Joys of prohibition
As far back as in the 1980s and early 1990s, surveys from the National Council of Applied Economic Research using large samples had established the large-scale theft of subsidized kerosene for adulterating with diesel and its sale to truck owners. The estimates were that there was as much as 40 per cent of cheap kerosene that was being so diverted for adulteration. This theft was possible because of the nexus between thieving merchants, employees of oil companies and ration shops. Since the subsidy element in relation to market prices is around 60 per cent, there is substantial profit to be made. Poor households are willing to give up all or part of their subsidized kerosene entitlements for cash. The whole mechanism is well-oiled and since kerosene does not apparently diminish the quality of diesel, it is established practice. Such theft and adulteration are possible because governments insist on distributing the cheap kerosene physically rather than give entitlements as cash or as coupons to the deserving. The new minister of petroleum and chemicals is now suggesting, as was suggested years ago, that subsidized kerosene be coloured so that the adulteration could be detected. Scientists could find no colour that would not dissolve. The idea was given up then as it will be now. Adulteration will continue so long as cheap kerosene is physically distributed to the poor.
The brutal murder by fire of the additional collector, Yashwant Sonawane, who tried to break the thieving ring in Manmad in Maharashtra, is a warning. By holding on to the gang leader, Sonawane ensured that the gang was identified and arrested. It will be recalled that a young officer of a State-owned oil company was killed some years ago when he tried to bring oil thieves to justice.
Such tragedies are inevitable. There is too much illegal money being made by stealing subsidized kerosene and selling it to truck owners. This story is as applicable to other commodities in public distribution. But no state or Central government in India has, despite full knowledge, been willing to change a public distribution system that physically procures, stores, handles, transports and distributes subsidized commodities. Inevitably, criminals come in to take advantage. It will lead to more murders of honest officers like Sonawane.
Another NCAER survey had established that almost half the pharmaceuticals made and sold in India were fake or substandard. The drug controllers who are supposed to police and prevent this, have few inspection staff, among whom many are suspected to be on the payrolls of the fake drug manufacturers. The proliferation because of the policy stimulus to small-scale industry has resulted in the rise of many thousands of small-scale manufacturers with little expertise, hygiene or technology. The circumstances were tailor-made for fakery. It continues even today since so many have found an easy way to make large profits.
The situation is no different with foodgrains. The Food Corporation of India is believed to be one of the most corrupt of public sector companies, with substandard grains being paid for at rates meant for higher quality, thefts during handling, transportation and storage, inadequate storage facilities leading to grains being damaged, and ration shops keeping many bogus ration cards which enables a lot of the cheap grains to be diverted to the market. This had happened also when the government had a cheap cloth scheme for the poor. Much of this cheap cloth ended up with small readymade garment makers who made substantial profits.
The case of prohibition of liquor sale and consumption in some states is another example of government policy being formulated and implemented despite full knowledge of what would happen. India and the Congress, which introduced the prohibition, did not learn from the 1930s’ experience of prohibition in the United States of America. Criminal gangs flourished as did well-known businessmen (Joseph Kennedy is said to have made his fortune first because of prohibition). Despite the abolition of prohibition, the gangs remain and have diversified into other criminal activities. It is well-known that prohibition in Gujarat even under Narendra Modi does not stop any brand of liquor from being available. There is a risk premium. Many of the successful criminal gangs in Mumbai and elsewhere, like that of Dawood Ibrahim, began their activities with liquor during prohibition. All these gangs have diversified from bootlegging and smuggling liquor into other criminal activities including terrorism.
Thus, government policy creates a well-oiled ring of government servants, police, criminals, traders and others who ensure that criminal activity, fakery, theft, diverting to the market commodities meant for the poor make certain that illegal ‘businesses’ flourish, black money is accumulated and often sent abroad through an active hawala route into Swiss and other overseas bank accounts.
The deliberate insistence by governments on persisting with policies in ways that maximize the prospects for theft and criminal activity is the cause. Government policymakers persist, knowing that the intended benefits of such policies will reach only a few, but will result in the flourishing of criminal gangs, corruption among government servants, and would consequently be of little benefit to the poor or to the society for which the policies were formulated.
Some of the new social welfare programmes introduced in the last decade are well-meaning and desirable. But introducing them without reforming the administrative system and procedures will only ensure that what is stolen by low-level functionaries today will soon become part of a criminal ring of bureaucrats and intermediaries that will siphon money away from laudable schemes. As an example, the rural employment guarantee scheme is already experiencing considerable siphoning off of vast sums of money.
There are also other policies than those meant for the good of the poor that benefit gangsters, corrupt politicians, bureaucrats and businessmen. Policies have been formulated that benefit white-collar criminals and their associates. Periodically, the media erupts about the black economy in India, the vast sums smuggled abroad and held in safe havens by politicians, bureaucrats, businessmen and others engaged in criminal activities. It is well-known that two policies of the government encourage Indians to smuggle money abroad, bring it back through approved channels to be laundered in India and then sent back once again to safe havens abroad. One has been in existence for decades. It exempts overseas investments from the 20 per cent short-term capital gains tax. Originally, this was restricted to investments from Mauritius, but is now applicable to some other safe havens. The other is the scheme for “participatory notes” that allow overseas investors to send money anonymously through overseas bank branches and take it back in the same manner. Clearly these clever government policies enable Indians to send and bring back money at will, to invest and make untaxed profits in the stock markets, and remit the money back for safekeeping abroad.
These policies are largely Congress government policies, though other political parties in government also did nothing to correct them. Has governance in India been corrupted to such an extent that policies are formulated, implemented and persisted with ostensibly for the benefit of the poor or for that of society at large, but in fact to enable considerable siphoning off of national funds?
The debate about corruption in India must deal with such policies. If India is not to become a “banana republic” for the benefit of a few individuals, we must transform our administrative system and procedures, discipline politicians so that they cannot get away with corrupt and criminal activities, and introduce total transparency into all decision-making. Despite the growth that the economy is showing, there is a sense that the present government is in terminal decline. No real alternative is in sight. Poor governance will lead to India’s fall.