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Bollywood leaves thugs behind

Published by The Straits Times, Singapore on 2004-05-12

GOREGAON (India) - When the prestigious Cannes Film Festival opens in France on 12 May, the Indian pavilion is certain to be among the most visited exhibitions.

India, after all, is the world's biggest producer of feature films - some 1,000 are produced annually in Hindi, Tamil, Telugu, Bengali, Marathi, and Malayalam, more than three times what Hollywood turns out in the English language. Indian films, with their typical mix of seat-thumping music, pathos, extravagant dance numbers and high drama, draw appreciative crowds from Singapore to San Francisco. Indian film stars have become household names in the Middle East and Southeast Asia.

But who finances these films? The glamour and glitz of the US$1.5 billion industry cloak the dubious provenance of the money that underwrites productions. Moneylenders who charge a usurious 40 percent interest rate are often the hidden backers. A promissory note system called 'hundi', enforced by underworld thugs, is another source of funds. And direct contributions from Gulf-based Indian mobsters accounts for 10 percent of movie financing, according to income-tax authorities.

When distributors and finance people from around the world visit the traditionally popular Indian pavilion at Cannes - tea and savouries are served -- they are sure to run into Ms Rajal Pitroda, one of the Indian delegation's leaders. At 26, the sprightly Ms Pitroda could be easily taken for the star of one of the films she will be talking up at the festival. But her job at Cannes goes beyond cheerleading.

The US-educated Ms Pitroda is in the forefront of a new movement to clean up the Indian film industry and attract more conventional financing for Indian film production. Because the sources of funding are dubious, Indian producers are understandable reluctant to open their books to outside auditors. Typically, a producer gets loans from film distributors against a minimum guarantee: this means that the distributors need to ensure that the film is screened in cinemas for a fixed minimum period. If this minimum guarantee is fulfilled, the producers have no further liability. But many films flop at the box office, and producers are hard pressed to repay their lenders. Beatings and murders of delinquent borrowers aren't unknown in the film industry.

As costs go, Indian films are relatively inexpensive to make in a country where skilled labor is cheap. The seven million people who work in the film industry are mostly on contract, which means that producers don't have to provide health care and housing. Most Indian films, therefore, come in at the equivalent of US$2 million.

Lately, however, the budgets for some films have escalated. Stars such as Shah Rukh Khan, Manisha Koirala and Salman Khan have reportedly demanded US$500,000 and upward per movie. With the collapse of the old studio system in the 1960s under which stars used to be under contract to fabled - and now defunct -- institutions such as New Theatres, Bombay Talkies and Prabhat Studios, today's leading actors and actresses work on a freelance basis. They often also ask for percentage shares of a film's anticipated profits, often wanting the money upfront before shooting begins.

Moreover, distributors - who traditionally provided seed money to producers - are getting skittish because many big-budget films have flopped at the box office in recent years. Thus, many distributors now prefer to pay 50 percent of the film-making cost, leaving it to the producer to get the rest from other sources.

Ms Pitroda's presence at Cannes has been made possible by the influential New Delhi-based Confederation of Indian Industries (CII). The organization, which represents hundreds of top Indian corporations and serves as a think-tank and booster for Indian business globally, recently bestowed on the film business the category of 'industry.' Such categorization is intended to enable the movie business to become a mainstream financial industry. CII's blessings will certainly help film producers secure funding from India's flourishing banks and other financial institutions. CII's monitoring would also help ensure that the industry becomes more transparent in its business practices.

Two banks have already stepped in to provide modest financing, although the institutions, Canara Bank and Indian Bank, reportedly made no profits from recent investments. One hopes that these banks aren't discouraged by their experience. CII is also encouraging the government-supported National Film Development Corporation to be more aggressive in lending to small and medium size film makers, who account for the bulk of the films produced in India each year.

International entertainment companies, which have a more steady revenue stream than Indian movie sources, are showing greater interest in the industry here. They have been impressed, for example, by the establishment of a 'Film City' here in Goregaon, a suburb of Mumbai, where new studios with hi-tech facilities have sprung up. CII has also created a data base of box office revenues and production costs so that the financial murkiness enveloping the film industry is diminished.

'The Indian film business has long enjoyed legitimacy in the public perception,' Ms Pitroda said. 'Now it needs to win that same kind of legitimacy in conventional financial circles.'

As India's economy becomes more liberalized, shedding years of bureaucratic control and domination by a handful of plutocrats, the move to inject transparency and ethical financing in the film industry is extremely timely. People like Rajal Pitroda represent a new generation of watchdogs who must be supported.

Pranay Gupte,
Senior Writer and Global-Affairs Columnist

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