Readers Write In #296: Scam 1992- How Harshad Mehta was the architect of much needed financial reforms

Posted on November 12, 2020

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(by Madan Mohan)

There is something about Mehtas.  Harshad Mehta revolutionized stock market trading until, well, he was revealed to be what Bernie Madoff could have only dreamed of being.  Suketu Mehta beautifully chronicled the underbelly of Mumbai in Maximum City.  And Hansal Mehta chronicles Dalal Street as it used to be in a tightly scripted and multi-layered series Scam 1992.

The unsaid sub text of the series about Mehta’s meteoric rise and equally dramatic fall is the paradox Dalal Street represented in 80s India.  In the then tightly controlled pre-liberalisation India, Dalal Street was so unregulated as to resemble the Wild West.  Bankers and brokers made up their own rules and even decided who got to play the game in the absence of government intervention.  As an upstart Mehta is told by veteran jobber Bhushan, Dalal Street is ‘not like Wall Street’ and money can be made and lost with equal ease with drastic consequences in either event.

Mehta clearly saw the potential to get rich quick and was unfazed by the pitfalls.  He audaciously made his case via the modus operandi of every ponzi operator – higher returns.  However, Mehta didn’t swindle poor depositors (Subrata Ray) or wealthy individuals (Madoff).  He fooled several banks and as such the entire system.

This is the other weakness of socialist India that he was able to successfully exploit. In a system stifled by rules, everybody was hungry for more profits however they could get them.  Banks could not trade in securities so a broker who offered him better returns on the securities trade was most welcome.  A broker who could help other banks break Citibank’s stranglehold on the money market: even more welcome.

I will not burden you with any more jargon but suffice it to say that when Mehta was eventually revealed to be a fraud, he exposed the shocking lack of any sort of control the government had over either the stock market or the money market.  The banking system was defrauded of Rs.4000 crore in 1992 rupees (Rs.25,000 crore in today’s currency) as a result of Mehta’s schemes.  It was the revelation that the banks (then mostly public sector) could be left significantly weakened by stock market fraud that alerted the government to the need to regulate its activities.

We see throughout the series that Mehta’s ambition is absolutely insatiable and his ingenuity in vaulting over the system infinite. He was also unabashed in seeking attention for himself and reveled in being billed the Amitabh Bachchan of Dalal Street. It is possible that had Mehta kept a low profile and tempered his risk taking just enough to not get other participants in the scheme like banks into trouble, he could have continued to this day as a successful trader.  And that Dalal Street would have remained a Wild West preserve of seasoned players.  That the primary market (IPO) revolution that turned companies like Infosys into legends of the new India (well, well, at least before Sikkagate) would have never come to fruition.

Harshad Mehta took a non-system to its logical conclusion and exposed it so thoroughly the government was left with no choice but to establish a framework to regulate stock market activities.  As new legends like Jignesh Shah demonstrate, there is still no stopping fraudsters at least until they have done significant damage.  But the settlement period has shrunk from a whopping 14 days in Mehta’s time to just 3.  Circuit breakers on blue chip stocks rule out his infamous rigging of ACC.  Jignesh Shahs may come and go but the middle class can safely park a portion of their savings in SIP and sleep over them in a way they could not have in the Mehta-era.

Mehta’s elaborate schemes, his impatience with the system, the connivance of other players who resent the snobbish gatekeeping of Citibank and many other layers are brilliantly covered in this series.  There are shades of Wall Street (whose Gordon Gekko Mehta resembles so very much), Deewar and even Godfather in here.  But above all, the star of the show is the person on whom the protagonist is based.  Just as Mehta’s ingenuity forced much needed financial reforms on India, his colourful personality and exploits power what is one of the best Indian web series made thus far.