FIGHTING CORRUPTION - A growing economy provides fresh means of illegal gain

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By COMMENTARAO - S.L. RAO The author is former director general, National Council for Applied Economic Research The author is former director general, National Council for Applied Economic Research
  • Published 9.05.11

Tihar jail today has the largest collection of charged or convicted top officials, a powerful ex-minister, sundry politicians and officials. Maharashtra had a teflon-coated chief minister who was ‘sacked’ to a cabinet post in Delhi after being long untouched by many scandals. Another just exited. A former Jharkhand chief minister is in jail on charges of looting his state treasury and accumulating funds abroad. The powerful founder of the Nationalist Congress Party has now been repeatedly named in connection with major corruption — the real estate firm connected with the 2G scam, the horse breeder charged with being the biggest conduit to overseas bank accounts, the ills of the aviation sector including poor pilot training, the collapse of the nationalized airlines and so on. There is a sea change in public attitudes to high-level corruption in government and therefore to how at least some are punished.

A wave of disgust at the sleaze and shamelessness of government officials including politicians has swept the public. Anna Hazare tapped into this wave of revulsion. The Lok Pal was his first answer to dealing with such corrupt officials and their political bosses. Many other actions are necessary and the National Advisory Council seems seized with them. But this revulsion may not influence elections because of the presence of corrupt politicians in all parties.

Indira Gandhi famously excused corruption, saying it is a global phenomenon. Some of our corrupt achievements: the purchase of aeroplanes; the transfer of Air India and Indian Airlines routes to foreign and domestic private airlines for personal consideration; the purchase of defence equipment; other public sector purchases of machinery and materials; the blatant Commonwealth Games thefts; the suspicion of organized diversion of government funds in the many social sector programmes like the public distribution system, the national rural employment guarantee scheme and so on, which miss many of the deserving, or from commissions on infrastructure contracts.

State governments are the breeding grounds for lessons on ways to accumulate illegal wealth. Spending on many government purchases and contracts, ongoing scandals for many years in both the Dravida Munnetra Kazhagam and the All India Anna Dravida Munnetra Kazhagam governments, unresolved issues relating to the Lalu Prasad animal husbandry scandal, the decades-long deprivation of development expenditure in the north-eastern states because of the diversion of Central development funds for the purchase of private real estate in Delhi and elsewhere by ruling politicians, the amassing of huge rupee and foreign currency fortunes by a Jharkhand chief minister during a brief time in office, the land scandals when Nariman Point was reclaimed and the recent land grab for special economic zones are a few examples.

In the command and control economy till 1985, industrial success depended on who you knew in government and how much you were willing to pay. Payment was for industrial licences to start factories, import licences for forbidden materials, export licences to allow exports of items scarce in India, and contracts to do things for governments or supply goods and services. At lower levels of the administration, there were and continue to be, permits to build, violate building norms, pollute the neighbourhood without fear, employ child labour and for excessive hours, change contractual government terms and so on.

Liberalization and the spread of information technology closed some sources of corruption (like railway and air tickets), but new ones emerged or old ones became much bigger (for example, small payoffs for industrial licences versus huge ones for telecommunications spectrum sales). With economic growth and increased government revenues, there is huge spending on infrastructure and social schemes to encourage “inclusive growth”. There are now larger opportunities to divert government funds meant for benefiting society and the poor and vulnerable. Corruption in all political parties for funds to fight elections, maintain ‘volunteers’ in normal times, and create extra incomes and wealth for politicians is blatant and shameless. None of it is possible without bureaucrats assisting and benefiting from it.

The weakness of our governance — its institutions, systems and rules — is reflected in the loot of funds for services meant for the poor, martyrs and infrastructure. The Global Financial Integrity report in the latest estimate of such funds abroad says that between 1948 and 2008, $462 billion from drug and human trafficking, corruption, fraud and currency counterfeiting was sent out by private companies and individuals.

The rule of law in India is slow and weak. Every government creates the environment for black money. Weak penal powers are rarely exercised. The good news is that some exposures are leading to action because of competitive media, growing middle-class awareness, the Right to Information Act and the recent activism of the Supreme Court.

These, and a Lok Pal with prosecuting powers, are only touching different aspects of the elephant that is corruption. The system has to reform as in the 1990s when extortionate personal and corporate income tax rates were reduced, foreign exchange allowances and remittances made generous, imports opened up with much lower duties. But under-invoicing of exports and over-invoicing of imports continue, with illegal drugs and arms trades. Illegal pickings are large in a growing economy. Politicians and the bureaucracy have created a further enabler by emphasizing foreign institutional investment over direct investment. The continuation of anonymous investments in the stock market through participatory notes and exempting FIIs from short-term capital-gains tax are government-created enablers for money to enter India by hawala, be invested, make a profit and go back overseas as ‘clean’ money.

The government owns many scarce resources like land, mineral, air waves and spectrum worth huge amounts; these are sources of large illegal earnings. The acquisition and allocation of resources, price determination of valuable resources like oil and gas, the exploitation of valuable minerals in forest and tribal lands, allocation of spectrum are new and massive opportunities for corruption. So is the procurement of defence equipment, railway engines, aeroplanes and so on. Government spending on physical and social infrastructures and social welfare schemes are new sources for politicians and bureaucrats to divert funds for personal use.

These thefts occur despite the many investigatory agencies — police, the Central Vigilance Commission, the comptroller and auditor general, the Central Bureau of Investigation, Serious Fraud Office, enforcement directorate, Lok Ayuktas in some states, apart from the judiciary and the media. They have not halted or rolled back this flood of corruption and theft. There are many reasons — a lack of talent for investigation, poor follow-up and no support after initial investigatory enthusiasm, the slow and cumbersome process of framing charges, getting government permission to prosecute bureaucrats and ministers, bringing people to trial, the slow judicial process with time-consuming appellate processes, and the absence of severe punishment for anyone found guilty.

Penalties must be made much more stringent and rigid as in the United States of America. An independent tribunal must examine evidence to ensure sanction of prosecution of bureaucrats and ministers within a time frame. Concurrently, bureaucrats must have guaranteed minimum tenures to prevent their compliance with ministerial corruption because of transfer threats. An independent authority (not ministers or bureaucrats) must examine and sanction transfers before the end of tenure. Ministerial discretion must be replaced by independent regulatory commissions — on licences, tariffs and so on. The public enterprises selection board must be made independent, with outside experts, and their choices respected. All independent regulators and selecting authorities must be transparently appointed. Rules must ensure that all government decisions are attributable to one person. An independent authority must weigh charges against officers and sanction their suspension till trial. Participatory notes and exemptions from capital gains tax for investments from Mauritius and others must be phased out. The judiciary must come under a national judicial commission both for selection and accountability. Media content, especially television, must be overseen by a content authority as in the United Kingdom. The government must openly auction any valuable assets, such as spectrum and so on.