Posted by: John Elliott | November 15, 2010

India’s corruption crisis escalates

Nov 17, 2010: Corruption scandals have escalated into a potential political crisis since I wrote this post two days ago.

Yesterday, the Supreme Court criticised Manmohan Singh, the prime minister, for the government’s 16 months of “inaction and silence” over the wide-ranging telecoms scam that led to the sacking this week (see below) of the minister, A. Raja. Mr Singh now has to find a way of explaining that he could do nothing because the Congress Party, headed by Sonia Gandhi, did not want to upset Mr Raja’s DMK political party, which is part of its coalition government, so the minister was given free reign.
The Commonwealth Games corruption saga has gone a stage further with two arrested officials reportedly fingering Suresh Kalmadi, who heads the organising committee and is himself being investigated along with others involved.
Massive corruption in Delhi’s state and municipal authorities, which hit the headlines in the chaotic run-up to the Games, has been highlighted by the collapse of a badly constructed illegal residential building, killing 67 people  (photo below). The building owner was arrested yesterday but top officials including Sheila Dikshit, the chief minister, and Tejendra Khanna, the Lieutenant Governor, tried to dodge responsibility for building standards and the Municipal Corporation of Delhi.

Global Financial Integrity, a US policy think tank, is reported today to estimate that $213bn (at least $462bn at today’s prices) was illegally transferred overseas from India between 1948 and 2008. That is not the total amount of black money raised from corruption because some was obviously kept in India, but it may indicate the scale of India’s lost resources.

_____________________________________________________________

Another corrupt Indian politician sacked, but can anything ever change?

Nov 15: A top business executive visiting Delhi for the annual World Economic Forum (WEF) conference asked me last night why the 800m or so Indians, who he assumed got no benefit from India’s massive corruption, didn’t mobilise a movement to stop it. I replied that many were themselves benefiting from the bribes and extortion that affect all levels of the 1.1bn population, because corruption had become so embedded in the country’s political and business culture.

That was not of course a complete answer. I should have said that, though they might not mobilise against corruption, there was evidence that the electorate rejects corrupt governments if individual politicians are seen or perceived to have benefited personally and not just used the money to fund their political parties. The most often-quoted example of that is the defeat of the Rajiv Gandhi-led Congress government in 1989 after it was believed that he and (or) his family and friends had been personally involved in a Bofors gun contract bribes a few years earlier.

.

This I suspect is partly the reason why the Congress Party and its coalition government has in the past week forced the resignation of three politicians who, though they deny the charges, have been involved in highly corrupt deals to the tune of billions of dollars in telecoms, real estate and international sport.

Ashok Chavan, one of Congress’s supposedly bright younger politicians, was sacked last week as Maharashtra’s chief minister for being involved for nearly ten years in a scam involving up-market Mumbai flats bought from an army charity by well-connected public figures, including top army generals, at around one-tenth of property market prices.

The second was Suresh Kalmadi, who lost a minor Congress Party post as partial punishment for heading the bribe-ridden Commonwealth Games organising committee. Two of his close aides were arrested today and charged with forgery and cheating in connection with a London publicity and films contract – but this is only the tip of the games iceberg.

Manmohan Singh, the prime minister, is reported to have insisted on the dismissal of the third politician, Andimuthu Raja, the telecommunications minister, who “resigned” last night.Mr Raja had been resisting demands for more than two years that he should lose his job for favouring friendly telecom companies in 2008 when valuable 2G mobile telecom spectrum was sold at 2001 prices leading to vast and probably illicit profits.

A.Raja applauding Manmohan Singh in happier days

It has been estimated by India’s Comptroller and Auditor General (CAG)  that Raja’s various deals and favours lost the government revenues totalling as much as an incredible $30bn. Even if that figure is a vast over-estimate, it still looks like being the biggest corruption scandal ever to hit India, and one whose tentacles entangle many top political and business figures.

The companies specially favoured by Mr Raja were Loop, Datacom, Unitech, Swan and Shyam.  The CAG report [published November 16] says Swan was secretly in league with Anil Ambani’s Reliance ADAG telecom company, which also received separate favours along (to a lesser extent) with a Tata telecoms company. Two of the others (Unitech and Swan) sold stakes to international telecom groups, Telenor of Norway and Etisalat of the UAE, which must have known their history. They had no prior telecom experience and had become friendly with Mr Raja in his previous post as environment minister (Mr Raja was one of a series of corrupt environment ministers who for a decade used the ministry as a cash cow).

As I wrote on this blog in November 2008, Unitech paid $350-400m for its spectrum allocation, and then sold a 60% stake to Telenor of Norway for $1.3bn, making a profit of about 700% in less than a year just for owning the spectrum without any customers or experience.

High profile corruption in India dates back decades. Historians quote an army jeeps’ contract scandal involving Krishna Menon, a famous and powerful Congress politician, in the 1940s as the first post-independence example. I can remember gossip about a French Mirage fighter deal when I first came to India in the early 1980s. Throughout this history, no-one has been punished for long and no-one is ever forced to pay back the illegal funds.

One more recent development is that politicians not only take bribes for letting things happen (or for stopping them to please competitors), but also become investors in the companies or projects that they help. Money accumulated abroad often comes back into India via (usually Mauritius-based) private equity funds.

The late Pramod Mahajan, a top Bharatiya Janata Party politician and “collector”, was widely believed to have investments in at least one leading private sector airline. Other current politicians are rumoured to have similar airline, airport, real estate and other investments. Andhra Pradesh politicians’ alleged involvement in Satyam, the Hyderabad software company that collapsed two years ago, and its sister Maytas property company, has been widely reported.

My WEF visiting executive was especially shocked last night when I told him that large numbers of people knew of such scams. I explained that Mr Raja’s activities had been gossiped and reported for years, and that I first heard about Commonwealth Games corruption more than two years ago. Very few politicians are “clean”, I said, and those that are have to tolerate what goes on around them in the political and government structure in order to get things done.

Manmohan Singh is widely credited with being “clean”, yet he has not been able to do anything about corrupt ministers and bureaucrats. He is now being criticised for not dealing with Mr Raja earlier. There was a story circulating a year or so ago that Mr Raja, when questioned by him about the telecom auction, replied that he worked (and “collected”) for his Tamil Nadu-based DMK political party chief. If the prime minister had any complaints, he should contact him.

Apparently, it was Mr Singh who finally decided over the weekend that Mr Raja had to go, even though the minister’s DMK party is an important member of the Congress-led coalition.

So does this mean that India is finally going to try to turn the tide on corruption?

Ratan Tata lost airline deal for not paying $3.5m bribe

Some people insist that they do not pay, and consequently lose business. Ratan Tata, who heads the Tata group, today said he lost a chance to set up a domestic airline  “maybe ten to 12 years ago” as a joint venture with Singapore Airlines because he would not pay a Rs15 crore (then $3.5m) bribe for the necessary government approval.

But will the government that Mr Singh presides over jointly with Sonia Gandhi, leader of the Congress Party, try to tackle the greed and selfishness that lies behind the problem?

Of course they will not, and it is not even clear which one of them regards the issue as their responsibility. As a result, there is a lack of national leadership on this, as on so many other issues, as Mr Singh’s reticence and lack of clout is combined with Mrs Gandhi’s mostly hidden presence. But Mrs Gandhi does have the power to do something about issues that concern her, as she has shown from time to time with edicts that are obeyed – one of the most famous and effective was a statement that the poor should not suffer by agricultural land being used for industrial development.

So why does she not lead a similar campaign on corruption? The answer is probably that the subject is just too big and overwhelming, that too many powerful people around her are deeply involved, and that all political parties including Congress need to collect funds.

But if no political leader is prepared to speak up and try to stop the rot, what hope is there – apart of course from those rare times when politicians judge that the risk of being voted out of power by a disenchanted electorate outweighs the advantages of collecting and becoming personally and politically rich.

About these ads

Responses

  1. [...] twice in the past (1991-96 and 2001-06), but she has run effective administrations. She has also not indulged in such extensive nepotism and plundering of the central government coffers as the family and associates of Muthuvel Karunanidhi, the outgoing chief minister, when they have [...]

  2. What we are now seeing is a much more dangerous trend. Those who are caught indulging in it, are now getting amnesty from both the political parties when they return their ill-gotten gains. This is similar to a person being caught stealing and choosing to return what they stole to get respectability and void punishment.

    The point is, the rot is so deep, that nothing gets done without paying a bribe anywhere, except where you have people with a conscience in office.

    The PM and Sonia Gandhi cannot do anything about it. It is upto each Indian citizen to do something about it, by stopping to give bribes to get work done. However, there will always be those who will still be willing to give to get an unfair advantage. Whether they get caught, is up to the person who is accepting the bribe. The very best option is to make people who give bribes go to jail if caught.

    However, a few things need to be borne in mind.
    1. The judicial system in India is very slow. It may take years for a case to end.
    2. The giver and taker both need to be hanged. Death penalty is the only way China has managed to control corruption. It took them just 6 months to do justice in the contaminated milk case. That is how fast they are moving.
    3. India is yet not losing it’s competitive advantage, and multinationals are still ready to put their money here. It is only because of the number of potential consumers.
    4. The laws need to be simplified and e-governance established to track all govt. dealings.
    5. In our own country, we do not respect laws, but the same Indian in Singapore will never ever spit on the road or do anything. That is, because the stakes are very high.
    6. The penalties for harassment of citizens by various govt. officials, agencies should be very high, so as to deter. Today, traffic fines are just Rs.100, whereas, many people just pay it or pay a small bribe to get away. These should be at least Rs. 100000 for an offence to actually be a deterrent.
    7. Education system in India is competitive and not collaborative. This change has to happen, to enable future citizens to cooperate and resolve problems, rather than compete with each other to gain advantage. It should work for benefit of both through collaboration.
    8. Salaries for law enforcement officials are peanuts. A constable manning a traffic post is paid nothing compared to what his political masters get, leading to more corruption. The political masters have nothing but greed ingrained in them, and this is probably due to never having seen money for generations in their families. So, they exploit the system to make more and more and more.

  3. I agree absolutely that corruption is spread throughout society at all levels, partly because paying a small bribe is often the only way for poor people to benefit from basic services – but shouldn’t example come from the top? No problem is too big to be solved if the political will is there along with acceptance that everything is not going to become transparent and clean overnight. You are right: resignation rather than determination reigns at the top political levels.

    Since no-one is ever actually punished for corruption in the present situation, one way forward might be to declare an amnesty for past offences and put in place legislation and enforcement procedures with teeth from now on. This might not be a satisfactory solution from an ethical point of view but it is a pragmatic approach.

    Manmohan Singh has been sadly and exceptionally lacking in courage in failing to condemn in either word or deed the politicians and business men who have made money at the expense of the community at large (to put it politely). He might make a start in turning over a new leaf by not turning up at the inaugural party for the Ambani mansion in Mumbai…. a small gesture against conspicuous flaunting of wealth of reportedly dubious provenance – but a step in the right direction?

    And forgive me, but your friend from the WEF must be naive beyond belief and ill briefed into the bargain to be quite so surprised on this subject. Anyone contemplating investment in India needs to read the regularly published lists of corruption levels by country which show India to be pretty near the bottom. To date, unless you have the authority of a Ratan Tata, if you want to succeed in business you must be aware that you will need a GOKW line in your expenditure accounts (God Only Knows Where) and it will be a not insignificant percentage of the total….

  4. There is a subtle change which IS coming through. We feel it but do not realise it. So, many years the country has lived in darkness of the British Raj, no one knowing what government officials were upto and how it impacted them. Truly, a servantile approach to existence.
    So many languages and ethnicities, kept us distanced. How was someone in Mumbai concerned about a building collapsing in Delhi, or someone in Chennai concerned about officials usurping land for war widows in Mumbai, they wouldn’t even get to know on DD and local Newspapers didn’t carry such news anyway.
    Whats Changed?
    1. RTI
    2. News channels- if 2 of them show a breaking news, the others cant stay away, whatever be their affiliations. If they do stay away, they wouldnt get the eyeballs anyway!
    3. Internet- integration, collaboration, dissemination.
    4. Most importantly- the present generation which is exposed to the world!

    Everyone corrupt is at serious risk. You try taking bribes, its only a matter of time when you are on tv and youtube! Remember N D Tiwari??

    And all this is just the beginning, with 2g 3g coming in(despite Raja!) imagine whats going to happen!

    Trust me!!

  5. It is grievously sad when a great historic culture, which India can rightfully claim to be, is subject to a malaise that is sweeping across the world – a malaise of instant gratification, greed and the collapse of belief in moral values. It is the price we are paying for the global revolution in technology and the huge movement of peoples across the globe with massive social, economic and cultural change. All that has its advantages – but there is also a heavy price to pay, as we have seen elsewhere earlier.

  6. John
    I know that “bad news is good news” for journalism but why not give India a break for some of the things that it is doing right. At a time when so many European economies are tottering, add Ireland now to Greece’s fudged accounts, India’s banking regulations and stock market supervision has ensured that there has been no knock-on calamity here. I use this as an example since my erstwhile British Board of Directors in London were perennially criticising India’s tight regulation of both banking and the stock market as a reason for not investing here, and preferring the “freer” environment of Pakistan(!) and China where they did invest handsomely. Further, the judiciary and the media in India are playing an increasingly incisive role in correcting the aeons of injustice and malpractice. Do remember that malpractices didn’t start in 1947. Clive and Warren Hastings were both suspected or impeached for”disproportionate assets”.

  7. John,

    All talk of India being an “ëmerging power” lacks credibility when its body politic stinks with such corruption. Hopefully a vigilant media and civil society organizations, together with the few remaining credible State organizations like the CAG, Election Commission and Supreme Court will halt the spread of this cancer, which is degrading our moral fibre.

    Partha

  8. I don’t usually comment on your blogs, but on one point today I feel very strongly !
    It is absolutely untrue that “many” of the 1.1b population of India are benefiting from the bribes and extortions. It is a tiny percentage of the population – politicians, bureaucrats and business people – that reap the harvest of this moral deterioration.
    The urban and rural masses, the bulk of the 1.1b, simply suffer, for the most part surprisingly quietly, from India’s massive corruption.

  9. John, complex as the problem is, a beginning towards a solution would be reform of the electoral system to remove/raise the currently unpractical limits on constituency spend in elections, and make contributions both legal and transparent. Habits will not change over a short period but there is a “new India”, including a young set of politicians, which is doing business without the old licence-raj culture and want to distance themselves from those practices. Overhaul of the bureaucracy is essential and there is an Administrative Reforms Commission report which, if implemented, would have significant impact. But we need firm will and strong leadership, dare I say it, of the Thatcherite type.

  10. Power, by sheer defination; is synonym for corruption. All political parties want power. Yes, ways may be different .

    Corruption is not an issue on which leaders can fight election, as his past life will have many recorded events full of scandals. And biggest benificiariies is media people.

    But life will go on…. It is also certain people of india does not approve of corrupt means but they enjoy same. An Indian Paradox again…..

  11. Sadly, no one seems to be talking about charges of favours to “friends” anymore or about him retroactively trying to change the cut-off date etc. All the news stories seem to focus on RIAA/MPAA style lost revenue calculation which are totally unrealistic. And all those trailing zeros make for sensational headlines but are totally devoid of logic/truth.

    Also how do you arrive at your 700% profit number for Unitel/Uninor?

    IIRC the money from Telenor was invested into the company and used to roll out the network. It wasn’t *profit* like you indicate. The only gain to the promoters was that their stock value was now worth more. So with the influx of telenor’s $1.3 billion. Their company is worth $2.1billion and so the promoters 40% stake is worth about 850 million. Which is a 50% jump in the value of their investment(and not profit), and nowhere near the 700% “profit” being citied above.

    The sale of VSNL to Tata would be a bigger loss to the country if these kind of metrics were used.

    VSNL was sitting on a cash stockpile of over 5000 crores, and a controlling stake was got by Tata for ~1400 crores.

    So shelling out 1400 crores got Tata a 5000 crore piggy bank to fund their
    telecom expansion/growth plans. (Even without considering all the assets and
    monopolies that came bundled with it.)

    And they used it to good effect too, by getting VSNL to invest around 1200 crores or so into TTSL for a 20-25% stake which IIRC at that point didn’t have any kind of national presence to justify that kind of valuation.

  12. John

    Corruption has become a way of life quite like Hinduism, which is not a religion, but a way of life. Therefore, unless we have real punitive remedies enshrined in some holy book, there is no escape from this terminal desease. a friend tells me that in Tamil Nadu they have a Public distribution system to share the loot to win elections, as you have also alluded to. They do that in style, who cares from where the money came from. The largesse is shared.
    Raja is one sacrificial lamb, there are many more in the government, who will remain unashamedly glued to their Kursis until called upstairs. That is my country a rising power, where corruption has become a way of life alongwith globalisation and development.

  13. Corruption is our too big to solve problem. It’s so pervasive that it’s hard to imagine a day where Indians don’t have to face corruption in their daily lives.

    Privatization has made some things better – you don’t have to pay a bribe to get a telephone connection, you can buy gas cylinders for slightly more but don’t have to wait forever or buy them in “black” but there is such a long way to go, that going the distance seems impossible at most times.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

Follow

Get every new post delivered to your Inbox.

Join 2,157 other followers

%d bloggers like this: