distribution system.
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What the public distribution system essentially does is to create differential pricing.
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So you create one price for the supposedly poor person, another price for the supposedly
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So you have the BPL and you have the APL and then you have the market price and then more
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recently another price was introduced, which was the Antiyo, their price, which is to end
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So you have four prices prevailing in the market.
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You're creating an opportunity for arbitrage and systems will milk that arbitrage.
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What you do by creating these concessions, which is again coming from this great concern
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with the underdog, what you do is actually you corrupt the entire system.
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You create an entire class of people whose only contribution to the economy is to bridge
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Now this we know, this is what efficient economies do.
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But as a result, you have created corruption from top to bottom.
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You've created FCI managers who send the trucks directly from FCI depots to grain traders.
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You have created truck drivers who are part of this whole system.
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You've created mill owners who function entirely on PDS stock.
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You've created PDS shops, which have a wheat milling installation next door so they can
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You've created, you've perpetuated a corrupt way of looking at the world by creating all
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these ridiculous incentives.
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Every sector you look at, there is this desire to tinker with the economy.
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For some holier than thou motive, but all you do is create incentives for short circuits
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for the Rupal Panchayats of the world.
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So more than the compliance and the fact that I had to sign a few extra forms, what bothers
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me is that we don't seem to learn.
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We don't seem to learn that when you create an opportunity for arbitrage, that opportunity
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is going to get milked and you're going to create more and more corrupt people.
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And also when you create incentives for dishonesty, that eventually percolates down to the culture.
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That's what I'm talking about.
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That's what really bothers me that we have a culture of corruption and that culture of
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corruption is not because we are inherently corrupt people or there's something wrong
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It's because for 70 years, you have always tried to set prices and set artificial prices.
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Don't allow flexibility into the system, create two categories of economic players or three
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or four or five, you're going to end up with this.
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So finally, if you had the story of Rupal Ban in a fourth standard textbook and fourth
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standard kids always want to moral at the end of the story.
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What's the moral of the story?
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The moral of the story should be eye pencil, which is that goods get created when and they
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get created efficiently and they get created with uniform and very elastic prices.
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When you allow economic actors to play.
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Mohit, thank you so much for being on the show.
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Next week on The Scene and The Unseen, Amit Varma will be talking to Pranay Kota Senne
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about the surgical strikes conducted by the government last year in September.
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For more, go to www.sceneunseen.in.
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If you enjoyed listening to The Scene and The Unseen, check out another show by IVM
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podcast, Simplified, which is hosted by my good friends, Naren, Chuck and Srikit.
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You can download it at audio boom or iTunes.
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Hey man, just help me out, man.
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I need some, I need some podcasts, man.
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I haven't had a fix in a week, just need some.
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Don't you worry about it.
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I got podcasts below for you, man.
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Just go to IVMPodcast.com.
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You can also find us on Facebook, Twitter and Instagram.
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I'm going to check it out.
