How to eliminate corruption? Abolish the laws

As the 2G scam is now reaching its home stretch the Union Law Minister set the cat amongst the pigeons when he is reported to have stated that the judiciary needs to understand the "political economy" of the country.

Speaking to The Indian Express last week, he is reported to have stated: "What will affect the functioning of the government if other institutions do not understand the kind of political economy we are faced with today: what is needed to encourage growth and investment? If you lock up top businessmen, will investment come? What optimal structure should be put in place for investment to come?"

Naturally, this observation did not go well with the Hon'ble Supreme Court. Taking exception to these remarks the Court expressed its displeasure amidst hearing of the bail pleas of a number of corporate executives in the 2G case.

Justice H L Dattu reportedly told Additional Solicitor-General (ASG) Harin P. Raval:  "If reports of the Minister's comments are true, it is disturbing. Are you supporting the stand of the minister? Are we wasting our time? If you file a memo, please release them, we will release them on bail."

Justice G S Singhvi is reported to have told the ASG "the news item was a surprise for us. It appears as if we are interested in keeping these businessmen behind bars. Is this news report/statement and what has been reported in the newspaper totally correct? It was in the headline of a leading newspaper. We are not interested in keeping them behind bars."

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Almost simultaneously and perhaps on cue, the Union Law Minister Salman Khursheed is also reported to have said that while it was for the courts to decide as to who should be locked up, he pointed out to the dictum of bail being the rule and jail an exception has been laid down by the Supreme Court itself.

In the process the Union law minister has inadvertently opened a Pandora's Box. Is jailing of the corrupt marring the investment climate in India? Is the minister completely oblivious to the extent of damage created by the scourge of corruption and its impact on the image of India? Is not corruption per se impacting investment into India?

Or is he attempting to re-define political economy of India of modern times – one which can be best described as "cash and carry?" What does he mean by "optimal structure" when world over governments claim to have a "zero tolerance" to corruption.

In short, is the law minister of the Union of India suggesting that we improve our tolerance to corruption and balance between corruption and growth? Is he suggesting that corruption is inevitable in a robust, growing and emerging economy?

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Corruption derailing investment in India

In contrast, a widely circulated and hotly debated article titled - Warning Signs in Over Crony capitalism in India (by James Lamont and James Fontanella-Khan, Financial Express, (FE) March 21, 2011) captures the entire issue succinctly - "Even as the country becomes one of the great economic growth stories of the 21st century, significant members of the Indian elite fear it may be following Russia in developing a kind of crony capitalism dominated by powerful insiders."

The article goes on to add "A slew of recent corruption scandals - notably in telecommunications - has nourished anxieties that the combination of fantastic wealth creation and weak governance threatens to undermine India's long-term success."

Twenty years since reforms one is sure that the system still favours those with the right connections. Call it cronyism or corruption; it harms the Indian economy.

According to FE "Accusations of influence-peddling by powerful entrepreneurs, combined with a colluding state bureaucracy, has led commentators such as Arun Poorie, editor-in-chief of India Today Group, to identify corruption as the biggest issue confronting the country."

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Crucially, the article points out that the international investor sentiment has turned sharply for the worse.

"Foreign capital flows have fallen. Nine out of 10 clients are not positive on India in the near future," says Suresh Mahadevan, head of research at UBS Securities in Mumbai. "Most of the bad news is already in the (market) price."

"We met with about 50 investors in Singapore and Hong Kong last week," says Rohini Malkani, economist at Citigroup in Mumbai. "About 70 per cent remain bearish on India, with investments, inflation, and politics topping the list of worries." That was in spring of 2011. As winter sets in, things have got bad to worse.

In short, the fact remains that corruption and not jailing industrialists (as suggested by the Union Law Minister) that is causing consternation amongst global as well as local investors.

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Scam a way of life?

It may be noted that all these negative developments were hastened since late eighties when Indian economy underwent mild doses of reforms.

Contrary to popular belief that liberalisation of our economy would prevent corruption, the reforms process since the early 1990s is seen as having increased the opportunities for corruption. This is a paradox that remains unexplained.

The emergence of globalised corporations with huge financial and political powers disproportionate to the power of our local governments (manned by people without adequate understanding of the emergent situation) has provided an impetus for a very high level of corruption.

Perhaps we began liberalising, privatising and globalising the Indian economy without adequate preparation of our administration for the same.

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The net consequence is that the nation has been a silent witness to massive doses of corruption.

Bofors, procurement of armaments for our armed forces, imports and exports of various edible items, food for oil and, of course, licensing spectrum for our telecom companies are a few cases in point not to speak of massive evasion of taxes.

The corruption involved in all these cases has been brazen, so much so that despite the availability of overwhelming evidence, precious little has been done, lest the system becomes dysfunctional. (In fact, in a hearing connected with the 2G issue, the counsel for the central government is reported to have said that probe by the court against high functionaries could "destabilise the system.")

Interestingly, all these point to a seamless integration of all players involved and it becomes virtually impossible to distinguish one from the other.

As Mrs. Indira Gandhi famously remarked in the 70's corruption is a global phenomenon. And it involves the business houses, politicians, bureaucracy, media, professionals and academicians.

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But in the Indian context, there is something more - it is complex, sinister and crucially despite such massive levels of corruption, we have not been able to get at big fishes in any meaningful manner.

Therefore, it is rationalised that corruption has become a way of life in India. In the process, scam is India's gift to the English language which suggests the following paradigm - one, that indicates massive levels of corruption; two, the availability of irrefutable evidence; and three, the impotency of the law enforcers to punish those who violate the law with impunity.

It is this that is traumatizing the collective conscience of the nation is the fact that the judicial system has been unable to convict anyone from the ruling elite, despite overwhelming evidence available in such high-profile cases of corruption till date.

Corruption, according to John Christensen, (an authority on the subject of Tax Havens), is "the abuse of public interest and the undermining of public confidence in the integrity of the rules, systems and institutions that promote the public interest." In fact, market economics is all about the rules, systems and institutions.

Whenever rules are broken by those who seek to profit on the sly - as it happens more often than not in India - genuine investors turn negative about India.

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Corruption is a Public-Private Partnership affair in India or simply PPP. It includes every possible economically corrosive activity such as insider-trading, tax evasion, rigging of markets, policy hijack, and plain embezzlement, all of which occur through a well-defined and pre-planned structure. 

Inexplicably, the law minister does not realise that all these economic crimes are highly damaging to our economy and social fabric.

Naturally, if excesses are committed by the courts, it is seen by all right thinking citizens as to remedy the excesses committed by every other player in our economy.

Surely, when courts do their duty and jail errant industrialists as the prescribed by the law of the land, the rule of law will once again be established. And when it happens genuine investors will flock back to India - a fact that is lost on the Union Law Minister. And that to me is the sad state of affairs.

It is preposterous for him in blaming the law of the land for impeding investment into the country! Perhaps to remedy the situation, it is suggested that he may well use his authority and delete corruption laws from the statute book.

Needless to emphasise, if there are no corruption laws, there would be no enquiry, FIR, arrests, bail, trials and jailing of industrialists.

That in turn could possibly eliminate both corruption and jailing big industrialists. What an idea Sirji?

The author is a Chennai-based Chartered Accountant. Comments can be made to mrv@mrv.net.in