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Anatomy of sleaze

Published : Aug 24, 2012 00:00 IST



Two books explore how corruption and black money thrive in our economy.

THE India Against Corruption movement led by Team Anna has focussed on the institution of a Lokpal at the Centre with effective powers as though it is a panacea for corruption. The popularity of the movement, therefore, leaves very little space in public discourse for a nuanced discussion about the different forms of corruption and the need to adopt specific strategies to minimise them. Similarly, the yoga guru Baba Ramdevs campaign against black money stashed by Indians in foreign banks smacks of a complete lack of understanding of the issue of how black money is generated, and the effective steps required to stop it. The two books under review promise to go beyond both the superficial and the naive to unravel the complexities surrounding corruption and black money in contemporary public discourse, and thus raise our expectations.

The first book, Corruption in India: The DNA and the RNA, is authored by Bibek Debroy and Laveesh Bhandari, both scholars of repute. At the outset, the authors warn us that one should be careful in citing cross-country studies that claim that developing countries are more corrupt than developed countries. According to them, it may be more correct to say that developed countries have forms of corruption that are legal, while developing countries have forms of corruption that are illegal, though law itself is subject to change and is not cast in stone.

The authors start from the assumption that the sheer number of laws is likely to determine the extent of corruption in a country. Thus, they say that the more corrupt the state, the more laws it has and a strong state does not require too many laws. Both are debatable propositions, and the relationship between the number of laws and the extent of corruption is indeed tenuous. Fortunately, the authors do not indulge in a lengthy discussion (and vindication) of these doubtful propositions; instead, they explain the catchy title of the book, and its relevance to India.

To begin with, small-ticket corruption means extortion, kickback, patronage, speed money and abuse of public property. It is petty corruption associated with the delivery of public services.

The book presents a long list of cases of big-ticket corruption in India in the chronological order, which is useful: Haridas Mundhra (1957), Nagarwala (1971), Antulay and cement (1982), Bofors (1989), Harshad Mehta (1992), palmolein oil imports in Kerala (1992), Telgi (1995), SNC Lavalin in Kerala (1995), Sukhram and telecom (1996), fodder in Bihar (1996), Jain hawala (1997), Ketan Parekh (2001), the Barak missile (2001), Kargil coffins (2002), the Taj corridor (2003), the PDS scam in Arunachal (2004), oil for food (2005), Scorpene submarine deal (2006), stamp papers (2006), cash for votes (2008), Satyam (2008), Madhu Koda and mining (2009), 2G (2010), Commonwealth Games (2010), Adarsh Housing Society (2010), foodgrains in Uttar Pradesh (2010) and Bellary mines (2011).

The book refers to the recent paper by Kaushik Basu, Chief Economic Adviser to the Prime Minister, which suggested that the giving of bribes should become legal for some types of services, namely, harassment bribes and bribes paid for goods and services that people are entitled to (small-ticket corruption) and not associated with scams and exploitation of natural resources (big-ticket corruption). The paper led to outrage among certain sections of civil society. The book refrains from openly criticising Basu, even though its thrust is against both small-ticket corruption (DNA) and big-ticket corruption (RNA).

In biology, DNA (deoxyribonucleic acid) and RNA (ribonucleic acid) are the building blocks of life. But there are differences between the two. RNA is more unstable than DNA. DNA structures are simpler. And RNA can perform a catalytic function.

Is corruption ingrained in our genes? Is it part of our DNA? The authors claim that it cannot be true, at least not in an ethnic or racial sense. Corruption, they assert, is due to our economic policymaking. At least, that is true of small-ticket corruption and it is compared to DNA. Big-ticket corruption is more like RNA and it is by no means obvious that this declines with the implementation of economic reforms. Since 1991, which is when the present cycle of reforms started, the frequency of scams has increased. One tends to agree with the authors that greater scrutiny by civil society and the media, and therefore better reporting, is not a complete explanation for the phenomenal increase in the value and frequency of scams.

Big opportunities

The authors are by no means opposed to economic reforms. Therefore, is there a veiled justification for big-ticket corruption, the inevitable feature of reforms? The authors try time and again to counter this possible inference but have been only partly successful in their efforts. To paraphrase the authors again, reforms throw up opportunities for big-ticket corruption; the latter has links with the electoral process and the role of money in elections as it does with the criminalisation of politics and politicisation of criminals. The authors posit that it is natural to expect a reasonable rate of return for a sum of money invested and the logic is no different for a person who stands for an election. They then pose the question as to why the average electoral expenditure (even if it is under-declared) in eastern India is significantly lower than that in southern India. They claim that there is a prisoners dilemma aspect to it, but leave it unexplained.

The authors explanation of the phenomenon can be summed up as follows: Small-ticket corruption comes in small doses but on a massive scale. Like the double helix of DNA, this type of corruption needs two strands, each supporting the other the typically lower level government employee and a whole structure of superiors and facilitative mechanisms that enable him to extract payments of low value but with a high frequency.

Big-ticket, or RNA, corruption comes in large doses, but has a smaller scale and frequency (this appears to be changing of late). Typically, it has senior decision-makers as the direct beneficiaries. Big-ticket corruption is more difficult to identify, prove or prosecute. It requires fewer players, can be easily packaged as some other transaction and is better hidden. Even in economies that are considered to be among the least corrupt, this type of corruption continues unseen and unknown. It is quite unstable in that it can rise or fall dramatically depending upon the proclivities of the decision-makers.

In India, RNA and DNA go hand in hand. One feeds on the other. Petty officials share bribes with their seniors. Some officers facilitate and participate in this exercise and those not inclined towards it tolerate it at the very least.

According to the authors, the system has become quite widespread, not just with its tentacles deep into organs of the state but also with strong links with the media, civil society, and even the electorate. The mechanism, they say, is well known. An electorate that suffers inefficient delivery of governance and welfare services (which arguably is to a large extent owing to corruption) needs to be rewarded, and so a significant part of the returns from the RNA corruption is spent on elections and shared with the electorate: as rewards to their local leaders and elders and as gifts to the individual voter as cash payments, and so on. The intention is clear, the principle of reciprocity operates. The politicians message is: The government is not delivering and I am not sure I can get you the safety, the access to basic needs, [or] the environment for you to earn a decent living, so let me give you this at the very least. The rational Indian voter accepts it and, using the time-honoured principle of reciprocity, gifts his vote. Readers, however, may interpret this as an insult to the intelligence of the Indian voter. Is the average Indian voter always swayed by gifts by candidates? There is a wealth of evidence to the contrary; unfortunately, the authors choose to ignore it, as it does not tally with their rationalisation.

The authors claim: Arguably, most Indians would not begrudge baksheesh (bribe). The lower bureaucracy is neither accountable nor rewarded for delivery and efficiency and the citizen knows it. Lack of accountability, poor technology, over-discretion, lack of competitive forces are often held to be the key causes, but perhaps just as often, their opposites are also the cause of corrupt practices. Ad hoc approaches, or those driven more by emotion rather than a systematic understanding, may succeed in reducing corruption, but at a very high cost to the economy and society. This again, in the context of active encouragement from vibrant civil society groups, is an insult to the average Indians readiness to fight corruption. Most Indians pay bribes because they are helpless, not because they genuinely feel that those responsible for better delivery and efficiency need to be rewarded this way.

They appear to correct themselves when they say that the Indian electorate may have accepted corruption as a fact of life but there is widespread disenchantment. They, however, qualify their correction by saying that these are early days yet and the fight against widespread corruption will require much more.

They blandly assert: India has not yet been reduced to a kleptocracy (rule by thieves), though it appears to be well on its way to becoming one. But arguably kleptocracy cannot hold out against democracy. In all democratic countries, as history has shown, forces arise that make it difficult for corruption to be sustained. Corruption will be eliminated from India through political action driven by political exigencies.

The book takes Jharkhand as a case study and its generalisations are pertinent to the rest of India. One is that the intermediaries or dalals, or agents, can reduce the impact of external vigilance. Different entities within a department can come to long-term informal arrangements of sharing the returns from corrupt behaviour.

In chapter four, the authors explain how corruption takes place in the creation and management of public resources and infrastructure in terms of tenders and auctions. Corruption is rampant in the road development division. Commissions charged by different authorities at different levels have been tabulated in the book. The solution suggested is that the entity that eventually assigns the contract has to be made accountable for the quality of the public works. The question is why it is not so at present even though the remedy appears to be so simple. Again, the authors make some general observations to explain why corruption is a natural outcome: too many laws and regulations, too little effective monitoring and transparency or inadequate processes that go against established best practices.

The books best chapter is perhaps the fifth, wherein the authors deal with tales of sectoral corruption. Drawing from Madhu Kishwars documentation of the problems faced by two groups in the informal sector street vendors and rickshaw pullers the book rightly asks why the government is not creating a facilitative environment for their activities, given the oft-stated policies of inclusive economic growth and the benefits to the poor from this sector. Laws hailing from colonial times require street vendors to obtain a licence from the urban local bodies. There is an unmet demand for these licences, and obtaining them requires political patronage and paying of bribes. Those who do not have licences pay extortion money to the municipal authorities and the police and even risk inhuman disruption of their businesses by force.

The problems faced by the trucking industry in ensuring smooth movement of goods across the country are highlighted in this chapter. The regulatory mechanism followed by the Centre and the States, the book finds, aids corruption. The greater the punishment for not following the law or a regulation, the greater the level of corruption and bribery. Thus, side payments are a recurrent phenomenon in the delivery of quality fertilizers to farmers, in running small and medium enterprises, and in public-private partnerships. The authors prescription for ending sectoral corruption appears to be unabashed scope for free markets. They conclude, without elaborating, that growth orientation without respecting the principles of free markets and choice can have undesirable outcomes that will eventually inhibit growth.

Third world target

In The Darker Side of Black Money: An Insight Into the World of Financial Secrecy and Tax Havens, B.V. Kumar tries to unfold the mystery of black money through a detailed case study of the Bank of Credit and Commerce International (BCCI). The rogue bank, started in 1972, expanded exponentially worldwide through fraudulent ways and generated enough connections with powers that be to ensure immunity from prosecution, but finally collapsed in 1991. A 1992 report to the Committee on Foreign Relations of the United States by two Senators, John Kerry and Hank Brown, alleged that BCCI had systematically bribed world leaders, political figures and public officials of many countries, including India.

BCCI was founded by a Pakistani, Agha Hasan Abedi, with the majority of the capital from Sheikh Zayed bin Sultan Al-Nahyan, the ruler of Abu Dhabi and the first President of the United Arab Emirates. Abedi died in 1995. Sheikh Zayed, one of the wealthiest men in the world, died in 2004, at the age of 86, relatively untouched by the investigations into the BCCI affairs, even though at the time of BCCIs collapse in 1991 he had 77 per cent shareholding in it.

Kumar was Director General of Revenue Intelligence, the Narcotics Control Bureau and the Economic Intelligence Bureau during his long tenure with the Central government. He was responsible for busting many syndicates involved in the transnational smuggling of contraband and drugs and in organised economic crime.

The author wonders whether BCCI was singled out for seizure and closure because it was a Third World bank, and whether it knew too much and the agencies had enough of it. The type of operations it had done were nothing new either to the Swiss banks or to banks and corporations operating through tax havens. The author cites an expert to suggest that to speak of BCCIs malfeasance as the biggest bank swindle of all times reeks of self-righteous hypocrisy. He says it betrays the total absence of a sense of perspective and adds that there is a lesson for the Third World in the episode.

It is time, Kumar says, the operations of multinational banks and corporations are kept under close scrutiny. The very fact that they operate beyond the shores and frontiers of many jurisdictions gives them the strength, boosted by the flush of funds. A stage will come when their strength surpasses the strength of many sovereign nations; it is at that stage that they would subvert the very nation that gave them refuge and a place in the sun, he concludes. Although the case study dominates several chapters of this book, a few general chapters throwing light on money laundering and financial secrecy are useful to guide a reader interested in exploring the subject.

(This story was published in the print edition of Frontline magazine dated Aug 24, 2012.)



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