Graft and corruption in India ‘shrinks the moral universe’

The Oxford Advanced Learners Dictionary, 8th edition, defines ‘graft’ as ‘the use of illegal or unfair methods, especially bribery, to gain advantage in business, politics’.

‘Corruption’ is defined as ‘dishonest or illegal behaviour, especially of people in authority’.

‘Bribery’ is defined as ‘the giving or taking of bribes’. A ‘bribe’ is ‘a sum of money or other valuables that you give or offer to some other to persuade them to help you, especially by doing something dishonest’.

Graft, corruption and bribery all have legal definitions, provided by legislation or by judges in deciding cases on the subject, but I have deliberately stuck to a dictionary definition, as since time immemorial, throughout history, people have tried to induce persons in authority to do some illegal act to give, the giver some unfair advantage. So the common or garden meaning is well known. It’s not rocket science!

Martin Wolf, in his groundbreaking book ‘Why Globalization Works,’ says: ‘Remember, what corruption means: it is the abuse of a position of public trust for personal gain.’

Case study

India is a good case study for the affect of graft and its lessons can be extended to the rest of South Asia. Sonia Gandhi, Chairperson of the governing Congress Party, the power behind the ruling party, has complained that higher economic growth has brought about a “shrunken moral universe” in India, due to graft and corruption.

Rahul Gandhi, India’s crown prince in waiting has spoken of two Indias – one rich, one poor, and went on to say that “corruption scandals only make the poor more disenfranchised”.

Manmohan Singh, India’s Prime Minister, considered one of the G20’s most competent leaders, has said: “We have to deal effectively with the threats of corruption and crony capitalism, not only in India, but all over the world.”

South Asia has long been inured to petty and not so petty corruption. Indeed, there are those who argue that it is the Asian way! Not to mention the African and Latin American way too! Why this sudden excitement on graft and corruption at the highest level in India?

This is not to say that the developed world does not have its share. There a number of reasons why graft has suddenly hit the headlines and anguished India’s leaders.

One is a scandal surrounding the allocation of telecom licenses and spectrum. The Comptroller and Auditor General (CAG) of India has submitted a report to the Government on the sale of telecom licenses and the related allocation of 2G spectrum in 2008, stating that the process had been marred by deliberately low pricing and numerous procedural irregularities by the Ministry of Communications and Information Technology and the Department of Telecommunication.

The process has been labelled as ‘arbitrary, unfair and inequitable’ – 85 of the licenses were sold to ineligible applicants, on the government’s own criteria. Immediately after winning the bid, some new licensees sold the stakes in their companies to Indian or foreign buyers for huge mark ups. (Readers may recall there were allegations of a similar escapade regarding the Regional Plantation Companies, here.)

The Telecom Minister, Andimuthu Raja from Tamil Nadu, an MP from a regional party, and acolyte of a regional satrap Karunanidhi, Chief Minister of Tamil Nadu, whose votes were vital to keep the coalition government in power at the centre, who was minister in charge, was forced to take responsibility and resigned in November 2010.

This happened only in 2010, notwithstanding that an opposition Member of Parliament wrote to PM Singh in 2008 calling for an investigation and for A. Raja’s prosecution. He received a reply after 16 months, stating that since the matter was under investigation there were insufficient grounds for a prosecution! The Supreme Court of India recently took the unprecedented step of criticising the PM, Singh in open court, for his alleged inaction and asked for an explanation.

Commonwealth Games controversy

The recent Commonwealth Games in Delhi also created a huge controversy on corruption issues. Suresh Kamaldi, a Congress Party functionary who was Chairman of the Organising Committee, was fired immediately after the games were over.

However, surprisingly on 25 November, he was seen giving the gold medal to an Indian woman hurdler at Guangzhou, China, at the Asian Games! May be a transmission delay in the information of his removal!

The ‘white’ Commonwealth raised furore about sub standard facilities and equipment, etc. although the Indians finally got their act together, after putting their top bureaucrat, the Secretary to the Cabinet of the Government of India in charge of arrangements. The Police have arrested two of Kamaldi’s assistants on corruption charges and inquiries are proceeding.

Misallocation of military property

In and around Mumbai a scandal has erupted about misallocation of military property to developers, with senior Army officers allegedly benefiting from unfair allocation of housing to them, built on the land belonging to the services, supposed to be in high security zones.

Special housing units built under special approval, solely for military veterans of the Kargil conflict with Pakistan, have been found to be allocated to relatives and cronies of politicians in power in charge of the allocation.

The governing Congress Party was compelled to remove their Chief Minister of Maharashthra, Ashok Chavan for having allocated flats to his relatives and associates. Further, a number of senior commercial banking officials and Government officers have been arrested by India’s Central Investigation Agency for leaking secret and confidential information to investors on performance of companies of commercial value in regard to loan facilities obtained by those corporates.

The former IAS Chief Secretary of Uttar Pradesh Neera Yadav has been found guilty in a land scam, where she had allocated land to unqualified people such as her own daughter, fellow bureaucrats and politicians. She has now been sentenced to jail for four years.

IPL saga

The saga of the Indian Premier League, that hot shot limited over cricket tournament, which rapidly disintegrated into the scandalous ‘India Paisa League,’ with its founder millionaire businessman Lalit Modi, a fugitive in London, is another episode that stinks

The only good news for India on the corruption front is the sweeping win for Chief Minister Nitish Kumar in the state of Bihar. Nitish Kumar defeated Lalu Prasad Yadav, the former Chief Minister who ran one the most openly corrupt regimes in an Indian state.

Kumar reformed Bihar to such an extent that the economy was growing at 11%, admittedly from a low base. Any Sri Lanka on a pilgrimage to Bodh Gaya cannot but notice the spark of hope in the eye of the Biharis, since Kumar’s advent.

When Kumar’s re election came up, the voters decisively defeated Lalu’s caste politics and voted for development. This has concerned the Congress Party since they are in Government at the centre in coalition with Lalu.

Addressing the issue

All these massive eruptions of seemingly humongous corruption and the resulting political implications have created an environment in which India’s leadership cannot shove the issue under the carpet and have to address the issue of graft.

Sonia Gandhi, widely viewed as the most powerful person in India, speaking at a function in memory of her mother in law Indira Gandhi (remember Emergency Rule in India?) and her husband Rajiv (remember the Swedish artillery supplier Bofors?), both former Prime Ministers of India who fell to assassins, said: “We are right to celebrate our high rate of economic growth… (But) let us not forget that growth is not an end in itself. Much more important to my mind is what kind of society we aspire to be. The broad mass of the people must believe in the fairness of the system, if it is to survive.”

Indira’s emergency rule and its excesses and Rajiv’s Bofors allegation toppled two governments at the centre in India.

Leading businessmen have also chimed in on this subject. Ratan Tata scion of the Tata Group has hinted that the scourge is hurting the economy. Officials’ expectations of bribes had put him off launching a domestic airline.

Telephone taps

Tata has petitioned court to stop the publication of telephone taps obtained by the investigators of the Revenue Department between him and a powerful lobbyist in New Delhi, Niira Radia, which seem to indicate a conversation on allocation of telecom licenses by Minister Raja. The Supreme Court has granted Tata the relief and stopped publication.

The lobbyist’s telephone conversations with senior journalists of NDTV’s Barka Dutt and of the Hindu newspaper are also hitting the headlines. The PM has promised an inquiry into how official phone taps came into the public domain.

Tata has gone on record in a TV interview with NDTV’s Shekar Gupta, saying, “We (India is) are going down the route that would lead us to a banana republic. Banana republics are run on cronyism. People of great power wield great power; people of lesser power or people out of power go to jail without adequate evidence or their bodies are found in the trunks of cars.”

Sanjay Nayar, Head of Kohlberg Kravis Roberts, a leading private equity firm, says, “It is becoming more and more difficult to do business and the failure to execute projects was a threat to India’s appeal as an investment destination.”

Pratyush Sinha, the former Head of the Anti-Graft Commission, in September this year declared that his job was a thankless one and lamented that the increasingly materialistic Indians were becoming “utterly corrupt”.

An American think tank, Global Financial Integrity, issued a report in November 2010, estimating that India had lost over $ 460 billion in illicit financial flows since 1948, much of it through corruption. Their report concluded that the problem would worsen as the economy expanded and grew and income disparities became more acute to unequal and unequitable distribution of benefits.

Economic impact

What is worrying all these people is the economic impact of graft .They should be. Flow of foreign direct investment into India is much weaker than other emerging economies with similar attributes and attractions, which are not so blatantly corrupt.

Vietnam, of comparable wealth, attracts far more investment per head than India. The Governor of the Reserve Bank of India, India’s Central Bank, has conceded that India would need a jump in foreign investments to achieve its target of double digit growth. This will not happen as long as corruption undermines foreign investors’ confidence.

Commentators feel that although India has every incentive to act decisively in the face of these mounting allegations of rampant corruption, the reason it is not doing so is coalition politics, in which regional satraps have to be fed with lucrative central government ministries to build up election cash funds for the party or themselves, as in the telecom license case, combined with the fact that the institutions tasked with fighting corruption are weak.

The Indian Central Bureau of Investigation has been the target of scandals in its own behaviour. The appointee to the post of Chief Vigilance Commissioner, P.J. Thomas of the Indian Administrative Service, faces serious charges of inappropriate behaviour.

(The writer is a lawyer, who has over 30 years experience as a CEO in both government and private sectors. He retired from the office of Secretary, Ministry of Finance and currently is the Managing Director of the Sri Lanka Business Development Centre.)

It is reported that the Government may request him to resign before the Supreme Court takes up a public interest petition challenging his suitability. The Court has issued show cause notices.

Neither of these institutions is sufficiently independent of the politicians in the coalition government. This limits their authority and effectiveness. There are calls for strengthening the institutions and providing more autonomy with protection from political interference.

The legal process is also extremely slow in India and this compounds the problem; justice delayed is justice denied! Toothless institutions and slow judicial processes result in corruption becoming endemic.

Transparent criteria for CIABOC

This would apply to most parts of South Asia, Africa and Latin America. Indeed it is heartening to note that Transparency International Sri Lanka (TISL) has publicly requested the Government of Sri Lanka to introduce transparent criteria to select the best possible members with high integrity and capacity to the Commission to Inquire into Allegations of Bribery or Corruption (CIABOC).

In terms of the 18th Amendment to the Constitution the President is vested with authority to select and appoint the members of the CIABOC, which is Sri Lanka’s primary anti corruption agency.

Sri Lanka is a signatory to the International Convention against Corruption (ICAC). Sri Lanka is due to be under examination in 2012 and this requires Sri Lanka to demonstrate its commitment to fight corruption. To this end the efficiency, the independence, the integrity, the effectiveness, the credibility and over all positive performance of the CIABOC is of vital importance.

To be the ‘Miracle of Asia,’ Sri Lanka has to reach the top quartile of Transparency International’s Corruption Perception Index within a reasonable time. Currently we are 91st out of 178. Otherwise we will also be described as a near banana republic!

As Martin Woolf has said “good markets need good governments... unfortunately good governments are not easy to find. Even in advanced liberal democracies, where governments work relatively well, political and bureaucratic processes are as flawed as markets, if not far more so. In general, it is a case of balancing defective markets against defective political processes. In developing countries however governments are generally still worse. Many governments are grossly incompetent, corrupt, or both. This is both a cause and a consequence of poor policy performance.”

“Economy which has emerged”

President Barak Obama, on a recent visit to Delhi, rebranded India, not as a developing economy, nor an emerging economy, but as “an economy which has emerged”. But if South Asia, including India, is to achieve its full economic potential, the issue of graft has to be dealt with decisively.

Economist Jagdish Bhagwati has asserted that economic reform and growth in India has raised all the boats in the harbour, including the Dalits and Tribals, who have been at the bottom of the Indian economic pyramid for centuries, for the first time, are experiencing a revolution in perceived possibilities, that you can actually cease to be poor!

This shrinkage of the moral universe must be contained and rolled back; then, and only then, will the benefits of economic development reach all of the people of South Asia. Otherwise, there will be no option but to get shoved into get into that ‘kehelmal’ banana category and the poor to be resigned and condemned to an eternity of impoverishment and deprivation!

In perspective

Let me conclude with some notable quotations, which put the issue in perspective:-

Raghuram G. Rajan, Professor of Finance at the University of Chicago: “When the entire government structure sees that people are getting away with taking bribes and no one is getting punished, right down the line everyone starts trying to do it.”

Eswar C. Prasad, Professor of Trade Policy, Cornell University and an Advisor to the Ministry of Finance, Government of India: “Even as the government cedes control over large parts of the economy, its graft ridden approach to privatisation could leave long lasting scars that hold back India from reaching its potential.”

An Asian Development Bank sponsored report: “There is a risk that India will evolve toward a condition of oligarchic capitalism, in which the market and political power of major corporates will become a drag on long term growth and a source of distortion in policy.”