The graph that shows how far David Cameron wants to shrink the state

If the Tories get their way, within five years the UK will have a smaller public sector than any major developed nation

• 
• • Aditya Chakrabortty
  • The Guardian, Monday 15 October 2012 20.00 BST

Government spending as a percentage of national GDP. Photograph: IMF WEO Database Oct 2012

This column is normally accompanied by a photo; an illustration that takes its cue from the text. But not today. The chart you see on this page is plainly not decorative: it is the main event. All I'm going to discuss is its implications.

Drawing on IMF figures published last week, the graph compares what will happen to government spending in Britain up to 2017 with the outlook for Germany and the US. And what it shows is that the UK will plunge from public spending on a par with Germany in 2009, to spending less than the US by 2017. Had France, Sweden or Canada been included on this graph, the UK would still come bottom. If George Osborne gets his way, within the next five years, Britain will have a smaller public sector than any other major developed nation.

Fan or critic, nearly everyone now agrees that this government wants to shrink the state, but very few take on board what that means. This graph shows just how radical those ministerial plans are. Particularly striking is the fact that Britain will end up spending less as a proportion of its national income than even the US, the international byword for a decrepit public sector. According to Peter Taylor-Gooby, professor of social policy at Kent, this will be the first time it has happened since at least 1980 and possibly in recorded history. For it to take place within half a decade is a shift so dramatic that few people in frontline politics, let alone among the electorate, have understood its implications.

Forget all that ministerial guff about the necessity of cutting the public sector to spur economic growth. Had that argument been true, British businesses would be in leonine form by now, instead of their current chronic enfeeblement. It was notable at last week's Tory party conference how Osborne and David Cameron didn't even try to argue for the economic benefits of austerity – how could they? – but grimly asserted that there was no alternative.

Forget, too, the argument that only cuts have kept Britain's borrowing costs from rocketing. In the IMF's summer healthcheck for the UK was another chart which showed that the only nations where interest rates had spiralled upwards were those in the eurozone, and those without control of their own currency and monetary policy. Every other major economy, no matter what their debt load, was able to borrow from the financial markets as cheaply as ever.

Strip away the usual economic and financial alibis for such drastic austerity and what you're inevitably left with is a purely political motive: namely, a desire to transform the British state from being recognisably European, with continental levels of public spending, to something sub-American in its miserliness.

Let me make two caveats. First, there was no way Britain was going to maintain public spending at 2009 levels. That year, the Labour government threw the kitchen sink at the economy, after which you would expect some belt-tightening. Still, as Carl Emmerson of the Institute for Fiscal Studies points out, after both world wars, the level of public spending in Britain rose permanently; you might expect something similar after a once-in-a-lifetime financial crisis. Given how fast Britain is ageing, and how much we will need to spend on pensions and care for the elderly, there is no reason why the state in Britain should shrink back to some magic level of 40% of the economy.

Second, this chart is based on current US budget plans: if Mitt Romney moves into the White House next January, or even if Barack Obama is re-elected and has to strike a bargain with intransigent Republicans, then Washington is also likely to make stringent cuts. But that last qualification only reinforces the larger argument. Whether in Britain or the US, the right are trying to whip the rest of us into a giant race to the bottom, where public services, welfare entitlements and employment rights are all to be tossed overboard.

Cameron admitted as much in last Wednesday's conference speech. Lumping together Nigeria with China and India and Brazil, he described them as "the countries on the rise … lean, fit, obsessed with enterprise, spending money on the future – on education, incredible infrastructure and technology". As anyone who has ever tried to keep a car on the potholed roads of Bihar, in northern India, will know, that description is a giant porky. But Cameron wanted to draw a comparison with "the countries on the slide … fat, sclerotic, over-regulated, spending money on unaffordable welfare systems, huge pension bills, unreformed public services".

From compassionate Conservative to growth rainmaker to state-shrinker, Cameron has gone through a huge change since 2005. But that is nothing like what lies ahead for the rest of Britain in the next five years. Prepare yourself for welfare to be downsized into American-style workfare, for public-sector jobs to be turned into a second-class employment and for services, from school to healthcare, to demand that users pay more to get something decent. The future is American.

Planet with four suns discovered by 'armchair astronomers'

Planet believed to be six times the size of Earth is named PH1 after Planet Hunters website used by two American volunteers

• Press Association
• guardian.co.uk, Monday 15 October 2012 19.44 BST

An artist's impression of PH1, the planet with four suns discovered by Planet Hunters volunteers. Photograph: Haven Giguere/Yale/PA

A planet with four suns has been identified by two "armchair astronomers".

The bright new world, almost 5,000 light years away, is believed to be six times the size of Earth. It orbits one pair of stars and is in turn circled by a second pair, meaning four stars light up its skies.

A handful of planets are already known to orbit pairs of binary stars, but the new find is said to be unique.

"It's fascinating to try and imagine what it would be like to visit a planet with four suns in its sky, but this new world is confusing astronomers – it's not at all clear how it formed in such a busy environment," said Dr Chris Lintott, of Oxford University.

The planet was discovered by two American volunteers using the Planet Hunters website run by scientists including Lintott. It allows visitors to identify dips in the output of stars as a result of their light being blocked by "transits" of orbiting stars.

Kian Jek, from San Francisco, and Robert Gagliano, from Cottonwood, Arizona, spotted the effect as the new planet passed in front of its suns.

A team of professional astronomers confirmed the find using the Keck telescopes on Mauna Kea, Hawaii. The planet has been named PH1 after the Planet Hunters website.

Dr Arfon Smith, of Adler planetarium in Chicago and another member of the Planet Hunters team, said: "It's an amazing discovery, but what's even more exciting is that, with more data currently being added to planethunters.org for anyone to explore, we really don't know what our armchair astronomers will discover next."

Details of the discovery were presented on Monday at the Division for Planetary Sciences meeting in Reno, Nevada.

The Chávez victory will be felt far beyond Latin America

Popular support for Venezuela's revolution shows the growing space for genuine alternatives in the 21st century

• 
• • Seumas Milne in Caracas
  • The Guardian, Tuesday 9 October 2012 21.30 BST

Hugo Chávez celebrates his re-election as Venezuelan president. Photograph: Jorge Silva/Reuters

The transformation of Latin America is one of the decisive changes reshaping the global order. The tide of progressive change that has swept the region over the last decade has brought a string of elected socialist and social-democratic governments to office that have redistributed wealth and power, rejected western neoliberal orthodoxy, and challenged imperial domination. In the process they have started to build the first truly independent South America for 500 years and demonstrated to the rest of the world that there are, after all, economic and social alternatives in the 21st century.

Central to that process has been Hugo Chávez and his Bolivarian revolution in Venezuela. It is Venezuela, sitting on the world's largest proven oil reserves, that has spearheaded the movement of radical change across Latin America and underwritten the regional integration that is key to its renaissance. By doing so, the endlessly vilified Venezuelan leader has earned the enmity of the US and its camp followers, as well as the social and racial elites that have called the shots in Latin America for hundreds of years.

So Chávez's remarkable presidential election victory on Sunday – in which he won 55% of the vote on an 81% turnout after 14 years in power – has a significance far beyond Venezuela, or even Latin America. The stakes were enormous: if his oligarch challengerHenrique Capriles had won, not only would the revolution have come to a juddering halt, triggering privatisations and the axing of social programmes. So would its essential support for continental integration, mass sponsorship of Cuban doctors across the hemisphere – as well as Chávez's plans to reduce oil dependence on the US market.

Western and Latin American media and corporate elites had convinced themselves that they were at last in with a shout, that this election was "too close to call", or even that a failing Venezuelan president, weakened by cancer, would at last be rejected by his own people. Outgoing World Bank president Robert Zoellick crowed that Chávez's days were "numbered", while Barclays let its excitement run away with itself by calling the election for Capriles.

It's all of a piece with the endlessly recycled Orwellian canard that Chávez is some kind ofa dictator and Venezuela a tyranny where elections are rigged and the media muzzled and prostrate. But as opposition leaders concede, Venezuela is by any rational standards a democracy, with exceptionally high levels of participation, its electoral process more fraud-proof than those in Britain or the US, and its media dominated by a vituperatively anti-government private sector. In reality, the greatest threat to Venezuelan democracy came in the form of the abortive US-backed coup of 2002.

Even senior western diplomats in Caracas roll their eyes at the absurdity of the anti-Chávez propaganda in the western media. And in the queues outside polling stations on Sunday, in the opposition stronghold of San Cristóbal near the Colombian border, Capriles voters told me: "This is a democracy." Several claimed that if Chávez won, it wouldn't be because of manipulation of the voting system but the "laziness" and "greed" of their Venezuelans – by which they seemed to mean the appeal of government social programmes.

Which gets to the heart of the reason so many got the Venezuelan election wrong. Despite claims that Latin America's progressive tide is exhausted, leftwing and centre-left governments continue to be re-elected – from Ecuador to Brazil and Bolivia to Argentina – because they have reduced poverty and inequality and taken control of energy resources to benefit the excluded majority.

That is what Chávez has been able to do on a grander scale, using Venezuela's oil income and publicly owned enterprises to slash poverty by half and extreme poverty by 70%, massively expanding access to health and education, sharply boosting the minimum wage and pension provision, halving unemployment, and giving slum communities direct control over social programmes.

To visit any rally or polling station during the election campaign was to be left in no doubt as to who Chávez represents: the poor, the non-white, the young, the disabled – in other words, the dispossessed majority who have again returned him to power. Euphoria at the result among the poor was palpable: in the foothills of the Andes on Monday groups of red-shirted hillside farmers chanted and waved flags at any passerby.

Of course there is also no shortage of government failures and weaknesses which the opposition was able to target: from runaway violent crime to corruption, lack of delivery and economic diversification, and over-dependence on one man's charismatic leadership. And the US-financed opposition campaign was a much more sophisticated affair than in the past. Capriles presented himself as "centre-left", despite his hard right background, and promised to maintain some Chavista social programmes.

But even so, the Venezuelan president ended up almost 11 points ahead. And the opposition's attempt to triangulate to the left only underlines the success of Chávez in changing Venezuela's society and political terms of trade. He has shown himself to be the most electorally successful radical left leader in history. His re-election now gives him the chance to ensure Venezuela's transformation is deep enough to survive him, to overcome the administration's failures and help entrench the process of change across the continent.

Venezuela's revolution doesn't offer a political model that can be directly transplanted elsewhere, not least because oil revenues allow it to target resources on the poor without seriously attacking the interests of the wealthy. But its innovative social programmes, experiments in direct democracy and success in bringing resources under public control offer lessons to anyone interested in social justice and new forms of socialist politics in the rest of the world.

For all their problems and weaknesses, Venezuela and its Latin American allies have demonstrated that it's no longer necessary to accept a failed economic model, as many social democrats in Europe still do. They have shown it's possible to be both genuinely progressive and popular. Cynicism and media-fuelled ignorance have prevented many who would naturally identify with Latin America's transformation from recognising its significance. But Chávez's re-election has now ensured that the process will continue – and that the space for 21st-century alternatives will grow.

Afterlife exists says top brain surgeon

A prominent scientist who had previously dismissed the possibility of the afterlife says he has reconsidered his belief after experiencing an out of body experience which has convinced him that heaven exists.

Dr Eben Alexander, a Harvard-educated neurosurgeon, fell into a coma for seven days in 2008 after contracting meningitis.

During his illness Dr Alexander says that the part of his brain which controls human thought and emotion "shut down" and that he then experienced "something so profound that it gave me a scientific reason to believe in consciousness after death." In an essay for American magazine Newsweek, which he wrote to promote his book Proof of Heaven, Dr Alexander says he was met by a beautiful blue-eyed woman in a "place of clouds, big fluffy pink-white ones" and "shimmering beings".

He continues: "Birds? Angels? These words registered later, when I was writing down my recollections. But neither of these words do justice to the beings themselves, which were quite simply different from anything I have known on this planet. They were more advanced. Higher forms." The doctor adds that a "huge and booming like a glorious chant, came down from above, and I wondered if the winged beings were producing it. the sound was palpable and almost material, like a rain that you can feel on your skin but doesn't get you wet."

Dr Alexander says he had heard stories from patients who spoke of outer body experiences but had disregarded them as "wishful thinking" but has reconsidered his opinion following his own experience.

He added: "I know full well how extraordinary, how frankly unbelievable, all this sounds. Had someone even a doctor told me a story like this in the old days, I would have been quite certain that they were under the spell of some delusion. 

"But what happened to me was, far from being delusional, as real or more real than any event in my life. That includes my wedding day and the birth of my two sons." He added: "I've spent decades as a neurosurgeon at some of the most prestigous medical institutions in our country. I know that many of my peers hold as I myself did to the theory that the brain, and in particular the cortex, generates consciousness and that we live in a universe devoid of any kind of emotion, much less the unconditional love that I now know God and the universe have toward us.

"But that belief, that theory, now lies broken at our feet. What happened to me destroyed it."

An Iconoclast to lead the Central Bank

We need an iconoclast to lead the Bank of England

Central bankers are acting like allied commanders at the Battle of the Somme. Adair Turner would be a breath of fresh air

• 
• • Simon Jenkins
  • The Guardian, Tuesday 9 October 2012 21.00 BST

Adair Turner's most celebrated soundbite, in 2009, was that British banking is over-large, and much of it is overpaid and ‘socially useless'. Illustration: Belle Mellor

How to wreck Adair Turner's chances of becoming next governor of the Bank of England? Answer, name him as the best candidate fit for the job. For the first time in modern history it really matters who is governor. It matters that the person should have a grasp not just of the shambles that is modern banking but of the rigor mortis now afflicting Britain's economic managers. They desperately need someone with the guts for new ideas.

Turner has been a banker and an economist, two professions most tainted by the past five years. Bankers are tainted by venality, economists by intellectual failure. No one involved is free of guilt. No one has gone to jail, and only a few high-profile bankers have even suffered. What matters is have they learned?

Today the IMF predicted that Britain has relapsed into recession and should "smooth its planning adjustment over 2013 and beyond", jargon for "let up on austerity". Whether such IMF forecasts merit more credibility than the wildly over-optimistic ones last year, I cannot tell. Certainly the blunders have been serious. A cut of £1 in public spending apparently does not lead to 50p less economic activity but at least £1.30p less. The "multiplier effect" of deficit reduction is thus a downward deflationary spiral. This is not ideology, but the mathematics of catastrophe.

Those who warned three years ago that the risk of double-dip recession was so high as to require a plan B were right. The Treasury, the Bank of England and the IMF were wrong. The fact that the Treasury has had to propose six ineffective business lending packages in a row, and the Bank has had to pretend to pump £375bn "into the economy" is proof of that failure. I do not believe for a minute that George Osborne and his advisers, had they correctly predicted the recession, would be following the present policy. At least the IMF is now admitting its mistake.

Government and Bank economists are continuing to allow politicians to cop out of reflating demand for fear of a U-turn. Economists are like physicians in the days when they believed in leeches. They take no responsibility for gross errors that would get doctors struck off, and even transport officials suspended.

Turner is criticised as a dabbler and turncoat, a McKinsey consultant and a poor administrator. He was Tory, then SDP, then Blair courtier, an academic economist turned head of the CBI. He was a poacher turned regulator at the Financial Services Authority. He ran pensions and low-pay policy and is unceasingly iconoclastic and articulate. To adapt Ruskin, a hundred economists may look, but few can see. Turner can see. His opinions can be deduced from a torrent of outspokenness. His most celebrated soundbite, in 2009, was that British banking is over-large, and much of it is overpaid and "socially useless". As free markets mature, he says, insiders merely collude to "proliferate rent-extracting opportunities" – that is, make huge sums of money. They should be curbed.

Three of Turner's lectures, delivered in 2010 and now revised as "Economics after the Crisis", are eulogistically reviewed by Robert Skidelsky in the latest Times Literary Supplement. Turner maintains that economics has blown too much with the political wind. It has ordained that growth is in lock-step with social order and human happiness. It is not. He does not go the whole happiness agenda but nods vigorously in its direction. Nor do wider incentives yield fairness or evidence of contentment.

This does not seem leftwing – rather pragmatic. Increased leisure may be good yet impair growth. Market forces do not correctly price risk, as we have just seen in spades, but can spin off into an instability. The task of regulation, says Turner, is to curb upturns and minimise downturns, as Keynes ordered. It should have warned politicians against the debt bubbles and housing hysteria of the last decade.

Turner seeks to "reconstruct economics" not as anti-capitalist but, Skidelsky points out, as a challenge to "an unattainable market perfection" that can so clearly lead to periodic collapses and a huge cost to human welfare. There is a moral complexity to economics that is both necessary and difficult.

As for present policy, Turner seems to agree with the IMF that Britain has over-deflated its economy. In July he told the Bank's monetary policy committee that it faced a liquidity trap in which quantitative easing "was proving to have little impact on behaviour and on demand". Using the banks to stimulate the economy – the core of Treasury and Bank policy – was "ineffective". This amounted to saying that recession was now government-induced.

Turner's more private view is that Britain should consider whether debt should now be "monetised", financed by blatantly printing money rather than buying bank bonds and hoping this boosts demand. His is a version of the "helicopter" money advocated by JM Keynes and Milton Friedman. Turner points out that actually printing money – not pretending to as at present – would involve "no increase in government debt and therefore no increase in future debt servicing". It is pure inflation and needs careful handling, but just now it is like pouring oil on a seized engine. On the spectrum from plunging deflation or hyper-inflation, the risk of the former far outweighs the latter. At very least, this should be discussed.

Britain's central bankers are like allied commanders during the Somme, sticking blindly to a defunct strategy out of sheer familiarity. Turner's scepticism seems no more than prudent. In this context, a Bank governor steeped in the financial establishment but with an observant eye and a mind open to argument is more than a breath of fresh air. It is one thing that might jolt us out of the present mess.

Colonised and coloniser, empire's poison infects us all

Ideas that underpinned Britain's imperial project led not only to torture in Kenya, but war and catastrophe in Europe

• 
• • George Monbiot
  • The Guardian, Monday 8 October 2012 20.30 BST

'The ideology that led to Hitler's war and the Holocaust was developed by the colonial powers.' Illustration by Daniel Pudles

Over the gates of Auschwitz were the words "Work Makes You Free". Over the gates of the Solovetsky camp in Lenin's gulag: "Through Labour – Freedom!". Over the gates of the Ngenya detention camp, run by the British in Kenya: "Labour and Freedom". Dehumanisation appears to follow an almost inexorable course.

Last week three elderly Kenyans established the right to sue the British government for the torture that they suffered – castration, beating and rape – in the Kikuyu detention camps it ran in the 1950s.

Many tens of thousands were detained and tortured in the camps. I won't spare you the details: we have been sparing ourselves the details for far too long. Large numbers of men were castrated with pliers. Others were raped, sometimes with the use of knives, broken bottles, rifle barrels and scorpions. Women had similar instruments forced into their vaginas. The guards and officials sliced off ears and fingers, gouged out eyes, mutilated women's breasts with pliers, poured paraffin over people and set them alight. Untold thousands died.

The government's secret archive, revealed this April, shows that the attorney general, the colonial governor and the colonial secretary knew what was happening. The governor ensured that the perpetrators had legal immunity: including the British officers reported to him for roasting prisoners to death. In public the colonial secretary lied and kept lying.

Little distinguishes the British imperial project from any other. In all cases the purpose of empire was loot, land and labour. When people resisted (as some of the Kikuyu did during the Mau Mau rebellion), the response everywhere was the same: extreme and indiscriminate brutality, hidden from public view by distance and official lies.

Successive governments have sought to deny the Kikuyu justice: destroying most of the paperwork, lying about the existence of the rest, seeking to have the case dismissed on technicalities. Their handling of this issue, and the widespread British disavowal of what happened in Kenya, reflects the way this country has been brutalised by its colonial history. Empire did almost as much harm to the imperial nations as it did to their subject peoples.

In his book Exterminate All the Brutes, Sven Lindqvist shows how the ideology that led to Hitler's war and the Holocaust was developed by the colonial powers. Imperialism required an exculpatory myth. It was supplied, primarily, by British theorists.

In 1799 Charles White began the process of identifying Europeans as inherently superior to other peoples. By 1850 the disgraced anatomist Robert Knox had developed the theme into fully fledged racism. His book The Races of Man asserted that dark-skinned people were destined to be enslaved and then annihilated by the "lighter races". Dark meant almost everyone: "What a field of extermination lies before the Saxon, Celtic and Sarmatian races!"

Remarkable as it may sound, this view soon came to dominate British thought. In common with most of the political class, W Winwood Reade, Alfred Russell Wallace,Herbert Spencer, Frederick Farrar, Francis Galton, Benjamin Kidd and even Charles Darwin saw the extermination of dark-skinned people as an inevitable law of nature. Some of them argued that Europeans had a duty to speed it up: both to save the integrity of the species and to put the inferior "races" out of their misery.

These themes were picked up by German theorists. In 1893 Alexander Tille, drawing on British writers, claimed that "it is the right of the stronger race to annihilate the lower". In 1901 Friedrich Ratzel argued in Der Lebensraum that Germany had a right and duty, like Europeans in the Americas, to displace "primitive peoples". In Mein Kampf, Hitler explained that the German empire's eastward expansion would mirror the western and southern extension of British interests. He systematised and industrialised what imperial nations had been doing for five centuries. The scale was greater, the location different, the ideology broadly the same.

I believe that the brutalisation of empire also made the pointless slaughter of the first world war possible. A ruling class that had shut down its feelings to the extent that it could engineer a famine in India in the 1870s in which between 12 million and 29 million people died was capable of almost anything. Empire had tested not only the long-range weaponry that would be deployed in northern France, but also the ideas.

Nor have we wholly abandoned them. Commenting on the Kikuyu case in the Daily Mail, Max Hastings charged that the plaintiffs had come to London "to exploit our feeble-minded justice system". Hearing them "represents an exercise in state masochism". I suspect that if members of Hastings' club had been treated like the Kikuyu, he would be shouting from the rooftops for redress. But Kenyans remain, as colonial logic demanded, the other, bereft of the features and feelings that establish our common humanity.

So, in the eyes of much of the elite, do welfare recipients, "problem families", Muslims and asylum seekers. The process of dehumanisation, so necessary to the colonial project, turns inwards. Until this nation is prepared to recognise what happened and how it was justified, Britain, like the countries it occupied, will remain blighted by imperialism.

Robert Vadra - Rent Seeker or Entrepreneur?

Property empire was built on soft loans handed out in unusual circumstances, documents show

In February, as rumours of the ambitions of Congress president Sonia Gandhi’s son-in-law swirled amidst the heat and dust of the election campaign in Uttar Pradesh, her daughter Priyanka moved to scotch speculation about Robert Vadra’s possible political future.

“He’s a successful businessman,” the younger Ms. Gandhi said of her husband, “who is not interested in changing his occupation.”

Even though Mr. Vadra has increasingly emerged in the public eye, there has been little information on just how successful a businessman he is — and how his empire was built.

Last year, The Economic Times first wrote about his “low-key entry into the real estate business” with the help of DLF Ltd, India’s largest commercial property developer. And on Friday, Arvind Kejriwal and Prashant Bhushan of India Against Corruption (IAC) released documents which showed how Mr. Vadra has acquired land assets in and around the National Capital Region worth hundreds of crores of rupees, sometimes at prices below market value — funded by interest-free loans disbursed to him by DLF and other companies for no apparent reason.

Though the documents reveal no illegality or impropriety on the part of Mr. Vadra, they do raise the question of why DLF — which is a publicly traded company — would enter into multiple business transactions with him on terms that appear highly preferential. The company on Saturday issued a lengthypress release setting out its side of the story but questions of corporate governance remain and minority shareholders are likely to ask the company for the rationale behind its arrangement with Ms. Sonia Gandhi’s son-in-law and whether similar soft loans (or “advances” as DLF prefers to call them) and deals have been transacted with companies owned by other prominent individuals. The answer to the second question may help explain why a normally feisty Opposition has been remarkably silent on the DLF-Vadra connection since the story first broke in 2011.

In 1997, the year Mr. Vadra married Priyanka Gandhi, he incorporated his first, modest business — Artex, which dealt with brass handicrafts and fashion accessories. From 2007, there was a surge in his activities. Inside of a year, he founded five other ventures, spanning the real estate, hospitality and trading sectors.

Ms. Gandhi maintained a distance from these companies: in 2008, she dissociated herself from the sole business in which she was involved, aircraft charter firm Blue Breeze Trading.

From balance sheets and directors’ reports released by IAC and additional papers obtained by The Hindu, which relate to six group companies, it is clear that Mr. Vadra’s rise was meteoric. In 2007-2008, his companies started out with promoter funds of just Rs. 50 lakh.

However, the companies succeeded in acquiring 29 high-value properties by 2010, armed with loans and advances of Rs. 80 crore from DLF,… as well as Bedarwals Infra Projects, Nikhil International and VRS Infrastructure. These included a Rs. 31.7 crore acquisition of a 50 per cent share of Saket Courtyard by 2010, armed with loans and advances of Rs. 80 crore from DLF, as well as Bedarwals Infra Projects, Nikhil International and VRS Infrastructure.

These included a Rs. 31.7 crore acquisition of a 50 per cent share of Saket Courtyard Hospitality, which owns the 114-bed Hilton Garden Hotel in New Delhi; a 10,000 square foot penthouse, number B1115, at the DLF Aralias complex for Rs 89.41 lakh; 7 apartments in DLF Magnolia for Rs. 5.2 crore; apartments for Rs. 5.06 crore at DLF Capital Greens; and a DLF-owned plot in Delhi’s ultra-posh Greater Kailash II area for Rs. 1.21 crore. Though DLF’s press release said some of these prices were “completely incorrect,” the investment numbers are all stated in the balance sheets filed by Mr. Vadra’s companies with the Registrar of Companies.

Then, at the end of 2010, Mr. Vadra’s companies also picked up a bouquet of rural properties: 160.62 acres of agricultural land in Bikaner for Rs. 1.02 crore, and Rs. 2.43 crore for an additional 5 parcels of land of unknown acreage; land at Manesar, on Delhi’s fringes, for Rs. 15.38 crore; land at Palwal for Rs. 42 lakh, land at Hayyatpur, in Gurgaon, for roughly Rs. 4 crore; land at Hasanpur for Rs. 76.07 lakh; land at Mewat for Rs. 95.42 lakh; unidentified agricultural land for Rs. 69.09 lakh; and two ‘other real estate bookings’ worth Rs. 9 lakh.

From just Rs. 7.95 crore in fiscal 2008, Vadra’s fixed assets and investments grew to Rs 17.18 crore in fiscal 2009, jumping a staggering 350 per cent in a single year to Rs 60.53 crore in fiscal 2010, the year in which most of these properties were acquired with promoter funds of just Rs. 50 lakh along with interest of Rs. 255.46 lakh earned on advances and loans and zero group activity or profitability.

Despite the high market value of these listed assets (properties), though, the declared investment portfolio in Mr. Vadra’s balance sheets remained a meagre Rs. 71 crore at the end of fiscal 2010 with accumulated group losses of Rs. 3 crore.

Mr. Vadra’s companies did not respond to e-mails sent by The Hindu seeking clarifications on the details of these transactions. In particular, it remains unclear why DLF and other major corporations would have made him large loans, since this is not in the nature of their business. Nor did Mr. Vadra’s companies have any apparent prior specialisation in real estate business.

Financial wizardry

The financial information available from the balance sheets and directors’ reports of Mr. Vadra’s companies — Sky Light Hospitality, Sky Light Realty, Blue Breeze Trading, Artex, Real Earth Estates and North India IT Parks — raise hard questions about what business it is they actually do, and how this business is conducted.

Each of the companies has 268, Sukhdev Vihar, New Delhi, as its common address, and Mr. Vadra and his mother Maureen Vadra as directors. Mr. Vadra, the documents show, receives remuneration of Rs. 60 lakh per annum from just one company, Sky Light Realty. The payment, the company’s auditor states is “remuneration in excess of the limit prescribed under section 217 (2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules 1975.”

There are no other employee costs in the books, either to his mother or to others. However, in the documents, both directors “place on record their deep sense of appreciation for the committed services of executives, staff and workers of the company.”

Strangely, while assets balloon in each subsequent balance sheet, there is no account of the corresponding enhancement of visible business activity. For example, the balance sheets raise a current liability of Rs. 50 crore against the Manesar land, though it was registered for just Rs.15.38 crore in the same financial year, defying all commercial and financial prudence and raising doubts about whether this was an income rather than a current liability.

A senior chartered accountant told The Hindu on condition of anonymity, given the individuals involved, that masking incomes as loans/current liabilities in this manner is an unorthodox accounting device. “Using short term funding of this kind to create long-term assets defies financial prudence as it constitutes a high business risk, unless they are not really ‘current liabilities’ and are not payable in the short term, which means they are nothing but incomes which have been disguised,” he said. Vadra’s auditors consistently overlook this in all six firms, while accounting firm Khurana & Khurana in its Auditors Report for Real Earth Estates Pvt. Ltd. for the year 2010, actually opts to gloss over this by stating: “Based on the information and explanation given to and on an overall examination of the balance sheet of the company, in our opinion, there are no funds raised on short term basis which have been used for long term investment.”

The auditor’s accounting rigor comes into further question with its statement that according to the information and explanations given to us, the company has, during the year, not granted any loans, secured or unsecured to companies, firm or other parties covered in the register maintained under section 31 of the Companies Act 1956, excepting the advances under business obligation accordingly paragraphs 4 (iii) (a) (b) (c) and (d) of the order are not applicable. However, the balance sheet shows loans and advances of Rs 2.89 crore for the company in 2010.

Many such loans, which reflect as total current liability of Rs. 72 crore in the accounts, are invested in long-term assets like land. Curiously, no one appears to be pressing for the return of these loans — which are, according to the documents, interest-free.

Additionally, all of Mr. Vadra’s companies show interest income from fixed deposits, claiming tax deducted at source for this interest without accounting for the fixed deposits themselves in the balance sheets. The six companies’ profitability, which grew from zero in 2007-8 to Rs. 20.94 lakh in 2008-9 to Rs. 255.46 lakh in 2009-10, was not from any business activity in these companies but purely from interest on 23 elusive fixed deposits amounting to roughly Rs. 5 crore.

There are other unexplained gaps in the financial information. As of March 31, 2010, the group profit and loss account shows that only Sky Light Realty made a profit, and that too in one single year. Yet, while the others show losses, they continue to make investments. This profit of Rs. 244.98 lakh was despite a complete absence of business activity or liquidation/reduction of fixed assets, investments or other bookings. However, the accumulated losses of Rs. 3 crore from the other 5 firms in the RV Group’s 2010 balance sheet wipe out Vadra’s capital and reserves, raising questions about his ability to buy so many high value properties with zero capital.

DLF’s fortunes

Perhaps the key to the relationship could lie in DLF’s troubled fortunes since 2008 — the very time its dealings with Mr. Vadra acquired significant scale. According to a March 1, 2012 report by the respected Veritas Investment Research Corporation, DLF Ltd is an organisation under duress, with its management scrambling to consummate assets sales, rationalize its land bank and divest non-core operations.

Since a May, 2007 Initial Public Offering, which sold at Rs. 525 per share, the stock price declined by 46 per cent in March 2012 compared to a roughly 30 per cent gain in the Sensex over the same period with the stock presently trading at Rs. 241.80, a steep 54.13 per cent dip.

Veritas points to questionable related-party transactions, aggressive and conflicting accounting policies, self-enrichment and inability to deliver on promises, and a balance sheet stretched to the limit, with no free cash flow and no credible plan to de-lever its balance sheet. “If your investment decision incorporates management integrity, then bypassing DLF will be an easy choice,” the Veritas report states.

In addition, Veritas does “not believe the disclosed book equity and asset base of the company,” stating that via its dealings (merger) with DLF Assets Ltd (DAL), from FY 2007 to FY 2011, the company inflated sales by at least Rs. 11,236 crore and its profit before tax by Rs. 7,233 crore.

A slowing real estate market in a high inflation environment and over-exposure to Gurgaon — among India’s most speculative real estate markets — is further expected to create tremendous pressure on the company’s balance sheet. “In the end, we believe DLF will seek assistance from financial institutions to restructure its loans,” the report affirms, urging investors not to buy DLF stock. DLF dismissed the report as “mischievous and presumptive.”

Mr. Vadra himself has attributed his brass-to-gold success story to hard work—and a little help from “family” friends like K.P. Singh, the chairman of the DLF Group. However, Mr. Vadra has strongly denied taking any favours from DLF in the past. “I have a good understanding with DLF. Our children are friends, we are friends. They are seasoned businessmen. They are not daft… They don't need me to enhance them. They’ve existed for years,” he told The Economic Times in March 2011.

Indeed, in January 2002, he made his distaste for favour-seeking capitalism public, dissociating himself from his brother and father, alleging that they were promising jobs and favours using his name and association with the Gandhi family. His father responded by suing him for defamation.

Hard work Mr. Vadra may well have put into building his property empire. But the help he received from friends like DLF suggests at least a part of his success flowed from the willingness of others to bet on the outcome of his enterprise.