The Telegraph
Since 1st March, 1999
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- A tale revealing the murky side of competition

A much flaunted virtue of market competition lies in its ability to generate social happiness out of individual conflicts. Under free competition, the price you pay for a piece of fish should equal the sum total of the price the vendor paid to the wholesaler, his different costs and a profit margin reflecting the normal rate of return prevailing in his trade. Sellers charging more are either cheating or conducting their business inefficiently.

What helps you discover the right trader' The magic of competition itself, which motivates warring adversaries to spy on each other and hang for public viewing the dirty linen of closest rivals. Thus, the information you seek floats down to you like manna from heaven. Propelled by a desperate desire for survival, the traders themselves collect all relevant data and leave them at your doorstep, crisp and fresh as it were as the copy of your morning newspaper. Sworn business opponents, in their bid to eliminate one another, contribute willy-nilly to the safeguarding of their clients' interests.

During recent years, the government of India has been subscribing with dogged determination to the philosophy of market competition. This is particularly evident in the state's effort to resign from the role it used to play as an insurer of private savings and encourage households to rely more actively on the share markets.

The test of a kebab though is in its eating. And kebabs come in a riotous variety of shapes and tastes, depending on the tandoors of their origin. Some are soft, succulent and boneless. Some tough and dry, with a bone too many. Markets likewise vary from titillating textbook models, through mystifying Mona Lisas, to horrifying Hydras.

A true-life incident exemplifies this. A reputed bank of foreign origin approached me recently on behalf of a private insurance company with an offer to invest in a life insurance scheme. In short, I would have to pay three successive rounds of annual premiums, Rs 80,000 each, to buy life cover for my wife and myself. The insurance company would invest the money in mutual funds and our nominee was guaranteed to receive at least the insured sum, should events so demand. But, going by the trend rate of return on the investments handled by the company, the actual pay-off was expected to be of the order of 8-10 per cent on the principal invested, all of which was tax free, being generated through mutual funds.

What more could one hope for amidst the deepening drought in investment opportunities for the middle class' We empowered the bank to debit our account and start us off. And waited for the arrival of the policy documents. Penelope like, as it turned out. Despite frantic reminders over the phone, nothing but silence reigned for over a month. Finally, unable to put up with further delay, we wrote to the bank's manager that we wished to withdraw our money. The bank issued a signed receipt for the letter, but a formal reply never spouted forth.

Seeing no other alternative, we sought an appointment with the manager who promised to hand over the needed documents on the agreed day. We had decided by then that even if the initial sum of Rs 80,000 was lost, we would definitely not continue with the subsequent payments over the next two years. To our incredulity, the manager informed us that he needed to consult the insurance company on this and was unable to guarantee on his own that our account would not be debited in future. Moreover, he wanted a clear margin of twenty days to get back to us with the company's decision. Even non-economists are aware that a bank account cannot be debited without the holders' consent, unless the latter have a proven record of financial embezzlement. The absurdity of the manager's declaration dictated therefore that we keep up an appearance of gullibility and return home as quietly as our mental states permitted to peruse the policy documents.

When the manager had handed over the policies, he had clearly presumed us to be either demented or too lazy to read up the terms and conditions of the investment. He had therefore not counted on us to discover two devastating facts that kept our eyes wide open through the long hours of the night.

First, there was a 'look in' period of fifteen days starting from the day of receipt of the policies, during which one could decide to withdraw one's money. The manager had suppressed this piece of information from us. Worse, he had not recorded the official date of the handover of the documents. This meant that the look in period needed to be computed from the very date of release of the policies. We counted and found that we had exactly three days left to retrieve the cash. We also recalled with disgust that the manager required at least twenty working days to answer our queries regarding discontinuation. There was little doubt that he was engaged in a diabolical attempt to mislead us on to the wrong side of the period of grace.

The second disconcerting fact we stumbled upon after studying the documents and logging on to our bank account over the internet was that our account had been debited around three weeks prior to the day the money was actually deposited with the insurance company. By now, our minds had turned as filthy as the sewers of Inferno. It was not provable beyond reasonable doubt, but it could not be ruled out either, that the money had been utilized for personal gains by the very people who had vowed to act in our best interests.

The supposition might appear to be too far-fetched given that three weeks constituted a rather short interval of time for large-scale laundering of funds. However, the call money market assures us to the contrary. This is a market, as many might know, where money can be invested for tiny durations, starting from a single day. The rate of interest prevailing in this market is normally not too high. But a crafty operator can make substantial gains by investing hefty sums raised from a large number of unsuspecting clients.

Fortunately, the epilogue to this gory tale turns out to be cheerful. We avoided the bank and rushed directly to the Calcutta branch of the insurance company in the nick of time and it refunded us our money within a fortnight. The bank's manager and his cronies, needless to say, kept up the vigil during this period and made last ditch, though unsuccessful, attempts to have us outwitted. Our luck, fortunately, prevailed.

To be fair to the manager, the poor devil need not really have been engaged in a fraud. He may well be a victim himself of circumstances arising out of peer-induced competition. To protect his job, he had to prove his worth to his bosses, a worth that is probably judged by the size alone of the fund he managed to mop up. He was too busy raising the principal to worry about its timely investment. Which suggests that the sprit of this affair is no different from the one that guides private bus operators to mow down unwary pedestrians in their race to lure away passengers. Or, for that matter, the urge that drives toddlers apprenticed to the Fagins of this city to harass commuters on their way to catch the metro.

The most liberal of examinations will detect traces of promiscuity in the practice of market competition. Staunch critics might subscribe to Thomas Carlyle's timeworn view ' that market economies are no better than anarchies under the supervision of a constable. One feels tempted to add that Carlyle's opinion on the honesty of the constabulary itself remains unknown.

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