Tuesday, 26 May 2020

On Corruption And Bath Water

Updated: December 25, 2010 10:11 am

These days public discourses in India are subjugated by the theme of corruption. And it is quite natural, given the magnitude of corruption involving India’s mighty in politics and business. The Transparency International for 2010 has rated India 3.3 on scale where the cleanliness index of 0 is ‘highly corrupt’ and 10 denotes ‘very clean’. What is the way out? A well-argued essay on the subject, which is this week’s cover story, has been written by a civil servant known for his intellectual inclinations. I am going to limit myself to only one aspect of the problem that has been given inadequate attention. I do discern a disturbing undercurrent in our criticisms against the rampant corruptions in all walks of life. And that is the feeling that corruption has come to India mainly because India is pursuing a policy of economic liberalisation.

                The other day I heard somebody mentioning how Prime Minister Manmohan Singh’s tenures first as Finance Minister and then as Prime Minister have been littered with huge corruption scandals, the Harshad Mehta affair being just one. The argument is that it is Singh, who “fathered” India’s economic reforms, though the credit for reforms should equally go to the late Prime Minister Narasimha Rao. But then the Congressmen these days systematically give the impression that nobody called Narasimha Rao ever existed. Anyhow, it is a different story. The point given is that corruption is inevitable if a country opts for a liberal and open economy.

                Referring to the alleged scams involving 2G spectrum allocation, Commonwealth Games and Adarsh Housing Society, senior CPM leader Sitaram Yechury has argued that these scandals were due to the “vastly growing crony capitalism under the neo-liberal economic reforms dispensation”. In the CPM organ People’s Democracy, Yechuri has pointed out: “Nepotism in awarding contracts, sweetheart deals in cheaply disposing off public properties and creating illegal and new avenues for money laundering are some of the forms that crony capitalism takes.” According to him, “The Prime Minister is, on record, to say that India can ‘ill-afford’ crony capitalism. Yet, his own Cabinet has members against whom serious charges of corruption through crony capitalism remain.”

                In its organ New Age, the CPI has similarly argued that general tolerance to corruption at all the administrative and governance levels, including the union ministers’ and prime ministers’ level, is a new phenomenon of corruption in the post-reforms years. It says: “Dr. Manmohan Singh, who is touted to be the main architect of these policies in India, first as the Finance Minister in the Narasimha Rao government in early 1990s and then as the Prime Minister in the UPA government, is the godfather of this present-day all-pervasive corruption in the system. No other government has been so embroiled in corruption. No other government has tried to so unashamedly defend scandals and corruption cases. UPA government is in the dock for turning a blind eye to the corruption.”

                The CPI publication has quoted one US-based organisation called Global Financial Integrity (GFI) as saying that 68 per cent of India’s aggregate illicit capital loss occurred after economic reforms in 1991, indicating that deregulation and trade liberalisation actually contributed to/accelerated the transfer of illicit money abroad. Apparently, the GFI report titled The Drivers and Dynamics of Illicit Financial Flows from India, 1998-2008, released on November 17, 2010, says that the faster rates of economic growth since economic reforms started in 1991 led to a deterioration of income distribution which led to more illicit flows from the country. It also shows that these illicit outflows contribute to stagnating poverty and an ever-widening gap between India’s rich and poor. The present value of India’s total illicit financial flows (IFFs) is at least USD 462 billion.

                “Some 68 per cent of IFFs occurred after India’s economic reforms indicating that deregulation and trade liberalisation contributed to the transfer of illicit money abroad”, the report says.

                It is also pointed out that because of the liberalisation of the economy, three principal sectors—mining, infrastructure and high technology—have benefited immensely, making the businessmen and decision-makers pertaining to these sectors unbelievably rich. If you consider Ambanis, Reddys, Rajus, Kalmadis and the like, this thesis sounds quite valid.

                However, on a closer scrutiny, I find that the above criticisms and hypotheses have their limitations. It gives an impression that there was no corruption in India prior to economic reforms. But that was certainly the case. So much so that none other than father of the nation Mahatma Gandhi had lamented how Congressmen were indulging in corruption soon after testing political power after the elections under the 1935 Government of India Act! In fact, whether it was the fifties or sixties or seventies, the nation did witness many scams and scandals in some form or the other. The money involved in those scams might not have been huge by today’s standards, but then those days there was not enough money in the first place.

                In think the other day internationally acclaimed economist Jagdish Bhagwati made a wonderful point in his Hiren Mukherjee Memorial annual parliamentary lecture that the corruption issue was exaggerated in India. “It is easy to exaggerate corruption we have today. In India, public figures are considered to be corrupt unless they prove to you otherwise. A blind man will tell you how he saw ‘with his own eyes’ a bribe being given and accepted”, Bhagwati said while pointing out how corruption is found in several countries. What is different in India is that here, unlike other countries, no big corrupt player is punished adequately. “In America, if you are caught, even God can’t help you,” he said.

                As I had argued once in this column, the real reason why one sees corruption in India is because here the government still controls the economy, all talks of its being open notwithstanding. Corruption will continue if the government, as has been proved in many so-called socio-economic schemes, persists in spending billions of rupees itself and making the bureaucracy stronger and stronger so that the license-permit raj reappears in different forms. In fact, a recent international survey of business environment by the World Bank indicates that in India 16 per cent of manager’s time is still spent in dealing with the bureaucracy, as compared to 5 per cent in Latin America. Some of the obstructive regulations by state governments (in matters like electricity and water supply and land acquisition and registration) are still in place. Government-controlled financial institutions still dominate the financial markets. Import-weighted tariff rates are still relatively high at 30 to 35 per cent on average. There is strong opposition from organised labour to privatisation, and from politicians and bureaucrats to giving any genuine autonomy to public enterprises.

                To put it simply, let us have no illusion that our economic policies promote transparency and business freedom. Our government has not controlled its spending spree. In that sense, the prevailing corruption is not because of liberalisation but due to inadequate liberalisation. This is not to suggest that there will be no corruption if the country is truly liberalised. But, as Bhagwati has said, the number of corruption cases will come down in a truly open economy and in a truly open economy, which will inevitably be reflected in a strong democracy, it will be easier to punish the guilty howsoever powerful he or she may be.

                In sum, we must not buy the communist logic of closing our economy to deal with corruption. One does not throw out the baby with bath water.

 By Prakash Nanda

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