There’s no doubt that the UPA left poison pills behind; the Government must get tough. The Indian banking sector is in crisis and someone needs to call out the culprit, the UPA Government, which allowed ridiculous loans to be approved. If facts are investigated, it will emerge that several gold-plated loans were given to favoured businessmen. It is, therefore, not surprising that journalists, friendly to the previous regime, are flying kites and are trying to discredit legitimate business loans given to people close to the current administration. When Congress leaders attack the Modi Government for allowing defaulters such as Vijay Mallya to ‘escape’, one cannot but be astounded at the hypocrisy of such spokespersons. It was the UPA that gave massive loans which did not have a semblance of logic. Anybody with a modicum of intelligence could see that Mallya’s airline was in a tailspin and was going to be crushed under the one-time liquor baron’s immense ego. And it is not just Mallya to whom loans that defied logic were given, infrastructure projects from roads to airports were ‘gold-plated’, the cost of building a kilometre of four-lane highway inexplicably jumped four-times in that decade as mafia builders ripped off the banks with Government’s tacit support.
As much as one would say that Prime Minister Narendra Modi and Finance Minister Arun Jaitley have been hobbled by the ineptitude and down-right thuggery of the previous administration, the fact is that they are the ones in power today. Blaming the previous Government is not an excuse that can be taken to voters after completing three-quarters of one’s term in power. There’s no doubt that the global financial crisis, coupled with stricter rules, implemented by both former and present Reserve Bank of India Governors, Raghuram Rajan and Urjit Patel respectively, have made most Indian banks reluctant to give loans to small and medium industries. These projects are essential to get job growth going and, thus, encourage a consumption economy. India’s economic growth has been constrained over the previous few quarters because of this fact. While a 6.5 per cent growth rate is nothing to be ashamed of, it is certainly not enough to keep pace with India’s ‘demographic dividend’ which runs the risk of becoming a ‘demographic burden’. Jaitley rightly noted that large industrial enterprises do find it easier to raise funds from bond markets and from foreign banks due to their credit ratings, something that self-appointed social media economists fail to understand.
With gross non-performing assets growing from Rs 5.02 lakh crore to Rs 6.41 lakh crore between March 2016 and March 2017, the situation is critical. The new insolvency law brought in by the Government, despite some flaws, is a beginning in the process to recapitalisation. Crony capitalists encouraged by corrupt politicians of the previous regime should see their projects taken away and their assets built up by siphoning funds from their companies, should be auctioned off. Yes, the banks and the Government will need to take a haircut, a massive one at that, but that’s the only way forward. The Government must think before it recapitalises the banking system. Bankers should realise that things are not as bad as they were in the aftermath of the most corrupt administration India has ever seen.
The drop in the NPA to capital ratios in 2016 looks hopeful but this is partly due to the additional capital received by many public sector banks as part of the government’s Indradhanush programme. Also, in light of the revised disclosures of NPA levels by some large private sector banks in the last few weeks, the 2016 ratios are likely to be much worse.
We also compare the growth rates of NPAs, capital and loans across the two crisis episodes. The average annual growth rates of GNPA and NNPA over the five-year period from 1997-2001 were 8.5% and 9.8%, respectively. During this period, bank capital grew 13.14% and bank loans grew 15.87%. The corresponding numbers for the current crisis are much worse. The average GNPA and NNPA growth rates for the period 2011-2015 were 45.9% and 54.9%, respectively. The average growth rate of bank capital for this period was 16.1%. Bank loans grew at 16.2%.
This shows that during the last NPA crisis, bank capital grew at a higher rate than NPAs. While the NPA to loans ratio was higher then, banks were not undercapitalized. They had better ability to withstand the problem. In the current crisis, however, the growth rate of NPAs has been considerably higher than that of bank capital, further underscoring the severity of the crisis. The growth rates of bank loans on the other hand have been similar across both crisis episodes.
The emphasis on the alternative measure of the NPA problem also highlights the importance of capital in resolving the crisis. If the NPA to capital ratio is to be restored to a level that was prevalent during the high growth years of 2003-2007, the capital base has to roughly quadruple. Even if we assume that roughly 50% of the net NPAs will be recovered by the banking sector, the capital base has to double. This is unlikely to happen through retained profits or sale of real estate or other similar strategies.
An attempt to revive the banking sector must include a credible commitment of capital for it to be meaningful. In absence of capital and accompanying structural reforms, any solution will be incomplete and the banking sector may remain in the quagmire for a long time to come.
Impact of NPA on Economy
The problem of NPAs in the Indian banking system is one of the foremost and the most formidable problems that had impact the entire banking system. Higher NPA leds to following adverse impact on Economy:
Steps taken by RBI and Government in last few years to curb NPA
It is a matter of grave concern that due to the NPA problem, the entire economic activity of the country has come to a gridding halt. Modi government is doing its best to resolve the issue with carrot and stick policy though the sentiments are extremely damp. It will take some time to restore the confidence of the people in the banking system and the banker must own responsibility of serving the country honestly, then the problem is likely to be resolved. The Covid 19 will escalate the NPA crisis to the next level so the banks and enforcement agencies of the government must plan effective realization of the bad and stolen assets within stipulated time before the banks takes irreversible hit.
Writer is Associate Editor & banking and finance expert.
While the extradition of Nirav Modi will take time, real justice is possible only when his protectors and bankers are brought to book
With just a couple of weeks to go before the general election, the arrest of fugitive diamond merchant Nirav Modi, the key accused in the Rs 13,500 crore Punjab National Bank scam, in London seems convenient for the ruling BJP and has given an edge to its “MainBhiChowkidar” campaign. It is a different matter though that had it taken up its policing responsibilities seriously early on and not at the fag end of its term, the likes of Nirav and his uncle Mehul Choksi wouldn’t have easily fled the country in the first place. Now with liquor baron Vijay Mallya’s extradition closer to reality, the BJP wants to play up Nirav’s arrest as an example of its intent to clean up society when fact of the matter is the businessman’s cover was blown by a UK daily and not by our government. This despite the fact that he was blatantly roaming free, had started a business, procured an insurance number, paid taxes to his area council and even planned plastic surgery to acquire a new identity as a UK resident. So no matter how much the BJP tries to appropriate the credit or the Opposition parties might say “I told you so”, the reality is his repatriation will take some time coming. In the end, his stay at an overcrowded jail during Holi is minuscule dispensation of justice considering the long road ahead to extradition. The economic offences against Nirav are, of course, stronger than they were in Mallya’s case but the documents are humongous. Even assuming that the London courts speed up the process, though they are in no way going to play by the political imperatives of India, it would take no less than a year to conclude matters.
Despite an extradition treaty with the UK, we have got back only one out of 28 most wanted in the last decade. The extradition process is so intricately complex and painstakingly time-consuming that most offenders abuse it to seek refuge in that country. There are layers and layers of inquiry and cross-checks of the veracity of the claims for extradition there, no matter how serious the offence may appear to us. Besides, an appeal for asylum, which would but naturally imply a threat perception of the fugitive in his home country, is vetted very seriously there. Then there’s the issue of human rights and political witch hunt. Mallya claimed immunity, citing a biased media trial back home that could impair a fair inquiry, a government-controlled, motivated probe and our poor prison conditions, which compared to UK, will always appear short. Article 9 of the Extradition Treaty between India and the UK recognises unjust and oppressive proceedings as a ground to deny requests of the home country. Nirav Modi is expected to appeal on similar lines. But the biggest question that hovers over us is once the agencies bring him back and get him to spill the names of bank officials and politicians who helped him in the entire fraud, will there be an unsparing crackdown on the latter irrespective of whoever is elected in May? The diamond merchant not only fraudulently got LoUs (letters of undertaking) issued and FLCs (foreign letters of credit) enhanced but sold faulty diamonds at high prices, converted crores of black money during demonetisation into white and travelled on a revoked passport. Nirav Modi is a byproduct of a corrupt system, and till the flag bearers of that system are brought to book, justice wouldn’t be fair.
Writer & Courtesy: The Pioneer
The most significant thing about India’s rise — by three ranks — to the 78th position in Transparency International’s corruption perceptions index is the fact that the country has jumped past its bigger Eastern neighbour, China. In fact, the Middle Kingdom has dropped dramatically in the corruption rankings. Predictably, the communist media will dismiss the report but the fact is that under President Xi Jinping, who made fighting corruption a supposed cornerstone of his administration, the unscrupulous boomed thanks to projects like the Belt and Road Initiative. Corruption in China was just a stick used by Xi to eliminate his political rivals. However, India’s slight rise overtaking China is also a sign that under the Narendra Modi dispensation, there has been a palpable sense that large-scale political corruption reduced. This is not to say that every estate of the Indian state, including the fourth estate, the media, is riddled with scams. But as they say, we must take baby steps to start with.
India’s problem is not just of corruption across the executive but that the malaise has taken root in society much like an invasive plant species and it is extremely difficult to remove it. The current state of Indian banks because of their profligate lending habits was in no small part due to questionable understanding between parties. Besides one has to understand that corruption is not always a case of money changing hands, it is also that network of favours. A job for a relative, school admission for a child, the worst forms of a corrupt system rarely involve money. Removing that will take years of work and a mindset change that everything, from chai-pani as the telephone lineman once asked for just to do his job to the payoffs for contracts, is wrong and that means teaching children at a very young age that corruption is bad. But in a country with an economic disparity as wide as that in India, eliminating corruption is almost impossible. That does not mean that we should not do our utmost to try and reduce it. There is little authentic economic data to prove this but rough calculations made by anti-corruption watchdogs show that we lose a percentage point or more of growth every year thanks to graft cases. Because it almost always benefits a few at the cost of the many. The poor municipal roads and potholes courtesy the a contractor ‘mafia’ in many cities are evidence of this. So yes, while we should be pleased with our rise and have a bit of schadenfreude about China’s decline, we should not lose sight of the fact that the road ahead to reducing corruption is a long and a hard one.
Writer and Courtesy: The Pioneer
The BJP Government talks about undertaking corruption and presents transparency by the means of new agendas.
The pervasiveness of money power and corruption in the political and governance process, as the attempts by the BJP to buy MLAs in the aftermath of the Karnataka Assembly election confirmed, is intense. The Government talks big on taking on graft but its actions betray a very different agenda. The Electoral Bonds Scheme is a prime example of its hypocrisy.
The touted motive
The Electoral Bonds Scheme, which was introduced on January 2, 2018 is a perfect example of the duplicitous nature of the Government. In a Press note titled “Why Electoral Bonds are Necessary?” the Finance Minister of India, Arun Jaitley, said “as against a total non-transparency in the present system of cash donations where the donor, the done, the quantum of donations and the nature of expenditure are all undisclosed, some element of transparency would be introduced in as much as all donors declare in their accounts the amount of bonds that they have purchased and all parties declare the quantum of bonds that they have received”. Therefore, the Press note seems to give us the impression that while introducing absolute transparency in the political funding process is difficult, the BJP wishes to introduce some amount of transparency to the funding process, which is why the Scheme has been introduced. In reality, however, if one examines the amendments made to the other laws in India, pursuant to the introduction of the Scheme, a truer and much more somber picture begins to appear.
How the Scheme works
The Scheme permits any person who is a citizen of India or is an entity incorporated/established in India to purchase an electoral bond in favour of certain political party within a period of 10 days during the time frames specified by the government. This electoral bond, which has been purchased, may then be encashed by political parties by depositing the bonds within in the political party’s designated bank account. In this regard, in order to appreciate how this Scheme actually encourages a lack of transparency it is important to examine the manner in which funding by way of electoral bonds is to be disclosed by political parties compared to other sources of funding.
In this regard, an examination of the Representation of People Act, 1951 (RP Act) and the Income Tax Act, 1961 (I-T Act) is illuminating. The RP Act, inter alia, deals with the conduct of political parties including the funding of political parties. Section 29C of the RP Act requires political parties to prepare a report of all contributions received by a political party in excess of Rs 20,000 from a person or a company in a financial year and to submit this report to the Election Commission. After the introduction of the Scheme and amendments introduced under the Finance Act, 2017, the RP Act now creates an exemption to this reporting requirement for contributions made in the form of electoral bonds to political parties. While, the Scheme specifies that the know your customer (KYC) norms of a bank will apply to the buyers of an electoral bond, this does not help introduce any real transparency because the Election Commission will be unable to access this data which is the confidential information of banks.
In effect therefore, the Election Commission will have little to no information on the contributions received by political parties received in the form of electoral bonds. Another law that has been amended to further discourage transparency is the I-T Act. Prior to the amendment under the Finance Act, 2017, in order to avail tax benefits and reliefs under the Act, a political party was required to maintain a record of each contribution that was over Rs 20,000. After the amendment, the contributions made to a political party by way of electoral bonds have been excluded from the ambit of this requirement. Therefore, in order to avail reliefs under the I-T Act, no such record is required to be maintained by political parties if they are funded through electoral bonds.
It is therefore obvious, that while the government made claims that it was introducing this Scheme to bring greater transparency, in reality the government has made the entire system more opaque and attempted to fool the ordinary citizen by glossing over these unpleasant details.
How do we stem the rot?
While it is important to critically analyze the Government for its lack of drive and motivation in tackling corruption and introducing transparency in the political system, it is also important to suggest measures that in my opinion can help stem the rot of corruption in our system.
One such measure is a shift in the approach of our investigative agencies towards investigating and prosecuting corruption. The Central Bureau of Investigation (CBI) is the premier investigating agency in India that typically investigates cases of corruption in India. Currently the CBI looks into all cases of corruption across departments and more importantly across the entire spectrum of public officials in our system. In case of the Indian police service, this means that allegations of corruption against a police constable as well as a Director General of Police are investigated by our investigating agencies. While there is no denying that all acts of corruption are condemnable and should be dealt with sternly, our primary goal should be to find the most efficient way to tackle corruption as comprehensively as possible.
In order to achieve this objective, it is my opinion that more focus should be placed on investigating and prosecuting high level Government officials like Joint Secretary & above (Equivalent Rank) as well as MLA’s and MP’s. By ensuring that high-ranking corrupt officials are brought to justice and honest, competent officers occupy higher positions of responsibility it is likely that such competent, honest individuals will implement practices and policies that encourage transparency and reduce corruption in the entire department and therefore help ensure that day to day corruption that ordinary citizens face are minimized as well. By adopting such an approach, the CBI can use its resources in a more focused, efficient manner rather than spreading itself thin chasing every instance of corruption.
As the saying goes, sunlight is the best disinfectant. So another way in which corruption can be reduced is by introducing greater transparency in our system. The Right to Information Act was a big step in this direction. In order to move forward in this direction, we should strive to ensure that all government documents (other than such matters which are sensitive or relating to national security) should be accessible to the public. Such a move will help ensure that the citizens of the country to provide a check against an abuse of power in the Government.
At the end of the day, we must remember that the problem of corruption is a massive problem that cannot be tackled by sweeping statements or empty gestures. It requires a sustained committed approach and should not be reduced to a marketing campaign. However, I am aware that the BJP and the Prime Minister are big advocates of the hashtag culture so I humbly request Prime Minister Modi to undertake this #seriousaboutcorruption challenge.
(The writer is Jharkhand PCC president, former MP and IPS officer. Views expressed are personal)
Writer: Ajoy Kumar
As you drive past Nirav Modi’s flagship store in South Delhi’s posh Defence Colony you see billboards of Bollywood and Hollywood stars adorned with Modi’s diamonds. In the last few years, Nirav Modi had become one of India’s richest men and his chain of jewelry stores across India and the world became highly regarded. But what is emerging in the past few days, especially from Punjab National Bank (PNB), is that Nirav Modi’s empire appears to have been built on fraud. First, news of a Rs. 280 crore fraud emerged and it was followed by the disclosure of a whopping Rs. 11 ,800 crore fraud where the state-owned lender found itself exposed to bad loans made to Nirav and his associates on the basis of forged documents and through corrupt officials. What is remarkable is not that the details of the scam emerged now, but also that the scam apparently had been going on since 2011 and that officials were notified a few years ago. At the same time, Nirav and his associates managed to flee the country before news of the mega-fraud broke.
That said, the Managing Director of PNB has not clarified the extent of the loot but this highlights how taxpayers are left holding the can for banking failures in the public sector, and while the Congress will gloat over this scam it would be inopportune for them to do so because the scam began under their watch. Many questions are still being asked about this fraud and the well-connected individuals at the heart of the alleged loot. But the obvious question should be how it took six and a half years to come to light if indeed money had been lent to these individuals. Did it only come to light as the Reserve Bank of India made reporting Non-Performing Assets a far stricter process for Indian banks? And how will the scam impact not only PNB but also other state-owned lenders? All this comes in the wake of the State Bank of India, the country’s largest bank, having declared some spectacular losses in the recently concluded quarter. With their books bleeding and the RBI’s latest strictures making it difficult to keep on ‘evergreen’ loans, access to banking credit for firms large and small will become even more difficult. But it isn’t just this story that should trouble the Government and the RBI. There is also the curious case of the Bank of Baroda which apparently broke all laws by banking with the scandal-linked Gupta family in South Africa which is accused of ‘state capture’ in that country. It appears the bank broke all its own rules in banking transactions with the Gupta family and bank managers even implored the family for favours.
The Indian public banking sector is in a deep state of rot and four years into his administration, Narendra Modi should be worried. Despite lower inter- est rates, credit off-take has been weak in India with banks almost scared to lend money; the scale of the NPA problem under the previous UPA government was like a poison pill planted to undermine Modi’s promise of job growth. However, some positive news is emerging with the push towards improving things for small and medium enterprises with better banking services. But is there more bad news on the horizon? The banking sector in India needs structural reforms, Modi government must address the problem with immediate effect.
Inputs from The Pioneer www.dailypioneer.com
A special CBI court has sentenced RJD chief Lalu Prasad to three- and-a-half years in jail and imposed a fine of Rs 10 lakh on him in a fodder scam case relating to fraudulent withdrawal of Rs 89.27 lakh from the Deoghar Treasury 21 years ago.
The punishment was handed down to 69-year-old Prasad by CBI court judge Shiv Pal Singh. This is the second time that he has been jailed in the fodder scam. The judge also imposed a fine totalling Rs 10 lakhs on him.
He was sentenced to three-and-a- half years in jail in a fodder scam case for offences of cheating, along with criminal conspiracy, and other sections under the Indian Penal Code (IPC).
Prasad was also given a jail term of three years and six months in the case under the Prevention of Corruption Act (PCA). He was fined Rs 5 lakh each under the IPC and the PCA, CBI counsel Rakesh Prasad said, adding that failure to pay the fine would entail another six months in jail.
The sentences will run concurrently, he said. Prasad, who was convicted in the second case on December 23, is at present lodged in the Birsa Munda Central Jail. The judge conveyed the punishment to Prasad through video- conferencing. The court had yesterday concluded arguments on the quantum of sentence against Prasad in connection with the withdrawal of Rs 89.27 lakh from the Deoghar Treasury between 1990 and 1994 when he was the chief minister of Bihar. It had also heard arguments on the issue of punishment for 10 others convicted in the case.
Prasad was given a prison term of five years on September 30, 2013, in another fodder scam case. He was re- leased on bail by the Supreme Court after having remained in jail for over two-and-a-half months.
The CBI special judge had on December 23 acquitted former Bihar chief minister Jagannath Mishra and five others in the case. In 1996, the Patna High Court had ordered an inquiry into the fodder scam cases and a charge sheet in the Deogarh Treasury case was filed against 38 people on October 27, 1997. Eleven of them died and three turned approvers, while two other accused confessed and were convicted in 2006-07, a CBI official said.
In 1996, the Patna High Court had ordered an inquiry into the fodder scam cases and a charge sheet in the Deog- arh Treasury case was filed against 38 people on October 27, 1997. Eleven of them died and three turned approvers, while two other accused confessed and were convicted in 2006-07, a CBI offi- cial said.
On September 30, 2013, Yadav, Jagannath Mishra and several others were convicted in another case pertaining to illegal withdrawal of Rs 37.7 crore from the C .. On September 30, 2013, Yadav, Jagannath Mishra and several others were convicted in another case pertain- ing to illegal withdrawal of Rs 37.7 crore from the Chaibasa Treasury in the early 1990s.
Prasad faces another three fodder scam cases for illegal withdrawal of Rs 3.97 crore from the Dumka Treasury, Rs 36 crore from the Chaibasa Treasury and Rs 184 crore from the Doranda Treasury.
Meanwhile, Prasad’s son Tejashwi Yadav said in Patna that they will move high court against his father’s conviction. “We will move high court against Lalu Prasad’s conviction and appeal for bail after studying the court verdict,” he said.
It is a matter of great concern that in today’s well connected world, large scale violence broke out in parts of Haryana and Punjab soon after a CBI court in Panchkula convicted Dera Sacha Sauda chief Gurmeet Ram Rahim Singh of rape. Over 40 people had been killed in Haryana in the violence at the time of writing this story. The BJP government in Haryana stands accused of gross administrative failure. On the eve of the verdict, it allowed lakhs of Dera supporters, or Premis as they are called, to gather at Panchkula. Dera supporters also mobilized themselves at Sirsa, the Dera’s bastion. The administrative failure of the Manohar Lal Khattar government stems from its political compulsions. The BJP in Haryana enjoys close ties with Dera Sacha Sauda and this seems to have impaired it from cracking down on Dera goons on time.
Ram Rahim’s Congress relationship
In the past, Congress leader Capt Amrinder Singh has used the might of Dera Empire to win elections. Akali Dal and SGPC is bitterly opposing Dera religious overtone due to Ram Rahim’s direct challenge to the authority of Sikh panth. In fact, Badal was regularly pushing for Ram Rahim prosecution on several cases but Ram Rahim was always one up to overcome Badal’s challenge. And Capt capitalized the situation by tacitly seeking Dera support and winning previous 2002 assembly elections and in recent concluded Punjab assembly election. In the adjourning state of Haryana, BS Hooda was coordinating political management with Ram Rahim Dera cult to secure two successive victories in the two previous elections. However, Baba shifted his loyalty to BJP post 2014 General Election victory resulting in BJP’s huge electoral gains in 2014 Haryana assembly elections. Surely, Ram Rahim Dera is having large following in Haryana, Punjab, Delhi, Himanchal Pradesh and West UP but it reflects the weakness of the political system that is dependent on GOD man for easy vote bank to win elections. Modern day politicians are looking for swift and quick results by engaging money and muscle power and God Man style of quasi politics suits ’s modern day politicians.
Ram Rahim’s BJP links
Nothing embodies this failure more than Haryana education minister Ram Bilas Sharma’s comment that the Section 144 imposed in Panchkula “did not apply to Dera supporters”. He even went to the extent of defending the people who had gathered at Panchkula. He reportedly described the Dera supporters as “simple, peace-loving people” who wouldn’t “harm even a plant”. Sharma’s links with the Dera are well known. He is reported to have recently donated Rs 51 lakh to the Dera as a mark of his sup- port for the cult.
But it isn’t just Sharma. A number of leaders in the Haryana BJP have deep ties with the Dera and this close relationship has the blessings of the party’s top leadership. The other major backer of Ram rahim in the Haryana BJP is health minister Anil Vij. Vij donated Rs 50 lakh from Haryana government funds to the Dera’s sports project. Another minister, Manish Grover, who holds the portfolios of printing, stationery and urban local bodies, also donated Rs 11 lakh to the Dera from his discretionary fund. The support for the Dera extended even to the Central government, with Union minister for sports Vijay Goel also promising to support the Dera with Central funds. Between the three BJP leaders Sharma, Vij and Grover the Dera was given over Rs 1 crore. This is despite the fact that even at the time of the donations, Ram Rahim faced charges of rape and murder.
What is even more sinister is that the BJP’s Central leadership – Prime Minister Narendra Modi as well as BJP president Amit Shah were active participants in this cozy relationship of the party with Dera. During the campaign for the Haryana Assembly elections in 2014, PM Modi reportedly showered praise on the rape accused godman while addressing a rally in Sirsa. Apparently, this was the first time that a major political leader had openly invoked the Dera during an election campaign. The Congress and Akali Dal leaders, who often sought support of the Dera in the past, made it a point not to publically name the Dera or its controversial chief.
On the other hand, the 2014 Haryana election was also the first time when Dera Ram Rahim chief openly voiced his preference for a political party the BJP. Before this, Ram Rahim’s diktat to vote for one party or the other was communicated through more secretive ways to his followers, mostly through the political wing of the Dera.
According to a report, the deal with Ram Rahim was sealed by none other than BJP president Amit Shah. The report said that Shah met Ram Rahim in the first week of October and “sought his blessings” for the Assembly elections in Haryana and Maharashtra. The report said that six days after the meeting with Shah, BJP general Secretary Kailash Vijayvargiya took 44 BJP candidates for the Haryana polls to meet the Dera chief. Apparently, Ram Rahim showered his blessings on the BJP candidates during the meeting. The Modi government also used Ram Rahim to push its Swachh Bharat initiative. BJP insiders say that Ram Rahim is a valuable political ally for the party, as he commands the loyalty of over 1 crore followers across the country, particularly in Haryana and Punjab.
“Dera commands a large voter base of over a crore, with a large percentage of Dalits. They vote en bloc. BJP leaders have been in regular touch with Ram Rahim and expected him to play a major role in bringing votes the party’s way in Haryana and Punjab in the 2019 Lok Sabha elections,” a senior BJP leader told Catch on the condition of anonymity. The leader admitted that the Khattar government had no choice but to go soft on the Dera supporters and let them have their way. “Dera followers are not small in number, in fact they are huge. We have to move very, very cautiously. Patience is the need of the hour. A wrong move and things can go out of control. We have already seen that in the 2016 Jat agitation,” the leader said.
Dera and the RSS game plan
For the BJP, the Dera’s significance isn’t just related to elections. It is said to occupy a key place in the broader game plan of the BJP’s parent organisation the Rashtriya Swayamsevak Sangh. “Sangh’s aims are not always associated with the BJP. The BJP is focused on elections, Sangh works for society. Sangh has been cultivating various Deras Radha Soami Satsang, Dera Sacha Sauda etc for some years now,” a Sangh functionary based in Amritsar had told Catch during the Punjab elections earlier this year. “The Deras work with the Dalit community, particularly Dalit Sikhs, who are ill treated by Panthic Sikhs. The Deras help in bringing them back into the Hindu fold,” the functionary added.
The functionary was extremely categorical in saying that the interests of the Sangh were at odds with Panthic politics. “They (Panthic Sikhs) emphasise on the minority nature of Sikhs. We don’t see them in that way. Often even mainstream Sikh leaders take radical positions or appease radical elements. The Deras can help us counter this,” he added. Apparently to pursue this agenda, RSS Sarsanghchalak Mohan Bhagwat spent some time at Mansa in South Punjab in 2014. During his visit, he reportedly met the head of the Radhasoami sect Baba Gurinder Singh Dhillon.
The Dera Sacha Sauda has its roots in the Radha Soami sect. Its founder Khema Malaka Balochistani Shah Mastana, was a disciple of Baba Sawan Singh of the Radhasoami lineage. It is clear that in Punjab’s sociopolitical landscape, RSS and the Deras are on the same side. Even Panthic outfits, mainstream as well as radical ones, realize that such an alliance has taken place. According to Punjab police, the same radical group is said to have been behind the killings of RSS leader Jagdish Gagneja last year and Dera Sacha Sauda supporters earlier this year. The violence by Dera supporters is likely to increase social tensions in Haryana and Punjab. The BJP’s political and financial support to Dera Sacha Sauda is singularly to blame for the present mess, the mere perception that Ram Rahim was larger than law has fueled the violence, The motorcade of 200 cars, over 1 lakh supporters around court, hapless administration present an extremely sorry picture of the governance that Modi has promised in 2014. It is imperative that Prime Minister must take the situation under his direct control because he is a symbol of maximum governance and people of the country trust him. The compromises in governance even at state level will hurt brand Modi simply because people of Haryana had voted for BJP keeping in view Modi’s credibility and face. Lastly, people of the country must own responsibility of following quality religious leadership. India is a land of Jagatguru Adi Shankara, Guru Nanak Dev, Ramakrishna, Vivekanand, Praramhansa Yoganand and many more. We should be careful in selection of Guru and Saints, there should be strictly no God Man policy to be adopted by people to discourage fraudulent conman taking over the physiological control of innocent people.
– By Dr Rahul Misra (Associate Editor, Opinion Express)
Prime Minister Manmohan Singh has finally broken his silence to offer his defense in the 2G spectrum scam, which is fast paralyzing the government. He has essentially blamed former telecom minister A Raja and coalition pressures for all the wrongdoings and promised that the guilty will be punished irrespective of rank or influence.
While admitting that several complaints were made to him about Raja’s policies, the PM said he had no reason to believe anything seriously wrong had been done. He then admitted that he could not make up his mind that something serious was wrong, which later prevented him from intervening when Raja made a comeback as telecom minister in UPA II.
While the PM says he went along with Raja’s claims of no auctions based on TRAI recommendations, approval of the Telecom Commission and concurrence by the finance ministry, it is clear that all of these could easily have been checked by the PMO and corrections made on the spot. Clearly, that did not happen.
The problem is not so much about Raja’s claims, which multiple investigations have proved false, but about the detailed information given by him to the PM, on which the PM failed to act, which in turn led to the perpetration of the scam in 2008.
The PM has made no attempt to deny that he was in the know. Arun Shourie recently made startling revelations that he had given the PM details of the scam beneficiaries and paper trail in August-September 2009, but did not receive a response from either the PM or his office. Shourie also alleged that the same whistle blower was introduced to the CBI, who engaged him, but refused to act.
The CBI FIR was filed immediately after this in October 2009, but the CBI’s affidavit in the Supreme Court shows that it did very little till the SC started hearing Prashant Bhushan’s PIL on the 2G scam in October 2010. This inaction acquires new color in the context of Shourie’s allegations, considering that the CBI is accountable to the PM.
By now, various reports/documents suggest that the PM knew of Raja’s intent and modus operandi well before 2G licenses were finally awarded on January 10, 2010. So why did he fail to act? The PM claims it’s on account of coalition pressures. Yet, the same PM refused to bow to coalition pressure from the Left par- ties during the Indo-US nuclear deal, displaying a will of steel by staking the future of the government for what he considered was good for India.
This is valuable evidence that the PM can resist pressure when he wants to. Another explanation offered is that the PM is simply too busy to address all correspondence in minute detail. Yet in is simply too busy to address all correspondence in minute detail. Yet in Raja’s case, the PM found time to exchange five letters directly, including one in which the PM detailed the alternatives that Raja could consider, so the second theory doesn’t stick either.
How do the facts stack up? Is the PM indeed culpable in the Rs 1.76 lakh crore 2G spectrum scam? Let’s first test Singh’s acknowledged strengths: strong personal financial integrity and a mature handle on economics and public policy. While the worms just don’t stop tumbling out from the 2G scam investigations, so far there is no incriminating financial evidence linking Singh to the scam.
Moreover, the PM, in his two-page letter of November 2, 2007 to Raja, states in Section 4 of its annexure, “In order that spectrum use efficiency gets directly linked with the correct pricing of spectrum, consider (i) introduction of a trans- parent methodology of auction, wherever legally and technically feasible, and (ii) revision of entry fee which is currently bench marked on old spectrum auction figures.”
In effect, the PM favored auctions in spite of Raja’s claims that TRAI had not recommended auctions, and was also careful to protect exchequer revenues by suggesting “revision of entry fee” as a prudent alternative. Responding within hours on the same day, a defiant minister Raja wrote: “It will be unfair, discriminatory, arbitrary and capricious to auction spectrum to new applicants as it will not give them level playing field.” Singh scores on economics and public policy. Clearly, if Singh had enforced his advice, there would have been no 2G scam.
The PM’s culpability comes into question only if it can be established that Raja acted after informing the PM and without misleading him in any way. For this we need to examine the events leading to Raja’s resignation and arrest.
1. He claimed to implement TRAI’s recommendations regarding “no cap” on the number of operators, but in fact, violated this by capping the number of licenses processed at 122 out of 575 applicants. In 2009, the courts observed that Raja had acted contrary to this claim.
2. He defied the law minister to circumvent scrutiny by an eGoM. This violates governments’ transaction of business rules under Article 77 of the Constitution.
3. He followed a bespoke first come first served (FCFS) process over transparent auctions even though the demand far out- weighed supply. This violates provisions of the Constitution, Article 14, 19 (i) (g) and 21.
4. He illegally and arbitrarily advanced the cut-off date from October 1, 2007 to September 25, 2007, a move that favored handpicked companies. The courts have declared this action illegal.
5. Finally, he manipulated the FCFS process by changing the established priority based on “date of application” to a new arbitrary criteria of “compliance with LoI” which meant “first to pay gets spectrum”. The CAG’s report shows that insider information pay gets spectrum”. The CAG’s report shows that insider information coupled with these tailor made norms, allowed a few companies to fraudulently access spectrum by jumping the queue.
The fact that the PM was well apprised of these impending policy violations is evident from a closer look at the correspondence between them. Five letters were exchanged between Raja and the PM directly – three on one day (November 2, 2007), followed by Raja’s last letter on December 26, 2007 and the PM’s two-line acknowledgment on January 3, 2008 exactly one week before the infamous award of 2G licenses on January 10, 2010.
Of the five listed wrongdoings which were later found either illegal or in violation of administrative procedure/rules, Raja informed the PM about the first four through his two letters D.O. No. 20-100/2007-AS.I of November 2, 2007 written two months before the scam broke out.
The last, regarding the change of the FCFS definition was conveyed to the PM on December 26, 2007, through a detailed six-page letter including annexure, DO No. 260/M(C&IT)/VIP/2007 – two weeks before the spectrum scam broke out.
This shows that every single action by Raja, except ones under scrutiny under the Prevention of Corruption Act, were known to the PM in detail and well ahead of Raja’s actions. It is equally clear from the turn of events: CBI’s FIR of October 21, 2009, CAG Report of November 2010 and the Shivraj Patil one man committee report of January 31, 2011, that whatever Raja told the PM, he followed to the letter. The DoT corroborates this in its affidavit of November 11, 2010 in the Supreme Court which, citing Raja’s letter of November 2, 2007 and December 26, 2007 admits, “Not only was there no difference of opinion with the Honorable PM, his office was duly kept informed of all decisions”.
In conclusion, and based on the facts, it is clear that all allegations against Raja of wrongdoing and illegal acts which have led to the loss of Rs 1.76 lakh crore as reported by the CAG and eventually, his resignation and arrest, were known, in detail and in advance, by the PM.
In summary, the PM offered Raja sound advice on public policy that was anchored in strong economic principles, but consistently failed to reign in a minister turned rogue since 2007, which makes allegations of his culpability in the 2G spectrum scam difficult to dislodge. It is these serious lapses that the PM must defend.
And formation of JPC by the government has started on the bitter note with ugly exchange of words on the floor of house hence the proceedings subsequent are expected to raise political temperature to a new high. But the million dollar question for us remains as to whether we can tame corruption and clean up the mess to avoid huge embarrassment that country is facing due to series of scams? Though time is limited for everyone.
– Prashant Tewari (Editor in Chief, OE)
Recently the Union government sought a review of the Supreme Court's order constituting a Special Investigative Team (SIT) to probe the issue of black money stashed abroad. The government believes this is judicial over-reach, but it forgets that the courts stepped in because of executive "under-reach." It is one thing to object to a Supreme Court-appointed SIT, quite another to be SITting on your hands doing nothing.
But stashing money abroad is not just about the government not earning its share of tax revenues.
It is actually a vote of no-confidence in the country and its people.
Hence, it is financial skullduggery.
Here's the second part of our Dummy's Guide to Tax Havens and Black Money in which we explain how black money is generated and spirited away. The first part was published by First post on 3 June.
What is black money and how is it generated?
It's not the colour of the currency, for sure. Income generated by illegal means and on which no tax is paid is called black money. Corruption is one of the major causes. All corrupt acts generate black money since the receiver does not want to show it as income to the tax authorities. This is why the finance ministry's chief economic advisor, Kaushik Basu, even suggested legalizing small-time bribes since it can at least be taxed.
Domestic corruption can be retail or wholesale. The retail one is what hurts most of us. The policeman who collects a bribe when you jump a red signal, the electricity board engineer who wants speed money to fix your meter, or the RTO official who wants a payment to issue a driving licence - such situations can be multiplied a million times.
We can also call this womb-to-tomb bribery, from birth certificate to death certificate. This retail corruption is what we are up against on a day-to-day basis. And this generates huge amounts of black money, mostly in the hands of thousands of government employees. This is what is not felt in developed countries. In the US or Europe, retail corruption that affects the common man is rare.
Corruption generates black money but black money is generated even without corruption. For instance, if you do not collect the bill for your next petrol purchase you have generated black money.
Then there is wholesale corruption, which is generated through the award of road/project contracts (as in Commonwealth Games) or the issue of licences or allotment of scarce resources like spectrum (as in 2G scam). Wholesale corruption also happens in government purchases - whether it is medicine in hospitals or books in schools or aircraft for Air India or Bofors guns or coffins for defense. Corruption happens even in the private sector, but since the losses are borne by promoters and shareholders, we should not bother about that now.
Why should I bother about wholesale corruption?
Wholesale corruption does not affect us directly, but it does impact us indirectly. When A Raja allegedly made money by under pricing spectrum and allotting it to specific parties, telecom companies had to recoup the costs from somewhere - it could be through higher mobile bills or poorer quality service, or both. Also, the government loses revenue, which means less money to spend on more worthwhile projects like subsidizing the poor.
It is important to note that corruption generates black money but black money is generated even without corruption. For instance, if you do not collect the bill for your next petrol purchase you have generated black money. If you visit your doctor and pay him his fees without a bill, the doctor may not pay his taxes.
So the equation is corruption generates or implies black money but black money does not imply corruption.
Where is this black money kept?
Unlike what is shown in Bollywood films, black money is not kept in cupboards or suitcases - though some if it may well be kept there. Black money is usually kept in circulation by using it to finance informal trade and commerce - usually at a higher interest rate than what banks charge.
For instance, we estimate that only 30 percent of retail trade financing is done by banking institutions. The remaining money comes from money-lenders - a good portion of it from black money. Actually, domestic black money is a hidden reserve and it may also be beneficial in some ways as it finances economic activities. Also, black money circulates faster than white money, which slows down as it passes through the banking and taxation loop.
But black money distorts resource allocation since people with huge amounts of it will use it to build spas at home or buy Italian marble for the verandah or gold-plated bathroom fittings. The economy thus tries to cater to this profitable demand instead of what the bulk of the people need.
Moreover, black money is also stored in real estate, which is one reason why we are finding everything unaffordable in the property market.
If black money is useful here, how did it land up in tax havens abroad?
There are several reasons for keeping wealth abroad clandestinely. They can be broadly categorized as vegetarian and non-vegetarian reasons/purposes. The illegal wealth itself can be classified as veg or non-veg. The veg reasons for keeping wealth abroad include tax evasion, and keeping some dollars abroad for meeting expenses when you travel abroad or for your child's education or daughter's honeymoon.
The non-veg money is accumulated for terror financing or gun running or drug money or flesh trade. (Disclosure: I am a vegetarian and so I am categorizing these purposes in this fashion.) The former is illegal but less harmful compared to the latter. The government needs to approach the issue in different ways in tackling these two segments of black money. We will elaborate it later. Let us first look at the veg segment first, and how it emerged.
Why did so much black money get generated?
In the sixties and seventies, tax rates used to be very high in India. At the margin it was more than 90 percent in many years. This meant that for every Rs 100 earned in the upper-income brackets, more than Rs 90 would go as taxes. Hence rich persons began to accumulate wealth abroad to avoid such "usurious" taxes.
The high levels of taxes were the result of "Nehruvian socialism" which felt that the rich should be soaked to improve the lot of the poor. The latter did not happen, but such policies "improved" the ability of tax officials to extract money as bribes from the rich and encouraged the latter to look out for secretive jurisdictions to store their wealth.
Foreign exchange controls were also so stringent that businessmen found they could not afford to stay in decent hotels when travelling abroad for business. They could not send their sons and daughters to get an Ivy League education. Hence the need to maintain dollars abroad - often in tax havens.
But it is the second broad category - namely the non-veg - that is insidious and dangerous. It is not only about lost taxes, but also about what kind of nefarious activities it may be financing, including possibly terrorism and gangsterism.
India's restrictions on gold holdings and high customs duties created an entire class of smugglers who brought in gold illegally from Dubai. There were smugglers not only in gold, but any luxury item that was banned or too expensive to import (including electronic gadgets at one time). This is how Nehruvian economics created crime syndicates which, over time, metamorphosed into financiers of terror, a la Dawood Ibrahim.
How does the money go out of the country?
One of the important mechanisms is called "trade mispricing". When an exporter under invoices (underprices) his goods, the difference is paid by the importer abroad in a Swiss account, or any tax haven. One can also over invoice imports. Let's say a US exporter sells us a piece of machinery worth Rs 100 crore for Rs 110 crore. In this case, a higher amount is remitted from India, enabling the exporter to pay us the excess back in a tax haven.
Black money is also generated in defence deals. In the Bofors case, a commission was paid for the deal when the Indian policy was that no commissions could be paid? Who got the money?
Then there are hawala transactions. At the criminal level, you can merely hand over a sackful of rupees, and the courier will deliver dollars somewhere abroad - obviously at an exchange rate that is significantly higher than the official one.
But hawala transactions can also be done by the ordinary well-to-do. Let's say you want to finance your father's operation abroad. You can ask you friend in Dubai to bear the cost, in return for paying the equivalent amount in rupees to his sister in Hyderabad. This does not look like a criminal thing to do, but legally it is no different from the illegal hawala deal.
R Vaidyanathan is professor of finance at IIM, Bangalore
In India, one cannot talk about public service without raising the issues of corruption, lack of transparency and accountability. Without raising esoteric issues on ethics, I would like to focus attention on practical measures to combat corruption and increase transparency and accountability in all facets of public services.
Mark Twain once said, "Everyone talks about the weather, but no one does anything about it". Corruption has become one such topic of conversation, with few in the establishment or outside really doing something to curb it. The fight against corruption is too important to be left to a few formal institutions or politicians. The people at large have enormous stakes in clean public life and corruption-free services. Experience all over the world showed that determined initiatives with public support can and will succeed in curbing corruption and cleansing the system effectively.
As many scholars like Robert Wade have pointed out, most corruption at the citizens' level is extortionary, and people have often no choice when faced with the dilemma of having to lose much more in the form of lost money, time and opportunity, not to speak of anxiety, harassment and humiliation if they did not comply with demands for bribes. The only silver lining is, everyone, including those in positions of influence is a victim and no one seems to be exempt from these extortionary demands. We seem to have achieved the ideal of socialism through equal treatment of all citizens in terms of extortionary corruption! With the advent of economic liberalization and delicensing of most industry, the nature of corruption is now undergoing a major transformation. The one-time grand corruption on large private projects - notably in power and other infrastructure sectors - has now become quite common. An even more alarming trend is the shift of corruption from licensing and permits to more dangerous and pernicious areas of sovereign functions of state like policing. The increasing nexus between hardened criminals, rogue policemen and corrupt politicians is one such example. It is clear that the state's gradual withdrawal from economic activity does not automatically eliminate corruption. Many more practical and institutional initiatives are needed to successfully curb corruption.
It is in this context that civil society's role is critical. Enlightened public opinion and informed and collective citizen assertion are the very basis of any successful fight against corruption.
In my opinion, there are three broad areas of action to combat corruption involving the state and the civil society. The first is active citizen assertion to curb corruption as illustrated by the examples cited above.
There are several rules and procedures whose only impact on the public is extortionary corruption. There is need for a comprehensive review of the regulatory functions and procedures in every department and agency, with three objectives:
For example, widespread petty corruption was eliminated by repeal of the Hackney Carriages Act in mid 70's when cyclists were exempted from obtaining licenses. Similar steps could be taken in respect of all private motor vehicles now. A body of experts from government and civil society should be set up to undertake this complex but vital exercise of deregulation and simplification of rules and procedures. The government would be inclined to take it up as it is politically popular. What is required is the momentum to break the inertia which funding agencies can provide.
Apart from these and other deregulation efforts, citizens need effective tools for collective action. Right to information on all matters of governance with very few specific, limited exceptions in the interest of national security etc., should be enshrined in law. Article 19 of the Constitution and several Supreme Court judgments recognize right to information as a fundamental right. We need to codify this right by law, and evolve fair and objective procedures for its enforcement. The recent draft legislation of Government of India leaves much to be desired. There are too many vague exemptions; no penalties are provided for non-compliance, and there is no independent appeal mechanism. A sensible, citizen-friendly law needs to be quickly enacted and strictly enforced.
For some years now, Citizen's Charters are being released by various departments. A true Citizen's Charter should fix responsibility on individual public servants, specify performance standards, and provide compensation to citizens for delays. No Citizen's Charter conforms to these standards. As a result, these charters are full of shibboleths and pious intentions without any impact on corruption or quality of services. Under pressure, Govt of Andhra Pradesh has recently released a Citizen's Charter in respect of certain municipal services, and probably for the first time in India a compensation of Rs 50 a day for delay in services is provided for, and this amount is to be recovered from the public servants responsible for delay. Another such citizen's charter for panchayats covering twenty services, and providing for a compensation of Rs 10 per day's delay is on the anvil. We need such effective charters for all public services with compensation and clear penalties for non-performance.
Similarly Wards Committees need to be constituted in accordance with the letter and spirit of Article 243-S of the Constitution, and these Committees serving small areas of about 25000-50000 population should be empowered to collect municipal taxes and pro-vide basic services. Such local accountability will reduce corruption. Wherever stake-holders of public services can be clearly identified, they should be legally empowered to take responsibility for those services. These and many other simple, practical steps will promote transparency and accountability and give citizens the required tools for effective action against corruption.
The second broad area of action is in respect of tightening the anti-corruption laws and creating independent and effective agencies to curb corruption. The 161st report of the Law Commission made valuable recommendations in respect of the Vigilance Commission and CBI. The Supreme Court in Jain Hawala Case gave specific directives and suggestions. Sadly, the Union government is still to act. And we understand that the 'Single Directive', by which prior permission of the government is required to investigate charges against officials of the rank of Joint Secretary and above are sought to be restored by law. We need independent, honest and fearless agencies to fight corruption. The Law Commission recommendations should be accepted and a law should be enacted. The CVC and Vigilance Commissions in States, which have been created by executive orders in 1964 in the wake of Santanam Committee report should be given statutory status and given freedom to act. Lok Pal Bill has now been pending for over three decades, and even where Lok Ayukta’s exist in States, they have no effective role. We need to create strong anti-corruption agencies modelled after Hong Kong's successful Independent Anti-Corruption Commission until 1997. Penalties for corruption should be made far more stringent as proposed by the Law Commission in its 166th report. Anti-corruption and crime investigation must be insulated from partisan political control. Without such fair, impartial, independent and strong agencies, there will be no real success in increasing the risks of corruption and minimising the rewards.
Finally, we should all recognize that the roots of corruption lie in the exorbitantly high, illegitimate and illegal election expenditure. Our estimate is that about Rs 7000 crores is spent in a block of five years for the Parliament and State Assembly elections. In most constituencies, the actual election expenditure is several times the ceiling prescribed by law. Much of this expenditure is not only illegal, but is also illegitimate, and is incurred to buy votes, bribe officials and hire hoodlums. This unaccounted expenditure necessitates a tenfold return to the political class, which in turn results in a hundredfold extortion by the bureaucracy, leading to Rs 700,000 crore corruption in five years. The citizens pay a much heavier price on account of anxiety and uncertainty. If we wish to curb corruption, we should together launch a movement for electoral and political funding reform. We are now building alliances across the country for a people's movement for democratic reforms. Electoral funding reform should be the center-piece of our strategy to fight corruption.
In recent times, the political and governance system has shown signs of sensitivity responding to this challenge. Five major initiatives have been taken in the past one year. The Election Commission responded to years of informed advocacy on improvements in voter registration, and has decided in principle that post offices will be the nodal agencies for voter registration. This will make the voter registration process citizen-friendly and accessible, making it easy to curb polling irregularities, and along with voter identity cards will make it difficult to indulge in bogus voting. The disclosure norm put in place, forcing candidates for elective office to file affidavits revealing their criminal antecedents, if any, and the financial record of family members, is a step in the direction of promoting transparency and better candidate choice. The amendments to the RP Act, 1951, incorporated in September, 2003 are by far the most far-reaching legislative provisions reforming our political campaign finance. All contributions for political activity, individual or corporate, will not get 100% income tax exemption. All contributions of Rs 20,000 and above will be disclosed to the public. The infamous Explanation 1 under Section 77 of the RP Act, 1951, which made non-sense of the election expenditure ceilings has been repealed. Most important, free time can now be allotted in private electronic media, including cable networks, recognized parties and candidates for political campaigning. This will drastically cut down campaign costs, and alter the very nature of elections in future.
The fourth reform enacted is the amendment to the Tenth Schedule of the Constitution, thus altering the anti-defection provisions. Through this amendment, no split in a legislature party is recognized, and all members violating a whip will be disqualified. Finally, through the 97th amendment of the Constitution, the size of the Council of Ministers has been pegged at 15% of the membership of the lower house, thus reducing distribution of minister-ships, and meeting the longstanding demand for reform.
All these reforms will certainly help improve the political process, and make it easy for honest persons to raise resources for legitimate campaigning purposes. However, in India, much of the election expenditure is both unaccounted and illegitimate, leading to a vicious spiral of corruption.
In a well-functioning democracy, the political process ought to find answers to such governance problems. It is through the process of elections that a democratic choice is exercised on solutions to be adopted for various governance problems. Every election holds a promise for peaceful change. People in India have been voting for change time and again. But the political process is locked into a vicious cycle, and has become a part of the problem. There are six factors complicating the political process, perpetuating status quo. First, election expenditures are large, unaccounted and mostly illegitimate. For instance, expenditure limit for assembly elections in most major states was Rs 600,000 until recently, when it was revised to Rs 1 million. In reality average expenditure in most states is several multiples of it, sometimes exceeding Rs 10 million. Most of this expenditure is incurred to buy votes, bribe officials and hire musclemen. Such large, unaccounted expenditure can be sustained only if the system is abused to enable multiple returns on investment. Rent-seeking behaviour is therefore endemic to the system.
Most of this corruption is in the form of control of transfers and postings, which in turn sustains a system of retail corruption for a variety of routine services, regulatory functions and direct transfer of resources through government programmes. Large leakages in public expenditure, and collusion in contracts and procurement are extremely common. The economic decision-making power of the state is on the wane as part of the reform process. But as the demand for illegitimate political funds does not decrease, corruption shifts to the core areas of state functioning, like crime investigation. Robert Wade studied this phenomenon of corruption, and described the dangerously stable equilibrium that operates in Indian governance. This vicious chain of corruption has created a class of political and bureaucratic 'entrepreneurs' who treat public office as big business.
Second, as the vicious cycle of money power, polling irregularities, and corruption has taken hold of the system, electoral verdicts cease to make a difference to people. Repeated disappointments made people come to the conclusion that no matter who wins the election, they always end up losing. As incentive for discerning behaviour in voting has disappeared, people started maximizing their short-term returns. As a result, money and liquor are accepted habitually by many voters. This pattern of behaviour is responsible for converting politics and elections into big business. As illegitimate electoral expenditure skyrocketed, the vicious cycle of corruption got further strengthened. With public good de-linked from voting, honesty and survival in public office are further separated.
Third, this situation bred a class of political 'entrepreneurs' who established fiefdoms. In most constituencies, money power, caste clout, bureaucratic links, and political contacts came together perpetuating politics of fiefdoms. Entry into electoral politics is restricted literally, as people who cannot muster these forces have little chance of getting elected. While there is competition for political power, it is often restricted between two or three families over a long period of time; parties are compelled to choose one of these individuals or families to enhance their chances of electoral success. Parties thus are helpless, and political process is stymied. Absence of internal democratic norms in parties and the consequent oligarchic control has denied a possibility of rejuvenation of political process through establishment of a vicious cycle.
Fourth, in a centralized governance system, even if people wisely use the vote, public good cannot be promoted. As the citizen is distanced from the decision-making process, the administrative machinery has no capacity to deliver public services that are cost-effective and of high quality. A climate that cannot ensure better services or good governance breeds competitive populism to gain electoral advantage. Such populist politics have led to serious fiscal imbalances.
Fifth, fiscal health can be restored only by higher taxes, or reduced subsidies or wages. The total tax revenues of the union and states are of the order of only 15 percent of GDP. Higher taxation is resisted in the face of ubiquitous corruption and poor quality services. Desubsidization is always painful for the poor who do not see alternative benefits accruing from the money saved by withdrawal of subsidies. A vast bureaucracy under centralized control can neither be held to account, nor is wage reduction a realistic option.
Sixth, elected governments are helpless in changing this perilous situation. As the survival of the government depends on the support of legislators, their demands have to be met. The legislator has thus become the disguised, unaccountable executive controlling all facets of government functioning. The local legislator and the bureaucrats have a vested interest in denying local governments any say in real decision making. The vicious cycle of corruption and centralized, unaccountable governance is thus perpetuated.
This vicious cycle can be addressed by three fundamental systemic reforms:
Membership and disciplinary action would be a crucial focus area ensuring internal party checks. Leadership choice by regular, secret, democratic ballot is the second key feature. This will be accompanied with formal processes to challenge the party leadership without fear of retribution. The third suggested reform would be transparency and public auditing of party funds and expenditure. Finally, choice of candidates for elective office to be decided by members or their elected delegates through secret ballot. The provisions can be similar to Article 21 of German basic law and federal law to regulate parties.
All these failings find expression in bigger and long-term predicaments. The inability of all political parties to attract and nurture best talent is the primary issue. Difficulties of minority representation leading to ghetto mentality, backlash, and communal tension form another facet of the problem. Lastly, leadership is undermined by permanent reservation of constituencies (or regular rotation) in order to provide fair representation to SCs. The solution to this flawed system is adoption of mixed system of election combining FPTP system with proportional representation. This will be broadly based on the German model. The key features of the suggested system are as follows:
The overall representation of parties in legislature will be based on the proportion of valid vote obtained by them.
A party will be entitled to such a quota based on vote share only when it crosses a threshold, say 10% of vote in a major state, and more in minor states.
50% of legislators will be elected from territorial constituencies based on FPTP system. This will ensure the link between the legislator and the constituents.
The balance 50% will be allotted to parties to make up for their shortfall based on proportion of votes.
Eg 1): If the party is entitled to 50 seats in legislature based on vote share, but had 30 members elected in FPTP system, 20 more will be elected based on the party list.
Eg 2): If the party is entitled to 50 seats based on vote share, but had only 10 members elected in FPTP system, it will have 40 members elected from the list. The party lists will be selected democratically at the State or multi-party constituency level, by the members of the party or their elected delegates through secret ballot.
There will be two votes cast by voters - one for a candidate for FPTP election, and the other for a party to determine the vote share of the parties.
It needs to be remembered that PR system can be effective only after internal functioning of political parties is regulated by law. Otherwise, PR system will give extraordinary power to party leaders and may prove counterproductive. However, the PR system has one more advantage, which needs to be reiterated. PR system, more than FPTP system, ensures better representation of women in legislatures.
As election costs have skyrocketed, candidates spend money in anticipation of rewards and opportunities for private gain after election. Legislators perceive themselves as disguised executive, and chief ministers are hard-pressed to meet their constant demands. Postings, transfers, contracts, tenders, tollgates, parole, developmental schemes, and crime investigation - all these become sources of patronage and rent-seeking. No government functioning honestly can survive under such circumstances. While the legislators never allow objective and balanced decision-making by the executive in the actual functioning of legislation, their role has become nominal and largely inconsequential. This blurring of the lines of demarcation between the executive and legislature is one of the cardinal features of the crisis of our governance system.
Therefore, separation of powers, and direct election are necessary in States and local governments. At the national level, such a direct election is fraught with serious dangers. Our linguistic diversity demands a parliamentary executive. Any individual seen as the symbol of all authority can easily become despotic, given our political culture. But in states, separation of powers poses no such dangers. The Union government, Supreme Court, constitutional functionaries like the Election Commission, UPSC, and CAG, and the enormous powers and prestige of the Union will easily control authoritarianism in any state. This necessitates adoption of a system of direct election of the head of government in states and local governments. The fundamental changes suggested find mention as under:
The legislature will be elected separately and directly while the ministers will be drawn from outside the legislature. The legislature will have a fixed term, and cannot be dissolved prematurely except in exceptional circumstances (sedition, secession etc.) by the Union government. The head of government will have a fixed term, and cannot be voted out of office by the legislature. Any vacancy of office will be filled by a due process of succession. The elected head of government will have no more than two terms of office. Even though these changes may not be panacea to all evils in the present structure of legislature and executive, it will certainly encourage more healthy and vibrant democracy and democratic processes. Further, clear delineation of functions between Union and States, and among various tiers of local governments is also a necessary condition for a vibrant democracy. It is only a true federal structure that can ensure unity in this multi-ethnic and multi-religious society.
To sum up, four broad strategies are required to curb corruption. First, we need comprehensive electoral reforms to make funding transparent and accountable, to curb criminalization and polling irregularities, to eliminate political fiefdoms and transform politics from big business to public service, and to ensure that honesty and survival in public office are compatible. Second, we need to empower local governments and stakeholders in a way that there are clear links between citizens' vote and public good, taxes and services, and authority and accountability. Third, we need instruments of accountability in the form of right to information, citizen's charters, independent crime investigation and independent anti-corruption agencies. Fourth, we must increase the risks of corrupt behaviour to an unacceptable level by ensuring speedy justice, exemplary punishment and confiscation of assets.
This is clearly a vast agenda for action. But it is both necessary and possible. The recent economic reforms have certainly helped promote competition and reduce corruption through license-permit-quota raj. But the incentive structure in our governance structure is still perverse. Our political system has inexhaustible appetite for illegitimate funds. The supply of such ill-gotten money in economic sphere is dwindling on account of economic reforms. But the demand continues unabated in the face of unchanging political rules of the game, thus forcing open newer, and more dangerous avenues of corruption. The telgi stamp scam, the organized leaks of CAT and other examination papers, the brutal murder of Satyendra Kumar Dubey, and the sting operation exposing the corruption of a judge in Gujarat are all not accidents. Corruption is now shifting into more dangerous areas from where the state cannot withdraw, and criminalization of our politics, economy and society is on the rise. Organized crime and systematic abuse of office are flourishing. These require serious institutional responses.
The time for action is now. The national mood is ripe. People are disgusted with endless corruption and are restive. The business class, which was earlier happily paying bribes to get favours in return for monopoly and assured profits is now realizing that corruption in a competitive world kills industry. The unprecedented agitation (2001) of small industrial entrepreneurs in Andhra Pradesh against the extortion of Central Excise officials is a sign of increasing resistance to corruption. Politicians are increasingly recognising that the present chain of corruption is unsustainable. Many nations went through phases of high corruption. They eliminated corruption through systematic, effective, practical steps. The proactive steps of the High Court of Bombay to remove 150 corrupt judges, followed by similar steps in Rajasthan and West Bengal show what can be accomplished with determination and good sense. We Indians are no more venal and corrupt than the rest of the world. We only created conditions in which honesty is not adequately rewarded, and is in fact discouraged. Corruption is not only left unpunished, but is rewarded consistently and extravagantly. We need to alter this state of dangerous equilibrium feeding the cycle of corruption. The people are ready for fundamental changes. What we need are practical steps to empower citizens and make public servants accountable. People are ready to act. What we need are tools for informed citizen assertion. I am confident all of us here and else-where have the vision, will and courage to take those practical and enduring steps required to launch an all-out struggle against corruption. There is no room for cynicism or despair. The task is big, but achievable. As Margaret Mead said "Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever did". In this war we will surely succeed. But what we need is fewer words and more tangible action.
The Anna Hazare phenomena that recently shook the nation is a growing reflection of the popular mood of the nation. India is at a crossroad wherein some structural adjustments in the governance can lead to tremendous growth of the nation.
The writer is Editor-in-Chief
The dark clouds of the 2G scam and the repeat- ed evidence being given by A. Raja and other accused of his tacit involvement and other acts of omission and commission are menacingly closing in on Chidambaram. Chidambaram's note assumes significance in the light of Janata Party President Subramanian Swamy's petition in the Supreme Court saying that the Central Bureau of Investigation (CBI) should investigate Chidambaram's role in the 2G scam. Swamy alleges that Chidambaram "fixed" spectrum rates along with Raja. The note shows that even if the two didn't collude to fix the prices, Chidambaram wanted to treat it as a "closed chapter".
He is losing his cool, and more importantly, losing his carefully clipped English accent to its more indigenous roots more often. And like his colleague Digvijay Singh, his mind seems to be disintegrating to a stage where he has started talking gibberish. Take this, for example: in reply to the BJP demand for his resignation for his involvement in the 2G scam, Chidambaram claims that the BJP is targeting him since he initiated a probe by the NIA into Hindu terror.
Can any rational person see the connection between the two?
Chidambaram's special financial skills have diversified into electoral politics also. He has the dis- tinction of having been declared defeated in the last Lok Sabha election, after which he galvanized his special skills and local machinery, in particular, a data entry operator, and doctored a margin- al victory on the recount. That is quite a record for fraud. Sadly, he has to confront with hostile state government led by Amma that won the recent assembly election in his home state. And can one for- get how the Indian Bank was cleaned up and left with only non-performing assets thanks to him and his Tamil Maanila buddies?
Celebrity lawyer Ram Jethmalani recently hurdled serious charges in an article stating that being Finance Minister in the UPA government was his finest hour. He could fiddle around with share markets, capital markets, banks, financial instruments, such as, securities, participatory notes, tax treaties, not to speak of spectrum sale, and use his extraordinary innovative powers of black money magic to plunder our country with complete impunity. He assiduously cultivated the media with his clipped English accent (that led him down, now and then), occasion- al freebies, and sustained shadows of the Enforcement Directorate that he commanded.
On the positive note, he is unfairly criticized for his handling of home ministry but to his credit, he has performed better than his predecessor Mr Shivraj Patil by far. The terror attacks are drastically reduced, J&K situation looks under control, Telengana is a political issue hence he should be blamed for the mess, North East is looking fragile though manageable. We must understand that India's internal security is a huge challenge with micro dynamic changes every hour. We have open borders with many hostile states making the internal issue more complex. But his handling of public standoff with Pranab Mukherjee, Baba Ramdev mid night assault, Anna Hazare unexpected arrest prior to his historic fast, booking Subramanium Swamy for anti minority article, open support to suspended Gujrat cop Sanjeev Bhat questions his political intelligence.
By J Gopikrishnan - The Pioneer