Corruption has once again emerged as arguably the foremost concern of the Indian people. Not a week passes without some scam being unearthed in some corner of the country. These scams could be related to any department of any government, but as easily they could also involve the top brass of the Army, venerable judges of the apex judiciary or top officials of premier institutions of scientific research. While the pecuniary gains involved in these scams may not always be obvious or easily measurable, all scams slaughter public good for private gain in utter disregard for the fundamental notions of fair play and justice. Given the frequency, range and magnitude of these scams, one can easily say that corruption today is certainly no aberration; it is a hallmark of governance in the corporate era.
Paradoxically enough, the lengthening list of scams in India is matched by an even longer list of probes by different agencies, yet India is yet to see an example of a guilty being brought to justice by the system. The list of cases in which investigations petered out and the culprits got away is endless. A major reason for this impunity enjoyed by the corrupt, especially the corrupt in high places, is the inherent hollowness of the existing anti-corruption mechanisms in our country.
Any meaningful and consistent campaign against corruption must therefore have two prongs. It should challenge the policy regime and political environment in which corruption is thriving. At the same time it should also fight for an effective anti-corruption mechanism so the corrupt can be brought to justice.
In what follows we focus on these twin aspects of an anti-corruption campaign. We draw the attention of our readers to the changing face of corruption in India today in close relation to the prevalent policy regime which even the staunch proponents of neoliberal reforms can no longer ignore. We also bring to our readers excerpts and summaries from the observations and recommendations of a civil society initiative called ‘India against Corruption’ that has prepared the blueprint of a more transparent, accountable and effective anti-corruption mechanism in the shape of a draft Jan Lokpal Bill.
The Changing Face of Corruption in Corporate-Driven India:
Challenge Corporate Domination to Combat Corruption
Till the 1980s it was widely believed that corruption was primarily associated with government departments dealing with the public where smalltime babus thrived on smalltime bribes. Big business houses too of course complained of corruption, but they wanted us to believe that it was a necessary cost of survival that they were forced to bear under the prevalent ‘licence-quota-permit raj’. Since the mid-1980s and especially since the 1990s when India made a concerted transition from the so-called ‘licence-quota-permit raj’ to the neo-liberal trajectory of liberalisation, privatisation and globalisation, the LPG advocates argued that it would usher in an era of not only accelerated economic growth but also all-round efficiency and transparency where corruption would find it difficult to raise its ugly head if not rendered irrelevant by the dynamics of the market.
Today the big news is not just corruption has grown exponentially but that it is thriving precisely on the basis of liberalisation and privatisation and the growing corporate-government nexus. This public perception has even been endorsed by a recent survey on corruption and bribery conducted by the consulting firm KPMG. The KPMG study “Survey on Bribery and Corruption: Impact on Economy and Business Environment”, based primarily on corporate response, highlights the ‘changing face of corruption’. The survey clearly recognizes, “From what started as petty payments demanded by ‘babus’ during the license raj days, corruption has taken a much larger form and scale today. … It is not about petty bribes (‘bakshish’) anymore but scams to the tune of thousands of crores that highlight a political/industry nexus which if not checked could have a far reaching impact. Media stories on financial scams indicate that while petty corruption is more of an irritant and mostly driven by public officials at lower levels, larger scams could be attributed to the willingness of the private sector to pay senior public officials to get their work done.”
On the basis of corporate perception (48% of the respondents were from MNCs and another 28% from India-based MNCs), the KPMG survey has ranked certain industries and sectors as being particularly corruption-prone. Real estate and construction tops the list followed by telecommunications, social development sectors, financial services, defence, IT/ITES/BPO, energy and power, and others (including media, consumer goods, pharmaceuticals, health care, heavy engineering and transport). 68% of the respondents acknowledged that corruption was often induced by the private sector. Accordingly, the survey emphasises the need to bring the private sector within the ambit of anti-bribery, anti-corruption regulations.
Another myth fondly marketed by pro-liberalisation advocates is that corruption is induced by high levels of taxes. Interestingly enough, even as the KPMG survey highlights the complicity of the private sector in the ongoing growth of corruption, in the preface to the survey, economist Surjit S Bhalla echoes this view quite loudly, calling for further reduction in taxes including capital gains tax levied on real estate transactions. “Na rahega baans, na bajegi bansuri” (if there is no bamboo, you cannot have a flute) – this is Dr. Bhalla’s simple prescription for containing and curbing corruption. Well, this is precisely the policy direction that successive governments have been following in India over the last three decades. In the latest 2011-12 budget, the government has reduced the surcharge on corporate tax from 7.5% to 5% even as corporate tax exemptions handed out in the preceding year reached a staggering Rs. 88,263 crore (between 2005-06 and 2010-11, the total volume of exemption in corporate tax has been an astounding Rs. 3,74,937 crore)!
If high taxes induced corruption, reduction in taxes should have pushed corruption progressively down. Yet we have another study, funded by the Ford Foundation and undertaken by the Global Financial Integrity, which indicates precisely the contrary. A GFI study entitled “The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008” by economist Dev Kar estimates the illicit financial flows (IFF) from India during the 61-year period (1948-2008) at $462 billion. As much as 68% of this aggregate IFF is attributed to the post-reform period (1991 onward). According to Mr. Raymond W. Baker, the Director of GFI, budget deficits and inflation have had little to do with the accelerated rate of transfer in the post-reform period. The GFI study squarely attributes the alarming increase in IFF to the reforms themselves: “What is clear is that, during the post-reform period of 1991-2008, deregulation and trade liberalization have accelerated the outflow of illicit money from the Indian economy. Opportunities for trade mispricing have grown, and expansion of the global shadow financial system accommodates hot money, particularly in island tax havens. Disguised corporations situated in secrecy jurisdictions enable billions of dollars shifting out of India to “round trip,” coming back into short- and long-term investments, often with the intention of generating unrecorded transfers again in a self-reinforcing cycle.”
Illicit financial flows constitute the dominant part of India’s black or underground economy. According to the GFI study, 72% of illicit wealth is accumulated abroad while the remaining 28% is held domestically. And the study finds both to have been increasing quite rapidly in the post-reform era – while the post-reform size of the underground economy has increased on an average to 42.8% of the GDP (as against 27.4% in the pre-reform period), the compound annual rate of growth of illicit flows which stood at 9.1% during the pre-reform period shot up to 16.4% during the post-reform years.
The study categorically admits that its estimate of illicit flows is quite conservative, as it underestimates both the principal amount (for example it does not take into account smuggling and distortions in trade pricing, not to talk of deficiencies of official statistics) and the interest component (the study has applied the rate of return accruing on US treasury bills which is far short of the actual rate of return on assets like real estate, precious metals, art objects). Yet even this conservative estimate is more than double the amount of India’s total external debt at the end of 2008 ($ 230.6 billion)!
What is it that is driving the illicit flows of funds (as distinguished from what constitutes legal flight or export of capital) in the wake of the reforms? The study suggests a couple of important reasons – (i) the growth of foreign trade leading to greater scope for trade mispricing (according to the study 77.6% of aggregate illicit outflows is attributable to trade mispricing), and (ii) greater income inequality within the country leading to the emergence of a growing band of High Net Worth Individuals (each with investable assets of more than $1 million) who are “the main drivers of illicit financial flows”. In 2006, India had 100,000 HNWIs, and by 2009 the figure jumped to 127,000. In the recently released Forbes list of dollar billionaires, India with 55 billionaires stood at third position – next only to the US and China – in a global total of 1210 billionaires. In 2001, there were only 4 Indian billionaires in the global list of 538.
What is the destination of the illicit financial flows? Typically, these flows end up either in commercial banks in developed countries or in offshore financial centres (OFCs), the emerging ‘retreats’ for global finance. In 1995, developed country banks absorbed 60% of illicit flows from India, but over the next two decades the share of banks fell to 40% while the share of OFCs rose to 60%. The reason behind this shifting preference is quite obvious – the OFCs offer greater secrecy and immunity than banks and hence attract more illicit funds from across the world. India currently has Double Taxation Avoidance Agreements with 65 countries and even when the government is aware of part of Indian assets illegally held abroad, it avoids naming those account holders in the name of respect for international diplomacy and investor confidence!
Any serious discussion about corruption in India today therefore cannot be removed from this policy environment. Interestingly even as neoliberal advocates have to acknowledge the growth of corruption, they arrogantly use this evidence to push for still greater liberalisation and global economic integration. The KPMG survey would have us believe that it is the disproportionate growth of certain sectors and the indiscriminate entry of new players which lies at the root of heightened corruption as these new players seek to resort to bribery to disturb the level-playing field and secure a skewed field in their favour and everything could be sorted out by just strengthening the regulatory mechanism. The Radia tapes however tell a different story, it is the well-entrenched players who go all out to protect their turf and the so-called new players are often proxy players propped up by the big few. But the question is not so much whether new or old players are more responsible, it is the subservient role of the state vis-à-vis big business which is facilitating and increasingly legalising corruption as a by-product of economic reforms and as a byword for governance. The US apparently has the best regulatory mechanisms in place, yet the world has seen its worth during the recent explosion of the financial crisis. And any mechanism in India will have to cope with not just the pressure of domestic big business but global capital and its chief custodian, the US imperialism.
Indeed, to comprehend the political economy of corruption, one must view it in this political context where corruption in the economy is growing hand in hand with corruption in the polity. A telecom minister continues in office even after the CAG alleges a spectrum auction fraud worth Rs. 176,000 crore. After months together, the minister is forced to resign and the Prime Minister describes the whole thing as a compulsion of coalition politics, but the coalition is quickly renewed after a dramatic announcement of break-up. A key accused in a state-level scam is appointed the Central Vigilance Commissioner, and the government defends it adamantly till the Supreme Court eventually strikes down the appointment. And now courtesy Wikileaks we have US embassy cables confirming the sordid saga of the UPA government buying votes to win the trust vote following withdrawal of Left support on the controversial Indo-US nuclear deal. But Pranab Mukherjee tells the Lok Sabha that the issue has already ‘expired’ because it concerned the previous Lok Sabha while Manmohan Singh tells us that the issue has been rejected by the Indian people during the last Lok Sabha elections!
The battle against corruption must therefore be carried forward to press for a complete rejection of the current policy regime and insist on an alternative pro-people path of development that accords centrality to the needs and rights of the Indian people and not to the dictates of big business and US imperialism.
Beyond the Eyewash of Lok Pal Bill 2010 –
Towards a More Transparent and Effective Alternative
The Existing Anti-Corruption Mechanism: Loophole-Ridden and Hollow
At central Government level, there is Central Vigilance Commission (CVC) and Departmental Vigilance which deal with the disciplinary proceedings aspect of a corruption case, and the CBI which deals with the criminal aspect of that case.
Central Vigilance Commission
The CVC lacks adequate resources to match the large number of complaints that it receives. In most cases it only monitors enquiries that are conducted by the vigilance wings of respective departments. Given the manpower constraints it is able to directly enquire only into a very small number of complaints where it suspects motivated delay or where senior officials could be implicated. Moreover it is merely an advisory body, and governments are free to reject or accept the CVC’s advice. Experience shows that CVC’s advice to initiate prosecution is rarely accepted and whenever CVC advised major penalty, it was reduced to minor penalty. Therefore, CVC can hardly be treated as an effective deterrent against corruption.
CVC cannot direct CBI to initiate enquiries against any officer of the level of Joint Secretary and above on its own. The CVC Act gives supervisory powers to CVC over CBI. However, these supervisory powers have remained ineffective. CVC does not have the power to call for any file from CBI or to direct them to do any case in a particular manner. Besides, CBI is under administrative control of DOPT rather than CVC. The CVC does not have powers to register criminal case. It does not have powers over politicians. If there is an involvement of a politician in any case, CVC could at best bring it to the notice of the Government.
Appointments to CVC are directly under the control of ruling political party, though the leader of the Opposition is a member of the Committee to select CVC and VCs. But the Committee only considers names put up before it and that is decided by the Government. The appointments are opaque and as we have seen in the Thomas case, it is very easy for the Government to appoint a pliant CVC.
Departmental Vigilance Wings: Each Department has a vigilance wing, which is manned by officials from the same department, thereby making it practically impossible for them to be independent and objective while inquiring into complaints against their colleagues and seniors. In some departments, especially in the Ministries, some officials double up as vigilance officials. So, if some citizen complaints against an officer who has also been assigned vigilance duties, the complaint is expected to be enquired into by the same officer! Even if someone complaints against that officer to the CVC or to the Head of that Department or to any other authority, the complaint is forwarded by all these agencies and it finally lands up in his own lap to enquire against himself.
There have been instances of the officials posted in vigilance wing by that department having had a very corrupt past. While in vigilance, they try to scuttle all cases against themselves. Departmental vigilance does not have the powers to register an FIR nor any powers against politicians. They have been known to softpedal on genuine complaints or used to enquire against "inconvenient" officers.
CBI: CBI has powers of a police station to investigate and register FIR. It can investigate any case related to a Central Government department on its own or any case referred to it by any state government or any court. But the CBI is overburdened and does not accept cases even where the amount of defalcation is alleged to be around Rs 1 crore. Further the CBI is directly under the administrative control of Central Government, and has had poor credibility in investigating cases involving ruling political figures. Likewise, it has also been perceived to have been used to settle scores against inconvenient politicians.
Therefore, if a citizen wants to make a complaint about corruption by a politician or an official in the Central Government, there isn’t a single anti-corruption agency which is effective and independent of the government, whose wrongdoings are sought to be investigated. CBI has powers but it is not independent. CVC is relatively independent (though even here the appointment is in the hands of the Government) but it does not have sufficient powers or resources.
Government’s Lokpal Bill 2010: An Eyewash
The UPA government has been under constant attack due to exposure of one scam after the other on the issue of corruption. In order to salvage its image, the government proposes to set up an institution of Lokpal to check corruption at high places. However the remedy seems to be worse than the disease. Rather than strengthening anti-corruption systems, this bill if passed, will end up weakening whatever exists in the name of anti-corruption today.
The principal objections to government’s proposal are as follows:
1. Lokpal will not have any power to either initiate action suo motu in any case or even receive complaints of corruption from general public. The general public will make complaints to the speaker of Lok Sabha or chairperson of Rajya Sabha. Only those complaints forwarded by Speaker of Lok Sabha/ Chairperson of Rajya Sabha to Lokpal would be investigated by Lokpal. This not only severely restricts the functioning of Lokpal, it also provides a tool in the hands of the ruling party to have only those cases referred to Lokpal which pertain to political opponents (since the Speaker is always from the ruling party). It will also provide a tool in the hands of the ruling party to protect its own politicians.
2. Lokpal has been proposed to be an advisory body. Lokpal, after enquiry in any case, will forward its report to the competent authority. The competent authority will have final powers to decide whether to take action on Lokpal’s report or not. In the case of cabinet ministers, the competent authority is Prime Minister. In the case of PM and MPs the competent authority is Lok Sabha or Rajya Sabha, as the case may be. In the coalition era when the government of the day depends upon the support of its political partners, it will be impossible for the PM to act against any of his cabinet ministers on the basis of Lokpal’s report. For instance, if there were such a Lokpal today and if Lokpal made a recommendation to the PM to prosecute A. Raja, obviously the PM will not have the political courage to initiate prosecution against A. Raja. Likewise, if Lokpal made a report against the PM or any MP of the ruling party, will the house ever pass a resolution to prosecute the PM or the ruling party MP? Obviously, they will never do that.
3. The bill is legally unsound. Lokpal has not been given police powers. Therefore Lokpal cannot register an FIR. Therefore all the enquiries conducted by Lokpal will tantamount to “preliminary enquiries”. Even if the report of Lokpal is accepted, who will file the chargesheet in the court? Who will initiate prosecution? Who will appoint the prosecution lawyer? The entire bill is silent on that.
4. The bill does not say what will be the role of CBI after this bill. Can CBI and Lokpal investigate the same case or CBI will lose its powers to investigate politicians? If the latter is true, then this bill is meant to completely insulate politicians from any investigations whatsoever which are possible today through CBI.
5. There is a strong punishment for “frivolous” complaints. If any complaint is found to be false and frivolous, Lokpal will have the power to send the complainant to jail through summary trial but if the complaint were found to be true, the Lokpal will not have the power to send the corrupt politicians to jail! So the bill appears to be meant to browbeat, threaten and discourage those fighting against corruption.
6. Lokpal will have jurisdiction only on MPs, ministers and PM. It will not have jurisdiction over officers. The officers and politicians do not indulge in corruption separately. In any case of corruption, there is always an involvement of both of them. So according to government’s proposal, every case would need to be investigated by both CVC and Lokpal. So now, in each case, CVC will look into the role of bureaucrats while Lokpal will look into the role of politicians. Obviously the case records will be with one agency and the way government functions it will not share its records with the other agency. It is also possible that in the same case the two agencies arrive at completely opposite conclusions. Therefore it appears to be a sure way of killing any case.
7. Lokpal will consist of three members, all of them being retired judges. There is no reason why the choice should be restricted to judiciary. By creating so many post retirement posts for judges, the government will make the retiring judges vulnerable to government influences just before retirement as is already happening in the case of retiring bureaucrats. The retiring judges, in the hope of getting post retirement employment would do the bidding of the government in their last few years.
8. The selection committee consists of Vice President, PM, Leaders of both houses, Leaders of opposition in both houses, Law Minister and Home minister. Barring Vice President, all of them are politicians whose corruption Lokpal is supposed to investigate. So there is a direct conflict of interest. Also the selection committee is heavily loaded in favour of the ruling party. Effectively the ruling party will make the final selections. And obviously the ruling party will never appoint strong and effective Lokpal.
9. Lokpal will not have powers to investigate any case against PM, which deals with foreign affairs, security and defence. This means that corruption in defence deals will be out of any scrutiny whatsoever. It will become impossible to investigate into any Bofors in future.
Therefore, the draft Lokpal ordinance is eyewash, a sham.
How the Jan Lokpal Bill Differs from the Government Draft
Unlike the toothless Lokpal of the Government draft, the Jan Lokpal Bill has provision for the Lokpal to have powers to initiate investigations suo moto in any case and also to directly entertain complaints from the public. It will not need reference or permission from anyone to initiate investigation into any case. Lokpal is not an advisory body. It will have the powers to initiate prosecution against any one after completion of investigations in any case. It will also have powers to order disciplinary proceedings against any government servant. It would have police powers and be able to register FIR, proceed with criminal investigations and launch prosecution. That part of CBI, which deals with cases of corruption, will be merged into Lokpal so that there is just one effective and independent body to take action against corruption. The Lokpal will have jurisdiction over politicians, officials and judges. CVC and the entire vigilance machinery of government will be merged into Lokpal.
The composition and process of selection of the Lokpal members under the Jan Lokpal Bill too would be open and more democratic. The Lokpal would have ten members and one Chairperson. Out of them four need to have legal background (they need not be judges). Others could be from any background. The selection committee would consist of members from judicial background, Chief Election Commissioner, Comptroller and Auditor General of India and international awardees (like Nobel prize winners and Magsaysay awardees of Indian origin). A detailed transparent and participatory selection process has been prescribed.
The Lokpal as envisioned by the Government draft will not have powers to investigate any case against the PM which deals with foreign affairs, security and defence. This means that corruption in defence deals will be out of any scrutiny whatsoever. It will become impossible to investigate into any Bofors in future. In the Jan Lokpal Bill, there is no such bar on Lokpal’s powers.
Whereas the Government Bill does not talk of investigation of complaints against judges, the Lokpal under the Jan Lokpal Bill will have powers to initiate investigations on complaints of corruption against judges.
The Government draft of the Lokpal Bill will in no way help but will rather hinder the fight against corruption. We must demand that the Bill be redrafted on the lines of the Jan Lokpal Bill and the country gets an effective anti-corruption mechanism that is accessible and accountable to the people.
Paradoxically enough, the lengthening list of scams in India is matched by an even longer list of probes by different agencies, yet India is yet to see an example of a guilty being brought to justice by the system. The list of cases in which investigations petered out and the culprits got away is endless. A major reason for this impunity enjoyed by the corrupt, especially the corrupt in high places, is the inherent hollowness of the existing anti-corruption mechanisms in our country.
Any meaningful and consistent campaign against corruption must therefore have two prongs. It should challenge the policy regime and political environment in which corruption is thriving. At the same time it should also fight for an effective anti-corruption mechanism so the corrupt can be brought to justice.
In what follows we focus on these twin aspects of an anti-corruption campaign. We draw the attention of our readers to the changing face of corruption in India today in close relation to the prevalent policy regime which even the staunch proponents of neoliberal reforms can no longer ignore. We also bring to our readers excerpts and summaries from the observations and recommendations of a civil society initiative called ‘India against Corruption’ that has prepared the blueprint of a more transparent, accountable and effective anti-corruption mechanism in the shape of a draft Jan Lokpal Bill.
The Changing Face of Corruption in Corporate-Driven India:
Challenge Corporate Domination to Combat Corruption
Till the 1980s it was widely believed that corruption was primarily associated with government departments dealing with the public where smalltime babus thrived on smalltime bribes. Big business houses too of course complained of corruption, but they wanted us to believe that it was a necessary cost of survival that they were forced to bear under the prevalent ‘licence-quota-permit raj’. Since the mid-1980s and especially since the 1990s when India made a concerted transition from the so-called ‘licence-quota-permit raj’ to the neo-liberal trajectory of liberalisation, privatisation and globalisation, the LPG advocates argued that it would usher in an era of not only accelerated economic growth but also all-round efficiency and transparency where corruption would find it difficult to raise its ugly head if not rendered irrelevant by the dynamics of the market.
Today the big news is not just corruption has grown exponentially but that it is thriving precisely on the basis of liberalisation and privatisation and the growing corporate-government nexus. This public perception has even been endorsed by a recent survey on corruption and bribery conducted by the consulting firm KPMG. The KPMG study “Survey on Bribery and Corruption: Impact on Economy and Business Environment”, based primarily on corporate response, highlights the ‘changing face of corruption’. The survey clearly recognizes, “From what started as petty payments demanded by ‘babus’ during the license raj days, corruption has taken a much larger form and scale today. … It is not about petty bribes (‘bakshish’) anymore but scams to the tune of thousands of crores that highlight a political/industry nexus which if not checked could have a far reaching impact. Media stories on financial scams indicate that while petty corruption is more of an irritant and mostly driven by public officials at lower levels, larger scams could be attributed to the willingness of the private sector to pay senior public officials to get their work done.”
On the basis of corporate perception (48% of the respondents were from MNCs and another 28% from India-based MNCs), the KPMG survey has ranked certain industries and sectors as being particularly corruption-prone. Real estate and construction tops the list followed by telecommunications, social development sectors, financial services, defence, IT/ITES/BPO, energy and power, and others (including media, consumer goods, pharmaceuticals, health care, heavy engineering and transport). 68% of the respondents acknowledged that corruption was often induced by the private sector. Accordingly, the survey emphasises the need to bring the private sector within the ambit of anti-bribery, anti-corruption regulations.
Another myth fondly marketed by pro-liberalisation advocates is that corruption is induced by high levels of taxes. Interestingly enough, even as the KPMG survey highlights the complicity of the private sector in the ongoing growth of corruption, in the preface to the survey, economist Surjit S Bhalla echoes this view quite loudly, calling for further reduction in taxes including capital gains tax levied on real estate transactions. “Na rahega baans, na bajegi bansuri” (if there is no bamboo, you cannot have a flute) – this is Dr. Bhalla’s simple prescription for containing and curbing corruption. Well, this is precisely the policy direction that successive governments have been following in India over the last three decades. In the latest 2011-12 budget, the government has reduced the surcharge on corporate tax from 7.5% to 5% even as corporate tax exemptions handed out in the preceding year reached a staggering Rs. 88,263 crore (between 2005-06 and 2010-11, the total volume of exemption in corporate tax has been an astounding Rs. 3,74,937 crore)!
If high taxes induced corruption, reduction in taxes should have pushed corruption progressively down. Yet we have another study, funded by the Ford Foundation and undertaken by the Global Financial Integrity, which indicates precisely the contrary. A GFI study entitled “The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008” by economist Dev Kar estimates the illicit financial flows (IFF) from India during the 61-year period (1948-2008) at $462 billion. As much as 68% of this aggregate IFF is attributed to the post-reform period (1991 onward). According to Mr. Raymond W. Baker, the Director of GFI, budget deficits and inflation have had little to do with the accelerated rate of transfer in the post-reform period. The GFI study squarely attributes the alarming increase in IFF to the reforms themselves: “What is clear is that, during the post-reform period of 1991-2008, deregulation and trade liberalization have accelerated the outflow of illicit money from the Indian economy. Opportunities for trade mispricing have grown, and expansion of the global shadow financial system accommodates hot money, particularly in island tax havens. Disguised corporations situated in secrecy jurisdictions enable billions of dollars shifting out of India to “round trip,” coming back into short- and long-term investments, often with the intention of generating unrecorded transfers again in a self-reinforcing cycle.”
Illicit financial flows constitute the dominant part of India’s black or underground economy. According to the GFI study, 72% of illicit wealth is accumulated abroad while the remaining 28% is held domestically. And the study finds both to have been increasing quite rapidly in the post-reform era – while the post-reform size of the underground economy has increased on an average to 42.8% of the GDP (as against 27.4% in the pre-reform period), the compound annual rate of growth of illicit flows which stood at 9.1% during the pre-reform period shot up to 16.4% during the post-reform years.
The study categorically admits that its estimate of illicit flows is quite conservative, as it underestimates both the principal amount (for example it does not take into account smuggling and distortions in trade pricing, not to talk of deficiencies of official statistics) and the interest component (the study has applied the rate of return accruing on US treasury bills which is far short of the actual rate of return on assets like real estate, precious metals, art objects). Yet even this conservative estimate is more than double the amount of India’s total external debt at the end of 2008 ($ 230.6 billion)!
What is it that is driving the illicit flows of funds (as distinguished from what constitutes legal flight or export of capital) in the wake of the reforms? The study suggests a couple of important reasons – (i) the growth of foreign trade leading to greater scope for trade mispricing (according to the study 77.6% of aggregate illicit outflows is attributable to trade mispricing), and (ii) greater income inequality within the country leading to the emergence of a growing band of High Net Worth Individuals (each with investable assets of more than $1 million) who are “the main drivers of illicit financial flows”. In 2006, India had 100,000 HNWIs, and by 2009 the figure jumped to 127,000. In the recently released Forbes list of dollar billionaires, India with 55 billionaires stood at third position – next only to the US and China – in a global total of 1210 billionaires. In 2001, there were only 4 Indian billionaires in the global list of 538.
What is the destination of the illicit financial flows? Typically, these flows end up either in commercial banks in developed countries or in offshore financial centres (OFCs), the emerging ‘retreats’ for global finance. In 1995, developed country banks absorbed 60% of illicit flows from India, but over the next two decades the share of banks fell to 40% while the share of OFCs rose to 60%. The reason behind this shifting preference is quite obvious – the OFCs offer greater secrecy and immunity than banks and hence attract more illicit funds from across the world. India currently has Double Taxation Avoidance Agreements with 65 countries and even when the government is aware of part of Indian assets illegally held abroad, it avoids naming those account holders in the name of respect for international diplomacy and investor confidence!
Any serious discussion about corruption in India today therefore cannot be removed from this policy environment. Interestingly even as neoliberal advocates have to acknowledge the growth of corruption, they arrogantly use this evidence to push for still greater liberalisation and global economic integration. The KPMG survey would have us believe that it is the disproportionate growth of certain sectors and the indiscriminate entry of new players which lies at the root of heightened corruption as these new players seek to resort to bribery to disturb the level-playing field and secure a skewed field in their favour and everything could be sorted out by just strengthening the regulatory mechanism. The Radia tapes however tell a different story, it is the well-entrenched players who go all out to protect their turf and the so-called new players are often proxy players propped up by the big few. But the question is not so much whether new or old players are more responsible, it is the subservient role of the state vis-à-vis big business which is facilitating and increasingly legalising corruption as a by-product of economic reforms and as a byword for governance. The US apparently has the best regulatory mechanisms in place, yet the world has seen its worth during the recent explosion of the financial crisis. And any mechanism in India will have to cope with not just the pressure of domestic big business but global capital and its chief custodian, the US imperialism.
Indeed, to comprehend the political economy of corruption, one must view it in this political context where corruption in the economy is growing hand in hand with corruption in the polity. A telecom minister continues in office even after the CAG alleges a spectrum auction fraud worth Rs. 176,000 crore. After months together, the minister is forced to resign and the Prime Minister describes the whole thing as a compulsion of coalition politics, but the coalition is quickly renewed after a dramatic announcement of break-up. A key accused in a state-level scam is appointed the Central Vigilance Commissioner, and the government defends it adamantly till the Supreme Court eventually strikes down the appointment. And now courtesy Wikileaks we have US embassy cables confirming the sordid saga of the UPA government buying votes to win the trust vote following withdrawal of Left support on the controversial Indo-US nuclear deal. But Pranab Mukherjee tells the Lok Sabha that the issue has already ‘expired’ because it concerned the previous Lok Sabha while Manmohan Singh tells us that the issue has been rejected by the Indian people during the last Lok Sabha elections!
The battle against corruption must therefore be carried forward to press for a complete rejection of the current policy regime and insist on an alternative pro-people path of development that accords centrality to the needs and rights of the Indian people and not to the dictates of big business and US imperialism.
Beyond the Eyewash of Lok Pal Bill 2010 –
Towards a More Transparent and Effective Alternative
The Existing Anti-Corruption Mechanism: Loophole-Ridden and Hollow
At central Government level, there is Central Vigilance Commission (CVC) and Departmental Vigilance which deal with the disciplinary proceedings aspect of a corruption case, and the CBI which deals with the criminal aspect of that case.
Central Vigilance Commission
The CVC lacks adequate resources to match the large number of complaints that it receives. In most cases it only monitors enquiries that are conducted by the vigilance wings of respective departments. Given the manpower constraints it is able to directly enquire only into a very small number of complaints where it suspects motivated delay or where senior officials could be implicated. Moreover it is merely an advisory body, and governments are free to reject or accept the CVC’s advice. Experience shows that CVC’s advice to initiate prosecution is rarely accepted and whenever CVC advised major penalty, it was reduced to minor penalty. Therefore, CVC can hardly be treated as an effective deterrent against corruption.
CVC cannot direct CBI to initiate enquiries against any officer of the level of Joint Secretary and above on its own. The CVC Act gives supervisory powers to CVC over CBI. However, these supervisory powers have remained ineffective. CVC does not have the power to call for any file from CBI or to direct them to do any case in a particular manner. Besides, CBI is under administrative control of DOPT rather than CVC. The CVC does not have powers to register criminal case. It does not have powers over politicians. If there is an involvement of a politician in any case, CVC could at best bring it to the notice of the Government.
Appointments to CVC are directly under the control of ruling political party, though the leader of the Opposition is a member of the Committee to select CVC and VCs. But the Committee only considers names put up before it and that is decided by the Government. The appointments are opaque and as we have seen in the Thomas case, it is very easy for the Government to appoint a pliant CVC.
Departmental Vigilance Wings: Each Department has a vigilance wing, which is manned by officials from the same department, thereby making it practically impossible for them to be independent and objective while inquiring into complaints against their colleagues and seniors. In some departments, especially in the Ministries, some officials double up as vigilance officials. So, if some citizen complaints against an officer who has also been assigned vigilance duties, the complaint is expected to be enquired into by the same officer! Even if someone complaints against that officer to the CVC or to the Head of that Department or to any other authority, the complaint is forwarded by all these agencies and it finally lands up in his own lap to enquire against himself.
There have been instances of the officials posted in vigilance wing by that department having had a very corrupt past. While in vigilance, they try to scuttle all cases against themselves. Departmental vigilance does not have the powers to register an FIR nor any powers against politicians. They have been known to softpedal on genuine complaints or used to enquire against "inconvenient" officers.
CBI: CBI has powers of a police station to investigate and register FIR. It can investigate any case related to a Central Government department on its own or any case referred to it by any state government or any court. But the CBI is overburdened and does not accept cases even where the amount of defalcation is alleged to be around Rs 1 crore. Further the CBI is directly under the administrative control of Central Government, and has had poor credibility in investigating cases involving ruling political figures. Likewise, it has also been perceived to have been used to settle scores against inconvenient politicians.
Therefore, if a citizen wants to make a complaint about corruption by a politician or an official in the Central Government, there isn’t a single anti-corruption agency which is effective and independent of the government, whose wrongdoings are sought to be investigated. CBI has powers but it is not independent. CVC is relatively independent (though even here the appointment is in the hands of the Government) but it does not have sufficient powers or resources.
Government’s Lokpal Bill 2010: An Eyewash
The UPA government has been under constant attack due to exposure of one scam after the other on the issue of corruption. In order to salvage its image, the government proposes to set up an institution of Lokpal to check corruption at high places. However the remedy seems to be worse than the disease. Rather than strengthening anti-corruption systems, this bill if passed, will end up weakening whatever exists in the name of anti-corruption today.
The principal objections to government’s proposal are as follows:
1. Lokpal will not have any power to either initiate action suo motu in any case or even receive complaints of corruption from general public. The general public will make complaints to the speaker of Lok Sabha or chairperson of Rajya Sabha. Only those complaints forwarded by Speaker of Lok Sabha/ Chairperson of Rajya Sabha to Lokpal would be investigated by Lokpal. This not only severely restricts the functioning of Lokpal, it also provides a tool in the hands of the ruling party to have only those cases referred to Lokpal which pertain to political opponents (since the Speaker is always from the ruling party). It will also provide a tool in the hands of the ruling party to protect its own politicians.
2. Lokpal has been proposed to be an advisory body. Lokpal, after enquiry in any case, will forward its report to the competent authority. The competent authority will have final powers to decide whether to take action on Lokpal’s report or not. In the case of cabinet ministers, the competent authority is Prime Minister. In the case of PM and MPs the competent authority is Lok Sabha or Rajya Sabha, as the case may be. In the coalition era when the government of the day depends upon the support of its political partners, it will be impossible for the PM to act against any of his cabinet ministers on the basis of Lokpal’s report. For instance, if there were such a Lokpal today and if Lokpal made a recommendation to the PM to prosecute A. Raja, obviously the PM will not have the political courage to initiate prosecution against A. Raja. Likewise, if Lokpal made a report against the PM or any MP of the ruling party, will the house ever pass a resolution to prosecute the PM or the ruling party MP? Obviously, they will never do that.
3. The bill is legally unsound. Lokpal has not been given police powers. Therefore Lokpal cannot register an FIR. Therefore all the enquiries conducted by Lokpal will tantamount to “preliminary enquiries”. Even if the report of Lokpal is accepted, who will file the chargesheet in the court? Who will initiate prosecution? Who will appoint the prosecution lawyer? The entire bill is silent on that.
4. The bill does not say what will be the role of CBI after this bill. Can CBI and Lokpal investigate the same case or CBI will lose its powers to investigate politicians? If the latter is true, then this bill is meant to completely insulate politicians from any investigations whatsoever which are possible today through CBI.
5. There is a strong punishment for “frivolous” complaints. If any complaint is found to be false and frivolous, Lokpal will have the power to send the complainant to jail through summary trial but if the complaint were found to be true, the Lokpal will not have the power to send the corrupt politicians to jail! So the bill appears to be meant to browbeat, threaten and discourage those fighting against corruption.
6. Lokpal will have jurisdiction only on MPs, ministers and PM. It will not have jurisdiction over officers. The officers and politicians do not indulge in corruption separately. In any case of corruption, there is always an involvement of both of them. So according to government’s proposal, every case would need to be investigated by both CVC and Lokpal. So now, in each case, CVC will look into the role of bureaucrats while Lokpal will look into the role of politicians. Obviously the case records will be with one agency and the way government functions it will not share its records with the other agency. It is also possible that in the same case the two agencies arrive at completely opposite conclusions. Therefore it appears to be a sure way of killing any case.
7. Lokpal will consist of three members, all of them being retired judges. There is no reason why the choice should be restricted to judiciary. By creating so many post retirement posts for judges, the government will make the retiring judges vulnerable to government influences just before retirement as is already happening in the case of retiring bureaucrats. The retiring judges, in the hope of getting post retirement employment would do the bidding of the government in their last few years.
8. The selection committee consists of Vice President, PM, Leaders of both houses, Leaders of opposition in both houses, Law Minister and Home minister. Barring Vice President, all of them are politicians whose corruption Lokpal is supposed to investigate. So there is a direct conflict of interest. Also the selection committee is heavily loaded in favour of the ruling party. Effectively the ruling party will make the final selections. And obviously the ruling party will never appoint strong and effective Lokpal.
9. Lokpal will not have powers to investigate any case against PM, which deals with foreign affairs, security and defence. This means that corruption in defence deals will be out of any scrutiny whatsoever. It will become impossible to investigate into any Bofors in future.
Therefore, the draft Lokpal ordinance is eyewash, a sham.
How the Jan Lokpal Bill Differs from the Government Draft
Unlike the toothless Lokpal of the Government draft, the Jan Lokpal Bill has provision for the Lokpal to have powers to initiate investigations suo moto in any case and also to directly entertain complaints from the public. It will not need reference or permission from anyone to initiate investigation into any case. Lokpal is not an advisory body. It will have the powers to initiate prosecution against any one after completion of investigations in any case. It will also have powers to order disciplinary proceedings against any government servant. It would have police powers and be able to register FIR, proceed with criminal investigations and launch prosecution. That part of CBI, which deals with cases of corruption, will be merged into Lokpal so that there is just one effective and independent body to take action against corruption. The Lokpal will have jurisdiction over politicians, officials and judges. CVC and the entire vigilance machinery of government will be merged into Lokpal.
The composition and process of selection of the Lokpal members under the Jan Lokpal Bill too would be open and more democratic. The Lokpal would have ten members and one Chairperson. Out of them four need to have legal background (they need not be judges). Others could be from any background. The selection committee would consist of members from judicial background, Chief Election Commissioner, Comptroller and Auditor General of India and international awardees (like Nobel prize winners and Magsaysay awardees of Indian origin). A detailed transparent and participatory selection process has been prescribed.
The Lokpal as envisioned by the Government draft will not have powers to investigate any case against the PM which deals with foreign affairs, security and defence. This means that corruption in defence deals will be out of any scrutiny whatsoever. It will become impossible to investigate into any Bofors in future. In the Jan Lokpal Bill, there is no such bar on Lokpal’s powers.
Whereas the Government Bill does not talk of investigation of complaints against judges, the Lokpal under the Jan Lokpal Bill will have powers to initiate investigations on complaints of corruption against judges.
The Government draft of the Lokpal Bill will in no way help but will rather hinder the fight against corruption. We must demand that the Bill be redrafted on the lines of the Jan Lokpal Bill and the country gets an effective anti-corruption mechanism that is accessible and accountable to the people.
