The Telegraph
Monday , November 12 , 2012
Since 1st March, 1999
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- Better salaries have meant greater greed

India is today a much more unequal country than it was in 1990. The inequality has worsened in both urban and rural areas but is much worse in urban areas. The differentials between occupations (government service, private corporate, public corporate, academia) have become wider. The gap between the earning of the lowest levels in private corporate organizations and the highest has increased sharply. At the highest levels, the Indian private corporate sector compensations compare well with those in developed countries. Surveys show that the distance in the earnings of the top management and especially managing directors in multinational companies in India as well as in purely Indian companies and others in their organizations has widened enormously.

Although all professions have experienced substantial increases in salary levels since 1991, disparities in earnings between professions have also increased. A professor can earn around Rs 80,000 a month (plus accommodation in many cases), and a lecturer at commencement Rs 20,000 (including allowances but excluding housing where provided, consultancy and so on). A Central government service officer can expect a salary (excluding housing and so on) at retirement of Rs 80,000. But a middle-level corporate executive even in the public sector might earn around Rs 2,00,000.

Opening the economy to global forces has brought about these changes, and not only raised salary levels, but also widened disparities. In 1956, when I started work, a lecturer started (on the new University Grants Commission scales) at Rs 315 a month, a freshly minted Indian administrative services officer at Rs 400 and a foreign multinational company started a management trainee at Rs 575. But today, a lecturer starts at Rs 15,600 (plus dearness allowance and some allowances but no other perquisites) and if he retires as professor he will be at a salary of Rs 37,600 (plus DA and other allowances). An entry level government officer today gets Rs 20,000 (including DA but not housing) and at the end of his career, Rs 70,000 plus allowances, with a cost-of-living indexed pension. A freshly minted 23-year-old holder of a master’s degree in business administration could start at a salary of Rs 50,000, and much more in some cases.

Corporate salaries of senior executives till the early 1990s were determined by the Central government’s office of the controller of capital issues. There were strict ceilings for top management. Even the largest company could not pay a managing director more than Rs 7,500 per month while in smaller companies it was Rs 4,500. Tax rates were confiscatory, with the highest being 98 per cent at fairly low slabs. Many top executives avoided designations as directors so that their salaries would not require government approval. To beat these low ceilings, most companies gave executives many perquisites — housing, furniture, air conditioners, cars, travel abroad for themselves and their families, entertainment accounts and so on, and in many cases also unaccounted for money that was free of tax. The published disparities in compensation were illusory since there were a lot of unaccounted for or undervalued facilities. With liberalization in 1991 these restrictions were gradually relaxed and largely abolished. Many of these extra costs to employers have vanished.

McKinsey’s director, Tino Puri, tried to establish management consultancy in India. Until McKinsey entered, management consultants in India were either from the Indian institutes of management, private operators or part of chartered accountancy firms, the leader being A. Ferguson and Company. Their fees were a fraction of those quoted by McKinsey and others who followed. The new entrants offered superior insights and private as well as government clients paid the high fees. As the salary restraints were removed, Puri recruited from the IIMs, offering salaries of Rs 50,000 a month, which was five to 10 times what was then offered by others. I warned that this could bring back the restraints by the government. Instead it brought about a culture of money grabbing, of greed.

The removal of government restrictions led to substantially increased salary levels in private companies. Bright young people who might have otherwise looked for careers in academia or the government were tempted to join the private sector. The quality (intellectual and perhaps moral as well), of new recruits into the other professions deteriorated. Temptations increased among government employees to supplement salaries in the government.

This explosion in salary levels was accompanied by the enormous increase in government expenditures on infrastructure projects, social welfare schemes, public private partnership schemes, lease or sale of natural resources and so on. The mental block to earning through dubious or even illegal methods became relaxed among many government employees. The governance system and government regulation allow considerable discretion to concerned authorities in executing schemes. The size of government expenditures, the high discretionary element in decisions that rest with officers and ministers enabled many business people to get special favours for which they paid bribes to ministers and officers.

Illegal earnings through bribery and corruption have become far more common and the amounts paid much larger, with the beneficiaries among the bribe givers profiting spectacularly. The vast demand for scarce natural resources has made them very valuable since they provide substantial returns for many years. The power to allocate land, minerals like iron ore and limestone, coal field and oil and gas exploration in potential areas, telecommunications spectrum, government-regulated prices for oil and gas, electricity and so on allows cheating the government of revenues so as to benefit private parties and colluding officers. The same with burgeoning social welfare schemes as the government found them to be vote catchers. The rights to employment, food, education, health gave rise to many innovative schemes. These schemes were poorly tested, beneficiaries were difficult to identify, much discretion rested with government officers and elected representatives, enabling the siphoning off of government funds at unprecedented levels. Illegal iron ore and sandalwood exports, and many other ways, were found by businesses to supplement earnings. These illegal earnings had to be safely stashed. It is not surprising that Indians are reported to have the largest holdings in overseas havens.

This was enabled by government-designed schemes ostensibly to make India an attractive investment destination — like the tax free capital gains on investments from funds emanating from Mauritius and other tax havens, and anonymous investments through ‘participatory notes’ from abroad.

The culture of greed has thus led to a self-sustaining circle. Politicians, businessmen, government servants, many individuals, have joined to create a vast mechanism for illegal earnings. The government designs and introduces large schemes with many loopholes. These are only casually inspected and overseen. There are opportunities at all levels to siphon some money to private pockets. There is little effort to track and stop illegal earnings. Schemes are introduced to allow them to be safely kept abroad. For domestic investment, loopholes are created in real estate laws and in investments into agricultural properties so that the monies can be invested domestically. From recent disclosures it is apparent that the system is supported by the major political parties. They will not allow independent agencies to be created, and where they exist, to function independently.

In this environment of all-pervasive greed and corruption, some institutions attempt cleansing. The courts do a laudable but limited job. The comptroller and auditor general can only catch a few, who escape in most cases. The Election Commission is unable to prevent some of this illegal money being used lavishly in fighting elections. The media do a commendable job but has no interest in pursuing disclosures to their logical end.

Whistle-blowers like Subramanian Swamy, Arvind Kejriwal and others are the only way to break this vicious system. Their emergence leads to much information that had been secret before being disclosed to them by honest and disgusted officials in the government, business and elsewhere. Transparent disclosures in the full public glare are the only way left to break this culture of greed.