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.

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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.

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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.

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.

A.Raja applauding Manmohan Singh in happier days

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.