Rai, an MIT engineering graduate and scion of the Usha group—which was led by his father Kulwant Rai, a modest industrialist from Uttar Pradesh—surfed the wave of economic reforms of the nineties. But while his vision was grand, his capabilities and intent were somewhat suspect.
The Ispat group’s initial rise was meteoric. From a modest steel trading operation, it bloomed into a pan-Indian manufacturing, power generation and infrastructure behemoth that boasted of annual revenues exceeding $1.5 billion by the early 2000.
Soon enough, Rai scrambled onto magazine covers and began rubbing shoulders with politicians of every hue. His flagship Ispat Industries became one of India’s largest integrated steel producers. The conglomerate’s power arm won lucrative contracts in multiple states.
Meteoric rise
In 2000, Rai also put in an appearance as one of the 11 Indians featured in the Forbes list of 300 richest people with a personal net worth of ₹5,338 crore. But what did Forbes know?
That same year, his group companies Malvika Steels and Usha Ispat defaulted on loans worth close to ₹2,400 crore!
Beneath the glittering facade of a sprawling conglomerate, a black fungus of financial manipulation had started to take root that would soon bring the entire edifice crashing.
Rai’s close ties to politicians created a protective shield that delayed investigation. But the inevitable couldn’t be avoided forever.
At the heart of the Ispat frauds was a complex system of inflated valuations for public issues, round-tripping of funds and misuse of bank loans.
Forensic investigations would later reveal a staggering array of irregularities, including a merry-go-round of inter-corporate deposits (ICDs) and loans, which created an illusion of robust transactions.
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Further, a vast network of over 200 shell companies was being used to route funds, obscure ownership and create fake suppliers and customers.
Several phantom power projects existed only on paper, with funds allocated for these projects quietly diverted elsewhere. Ispat also claimed substantial fake export income, much of which was found grossly inflated or simply non-existent. Estimates say more than $3 billion was syphoned off over a decade.
Digging a deeper hole
Then there was corruption laced with nepotism. In August 2000, when Kulwant Rai was on the board of Industrial Development Bank of India (IDBI), another group company, Koshika Telecom, was sanctioned a loan even as three of its four licences had been cancelled by the government for non-payment of licence fees.
The wobbling empire finally crumbled when its paper-thin, filigreed margins were exposed during the global financial meltdown of 2008 and the steel industry collapsed. As banks tightened lending rules, the group could no longer roll over its loans. Suppliers went unpaid, projects stalled, and accusations of financial impropriety grew louder.
Rai transmogrified from a failed mega magnate to philanthropist, educator, and ardent Sathya Sai Baba acolyte.
In 2011, a consortium of bankers declared Ispat Industries a non-performing asset and a forensic combing through its books was initiated. They found auditor complicity and bank negligence in lending norms despite red flags. Rai’s close ties to politicians across party lines created a protective shield around him that delayed investigation and enforcement actions. But the inevitable couldn’t be avoided forever.
As its much-vaunted plants shuttered, banks were left holding the bag, with millions in bad loans during India’s NPA crisis. Rai himself managed to flee India, reportedly to the UK in 2012, leaving behind a trail of unpaid debts and shattered dreams.
No redemption
In 2016, a report by news portal Newslaundry.com put Usha Ispat and Malvika Steel among the top defaulters in the Reserve Bank of India’s list of defaulters, with unpaid dues of ₹16,911 crore.
By then, despite a decade of investigations, FIRs, and raids by the CBI and the Serious Fraud Investigation Office, Rai had transmogrified from a failed mega magnate to philanthropist, educator, and ardent Sathya Sai Baba acolyte. In 2009, his steel plant Malvika Steel was conveniently taken over by the state-owned Steel Authority of India Ltd.
Rai’s website bears balmy words in the style of a new-age guru on the light of kindness. Only the saffron robes are missing!
Even his carefully planned redemption stank. The education visionary was alleged to be peddling fake degrees and the Enforcement Directorate attached properties worth ₹500 crore belonging to a grandly named Rai Foundation that was running colleges across India.
Rai is now part of a new entity set up by his second wife Harbeen Arora Rai called G100 Denim Club in London, according to his Linkedin profile. Not to mention, the authorship of Think India, a book encapsulating his sterling management principles. Plus, balmy words in the style of a new-age guru on his website about the light of kindness.
Only the saffron robes are missing!