Why a Modi govt ordinance looks like Operation Kamal to Uddhav’s alliance in Maharashtra

It may sound like the mother of all conspiracy theories that a banking-related ordinance should pose a threat to an elected government. But that’s how many stakeholders in the Maha Vikas Aghadi government in Maharashtra are looking at the Banking Regulation (Amendment) Ordinance, 2020, promulgated by the President of India a fortnight ago.

Blame it on the insecurities underlying the Uddhav Thackeray-led tripartite coalition or on the opposition’s ‘Modi-Shah phobia’. The innocuous-looking law is giving sleepless nights to MVA partners—the Shiv Sena, the Nationalist Congress Party (NCP) and the Congress. They see in it a ‘soft launch’ of Operation Kamal or Lotus, a term used to describe the Bharatiya Janata party’s (BJP) plans to destabilise opposition-ruled governments in states by engineering defections.

Modi did what Raghuram Rajan wanted from Congress

Before we come to the ordinance’s political utility for the BJP and the validity of the MVA’s apprehensions, let us look at what the Narendra Modi government has sought to achieve through it—purely from the point of view of governance. The ordinance largely addresses the problem emanating from the dual control of cooperative banks— the state government regulating the election and removal of their management through the registrar of cooperative societies and the Reserve Bank of India regulating its banking functions.

In fact, when Raghuram Rajan was the RBI governor, he had met then Maharashtra chief minister Prithviraj Chavan to seek his help in ending this diarchy. Chavan was also keen on cracking the whip on these cooperatives, but was hamstrung by the fact that top leaders of the NCP, the partner in his coalition government, as also his Congress colleagues had huge stakes in these banks.

As economist Ila Patnaik explained in a column in ThePrint, this diarchy meant that if the management was incompetent or stealing from the cooperative bank, the RBI couldn’t take any action against it.

This is what the ordinance has done — empowering the RBI to override the registrar of cooperatives in removing the management and merging or dissolving cooperatives, among other things. These banks will now be audited as per RBI norms. At one stroke, the Modi government’s ordinance has instilled the fear of god in politicians who have been using the cooperative banks—through direct or indirect control of their management—for dubious political and financial ends at the cost of depositors.

So, why is the MVA government jittery about it? None of the coalition partners have expressed any apprehensions publicly, but the disquiet within the MVA is deep.

Ordinance, a soft launch of Operation Kamal?

The RBI’s oversight of the cooperative banks gives the ruling party at the Centre — unless you seriously believe in the central bank’s autonomy — a huge advantage in Maharashtra. It doesn’t have to depend on central investigation agencies such as the Enforcement Directorate that had filed a money laundering case against NCP chief Sharad Pawar, his nephew Ajit Pawar and others in the alleged Maharashtra State Cooperative Bank scam ahead of the assembly election last year. It had triggered a political furore, with Sharad Pawar successfully turning it into an attack on Maratha pride.

There are two ways the BJP can benefit from the 27 June ordinance.

First, a pro-active RBI can put a squeeze on the political and financial largesse that cooperative banks are used for. Let me illustrate it with an example. Although the Shiv Sena was not known to be a part of the organised cooperative loot in Maharashtra, chief minister Uddhav Thackeray seems willing to let his partners make hay. Prithviraj Chavan government had stopped the practice of the state government becoming a guarantor for loans given by cooperative banks. Devendra Fadnavis government carried on with the same policy. It has been overturned by the Uddhav Thackeray regime. The state government has now given guarantee for loans worth Rs 80 crore to two sugar mills in Sholapur and Pune, patronised by an NCP and a Congress MLA, says MVA insiders. If the political leadership in Delhi wishes, an empowered RBI can make life difficult for the management of the bank, the MVA government and the two MLAs. And it’s just a tip of the iceberg when it comes to the role of cooperative banks in Maharashtra politics since 1960s.

Second, if the RBI were to go proactive, thousands of skeletons would tumble out of the cupboard of cooperative banks and start haunting who’s who of the Congress and the NCP. After Sharad Pawar was booked by the ED, his threat to come down to the ED office to be questioned had the investigative agency scampering for cover. Pawar, given his tall political stature, could afford to look ED in the eye and force it to back off. But imagine the plight of lesser mortals in the Congress and the NCP if the RBI were to dig out skeletons against them.

About 20 Congress and NCP legislators had joined the BJP ahead of the Maharashtra assembly elections in 2019; most of them happened to have huge stakes in cooperatives. Most owners of sugar factories in Kolhapur had chosen to offer their services to the BJP. That was at a time when only investigating agencies had turned active and the RBI was still hamstrung without adequate powers.

What makes MVA vulnerable?

The BJP has reasons to salivate as the MVA has started showing cracks—and not because of ideological contradictions, yet. The telltale sights of Sharad Pawar, the chief architect of the MVA, rushing to hold meetings with Thackeray to sort out differences over governance issues reflect poorly on the CM in terms of optics.

Congress ministers are openly talking about coordination problems. Rahul Gandhi’s resentment about the ideological compromise that his senior party colleagues made in Maharashtra by allying with the Shiv Sena is no secret. But any action by Gandhi that could result in a snap election would see a majority of his MLAs switching their loyalty. Most of these potential rebels may be more comfortable under a compatible ideological tent of the NCP, but Pawar wouldn’t make the mistake of underestimating the power of money. It has been on display in many states in recent times—Madhya Pradesh being the latest. Besides, the NCP supremo must be conscious of his nephew’s ambitions and growing impatience.

The ordinance on cooperative banks has come in this backdrop and its impact may start becoming visible before long.

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