When a high flying kite gets cut

When a high flying kite gets cut

By Anand R. Raghavan | 25 February, 2018
Nirav Modi was not a rent seeking capitalist on the precipice of failure. He gamed the system to participate in the risk of his ambition.

I first heard about Nirav Modi a few days ago. Like an aerial fireworks display, he exploded curious wonder into a dark and benign sky for a solitary moment of reckoning.

Entrepreneurs and madmen are both outliers. We peer into the alien otherness of their worlds. With envy and admiration towards one, for the distance that separates us from their singular ability to create wealth out of the smoky contours of a vision. With fear and empathy towards the other, for the familiar interwoven mosaic of our inner worlds that include the inchoate and the undecipherable.

We draw comfort from the fate of lunatics towards our own relative equilibrium. And we rush to embrace fallen entrepreneurs into the ordinary inertia of the material world.


Since Independence, people looking for careers as politicians and middlemen have earned their capital through kickbacks. Their loot, like every plunder, is legitimised by time. But the after effects of their actions create a legacy of angst that drains into a collective fury that has no nuance.

It grinds into the heads of the villain in every hero and tramples over the scent of grease on every pawn—in pursuit of an unclear ideal that includes roads without traffic jams, fruitful activity generating adequate income for all and a sense of well-being pervading a planet renewed by freshwater, lush greenery and the hum of electric cars. We grow frustrated by the non-responsiveness to our urgency to fix a system that seems devoid of the karma of cause and effect. That evolves in slow and winding ways through the butterfly effect of uncoordinated actions. A constant source of unending activity. Our own incompleteness consuming the distractions of this imperfect world to quell it into silence.


In the tumultuous events that have veiled Nirav Modi’s glitzy showrooms with drawn shutters and dimmed lights, what struck me was a comment about him by one of his employees. While his world was collapsing around him, this is the impression of his employer that endured. That he was a man of detail.

An avante garde artist immersed in the poetry of his creation. A reclusive entrepreneur with the ambition to build Asia’s first global luxury jewellery brand.

In 2010, alongside the issuance of the first unauthorized LoU from a PNB branch, another seminal event occurred in a distant land where a revelation silently descended to fill the ambience of an elegantly upholstered room. The Head of Asia’s Jewellery department at Christies examined a Nirav Modi necklace with stunned fascination. His artistry opened the doorway to a rarefied global market where money is traded for the exclusive luxury of high art, unmindful of mundane matters such as cost or utility value.

In that year, a legitimate victory collided with a systemic rope trick.


The exact nature of the problem has been drowned by the intoxicating fever of scandal. What he did was fraudulently obtain a non-funded instrument without collateral. Against which he raised his working capital overseas at low interest rates.

Perhaps his diary entries of cash paid by the elite in this country for his creations gave him the connections and the leverage to obtain non-fund based LoUs without collateral. Purveying their need for secrecy undoubtedly gave him the comfort that in a land awash with the smell of black money, his crime was minor in contrast.

That he stole Rs. 11,400 crore from the Bank and has now escaped abroad is a self-fulfilling prophecy. When there is a run on a bank long enough (whether it has floated toxic securities or not), it will collapse. When a company’s loans are recalled for bullet repayment (whether it has fraudulently procured a line of credit or not), it will similarly collapse.

In the last seven years of our lives, every cell in our bodies has been replaced by the surreptitious hands of creation. In this period, Nirav Modi sought another similar transformation of his firm by taking a breathtaking plunge into the brutal terrain of global luxury brands.

He found a sovereign guarantor to back his constantly swelling working capital needs. A transaction concluded in a quiet backroom away from the glare of formal authorisation. The reason this stayed hidden for so long, besides all the ills of inefficiency and fraud we love laying on our PSU banks while ignoring those whose instructions they are forced to follow, is because he probably did not default on interest payments. Or on the fees paid for the LoUs.

The traditional diamond business is a high volume business with low margins in the 3%-4% range. His brand foray was a punt to lift those margins to 20%-25%. But to get there, he had to invest cash on his brand, time on his art and wait for the initial flurry of promise to mature into sustainable returns. The question was, would he make it before the window closed on him. That window was the looming retirement of a bank manager that extended him a mystical line of credit. Or the unseen hands that blessed it.


The nature of corruption is like the range of emotions that stem from the heart. Corrosive or constructive—depending on the end games that they are a part of.

In India, it can be a tool to sidestep systemic constraints that temper the growth of enterprise. The Ambani decision in the 1980s to import in excess of their licensed capacity to build globally competitive economies of scale can be seen as an act of corruption and an indictment of the archaic regulations in which we had bound our wealth creators. That need not give them the right to control and undermine our democracy, but we must find ways to address their failings, without overturning all that they deliver. While introspecting on the true nature of our democracy, and how the very same corruption both sustains and erodes it.

Nirav Modi was not a rent seeking capitalist on the precipice of failure. He gamed the system to participate in the risk of his ambition. In an opaque sector that bankers have traditionally been averse to. But what he did thereafter was a foray of unusual spirit that needs to be evaluated distinctly—so that we don’t confuse between the collapse of a vaulting endeavour and a bank heist.

What could have grown to be an upstart Indian brand competing with the storied legacies of Gucci and Louis Vuitton, has been turned into manure to fling around in the pedestrian politics of blame.


An optics constrained government and a gladiatorial media bludgeon every stain of corruption with the same blunt instrument of destruction. That is the only way priorities get set and an unambiguous message gains transmission.

When Vijay Mallya’s settlement offer was not even negotiated, I presume there was no scope for backroom negotiations here. It could have included a lien on his equity to serve as collateral. Giving him breathing space to navigate the firm through an IPO to grow his business and spread the rewards. Included additional securities, now being recovered from the wreckage, as a backstop recourse in the event of failure. And involved a penal provision to dissuade others from following this disingenuous fundraising route.

Recent bankruptcy laws, though still finding their feet, show the potential of strategic intent and well thought through legislation. As we transition to an era less tolerant of blatant corruption, there will be headline casualties. Their example will trickle down into a mix of fear, red tape and abundant caution. Entrepreneurs will find their own ways of navigating through them. Straddling the dichotomy between the unpredictable trajectory of enterprise and the certainty in debt maturity dates.

Nirav Modi was propelled by an act of non-compliance to fuel his soaring ambitions. And destroyed by the guarantor on whose shoulder he parked his risk, before he could find his own wings to fly on. Like every human success story, it hinges on timing. What looks like deceit today, could have been lauded as genius tomorrow.

In this case the lights were turned on too early. To find a diamond that had lost its glitter.

Anand Raghavan is a third generation entrepreneur at an industrial engineering and construction company.

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