Once upon a time, God's work wasn't
supposed to involve taking bribes
Widespread graft takes its toll on
businesses and the economy.
If recent news headlines are any guide,
people might well be forgiven for believing that India is a land of
corruption scandals. But the problem of corruption goes way beyond the few
major cases that make the headlines, such as the recent arrest of former
prime minister PV Narsimha Rao.
Rampant, endemic corruption in India is
putting a brake on economic development - and more often than not, it's
business that bears the brunt of paying out for the 'special favours' that
get things done.
'Countrywide corruption is increasing at
all levels,' says a top executive at industrial giant Larsen & Toubro
(L&T), who, like other executives that Asian Business contacted,
doesn't wish to be identified.
Worse still for the business community is
that it's the government that is the fountainhead of corruption. This is
particularly serious in view of the huge importance of the government
sector in India's economy.
Businessmen say that this state of
affairs, known as the 'licence-quota raj', was put in place by former
prime minister Indira Gandhi during the 1970s: corruption and bribery were
the real agenda hidden behind the facade of socialism. It was during this
period that politicians and government officials acquired almost unlimited
powers to issue licences - and the Indian economy is totally dependent on
licences for permission to produce almost anything, in whatever
quantities, using whichever raw materials. For those businesses that were
willing to pay hefty bribes to get licences, officially allotted quotas
were quietly relaxed.
Many businesses relished the licence-quota
raj: a protected domestic market meant Indian companies never needed to
spend on research and development (R&D) or improve the quality of
goods and services to stay competitive. Paying bribes worked out cheaper
than R&D spending or facing the rigours of an open market.
That corruption has become ubiquitous at
all levels is accepted by everyone. 'Earlier, people were shy of asking
[for bribes]. But not any more. They feel there's nothing wrong with it,'
says the L&T executive.
'Today government officials demand bribes
for anything as a matter of right,' says lawyer R Avasthi, legal manager
in a leading private sector company. 'From settling electricity bills
[when officials can be bribed to record a lower meter reading], getting
telephones connected to setting up an industry - which means getting many
clearances or seeking facilities [such as electricity and water
connections, or bank loans] - you have to pay bribes.'
D Singh, vice-president of a leading rice
exporting firm, says that in all the government departments businessmen
have to deal with - sales tax, income tax, excise, customs, land and
quality control - not even the slightest progress is possible without
greasing officials'' palms. The price of resistance is infinite delay or
massive harassment as, for example, in the case of Kentucky Fried Chicken
(Asian Business, December 1995, page 67).
'Bribes alone speed up the work, and
you're assured that your file in the department does exist and that it
will be presented to the official at the right time,' says Singh. 'At a
higher level, ministers demand [business] partnerships in the names of
trusted [nominees], and civil servants demand cuts.'
That society at large is made to pay a
heavy price for corruption is admitted candidly only by some. 'Ultimately
we end up in paying almost 15% in graft,' says Singh. 'Obviously, I
compromise on quality as well as quantity. In such cases, we supply rice
with a higher moisture content.'
Former prime minister Rajiv Gandhi
estimated that of all the government money allocated for development -
which came second only to the defence budget - only 17% reached the
intended beneficiaries, with the rest eaten up on the way by officials and
contractors. Some estimates put the figure as low as 10%.
Massive political corruption
That the corridors of political power are
knee-deep in corruption is common knowledge. The revelations regarding
corruption in high places contained in the famous 'Jain diaries', seized
in 1991 by the Central Bureau of Investigation (CBI), and the ensuing
legal battle spearheaded by an active section of the judiciary have put
the issue on the national agenda. A whole series of court cases involving
corruption is now underway.
The two Jain brothers' diaries allegedly
document a trail of bribes paid to leading politicians and bureaucrats
since 1988. They identify 114 recipients of graft - much of it from
multinationals, totalling several billion rupees - these being by top
politicians in all the major political parties (ruling as well as
opposition) except the communists.
Several members of Rao's former cabinet
are alleged to figure in the dairies. Rao himself was named as a recipient
of bribes in a confessional statement by SK Jain to the CBI - something
the CBI, functioning directly under the prime minister's office, chose to
play down, with Rao still prime minister at the time. With so many
political big-wigs in the net, including the late Rajiv Gandhi, many
wanted to give the Jain case a speedy burial. But the Supreme Court
entered the fray in October 1993, alerted by a public interest writ, and
has since been whipping the CBI to act. In November 1995, the CBI charged
eight bureaucrats, and in January this year seven politicians - four
members of opposition parties and three ministers.
Many Indian businessmen feel that
liberalisation of the economy will have no impact on reducing the
corruption that has become so well entrenched. 'Bureaucrats and
politicians have both tasted blood. It's foolish to expect them to
change,' says Singh.
Some Indian businessmen feel that the
influx of foreign companies is already unleashing a new wave of even
greater corruption. 'Foreign companies give big cuts, and they do it in a
big way and the attraction is very high,' says the official at L&T.
Although officials of foreign companies
are wary of talking about corruption openly, a survey of 183 US firms
conducted by the US embassy in 1995 revealed that US investors rated
corruption in India as the third worst problem they faced after red tape
and a lack of electric power. A document issued by the US embassy in Delhi
titled Investment Climate Statement 1996 says that 'US firms have
identified corruption as an obstacle to foreign direct investment... The
government procurement area has been particularly subject to allegations
of corruption. In terms of sectors, telecom and power seem especially
prone to charges of corruption'.
Indian businessmen say red tape directly
provides a pretext to extort money. 'The more speedbreakers they put [in],
the more money they can make,' says Singh.
'Without paying, your file won't be
traceable and even your business card won't reach the official you've gone
In a survey of 54 economies released in
October, Transparency International, a multinational organisation
headquartered in Berlin and dedicated to reducing corruption in business,
placed India as the ninth most corrupt country in its Corruption
Perception Index, followed by Indonesia and the Philippines; China ranked
Businessmen say the blame for the deluge
of corruption in India lies in the lack of transparency in the rules of
governance, extremely cumbersome official procedures, excessive and
unregulated discretionary power in the hands of politicians and
bureaucrats, who are prone to abuse it, and a lax judiciary.
Singh says many impediments are created
by politicians and bureaucrats to make investors cough up cash: 'Kentucky
Fried Chicken was literally made to chase around the courts for a single
fly on its premises [in Delhi]. Name any Indian outfit where you don't
find dozens of flies, but would you dream of seeing them prosecuted?'
Critics point out that other major
instances of corruption belong to the era of liberalisation. In August,
the CBI raided properties belonging to Sukh Ram, minister of
communications for three years under Rao. Unaccounted for money to the
tune of Rs361 million (US$10.1 million) was seized along with other
unaccounted for wealth.
It was under Ram that the controversial
privatisation of telecoms was begun. The process lacked transparency and
provoked loud protests. Rules were changed midway through to suit favoured
parties. A centralised purchasing system was created, bypassing all the
established ministerial norms and every purchase was routed through the
minister. In some cases, it is alleged that the minister used
discretionary powers to place orders without even inviting tenders.
Insiders believe that during Ram's tenure
between Rs10 billion and Rs15 billion were extorted as kickbacks in
nationwide telecom deals. Half was distributed among officials and touts,
with politicians pocketing the other half. The exchequer lost some 20 to
30 times these amounts in licence fees.
That economic and political corruption go
hand in glove has been further illustrated by the prosecution of three
members of Parliament belonging to the Jharkhand Mukti Morcha party,
together with former prime minister Rao, who allegedly bribed these MPs to
win a crucial vote of confidence in 1993. Rao is also embroiled in another
case involving a non-resident Indian, Lakhubhai Pathak, who alleges that
he was swindled of US$100,000 a decade ago by Rao's crony Chandraswamy - a
religious charlatan - on Rao's assurance of awarding a contract.
With the old systems and culture still in
place, there is cynicism about the containment of corruption. 'It is not
possible to do business completely honestly in India and make money,' says
DS Mehta, a newspaper columnist and veteran business observer. His view is
typical of those of other people involved in business.
Despite the tremendous cynicism, the
Indian business community sees some hope in the active role being played
by the Supreme Court and other echelons of the judiciary in hauling up
errant politicians and bureaucrats, and bolstering faith in the rule of
law and fair play.
One example is that the Supreme Court
last month ordered former petroleum minister Satish Sharma to pay damages
of Rs5 million to the government for causing loss to the exchequer by his
'illegal and arbitrary' allotment of petrol pump licences from his
discretionary quota. The Court has urged the CBI to prosecute him for any
criminal breach of trust.
Progress against corruption is likely to
be slow, but successful prosecutions of high-profile officials and
politicians are crucial to its success. 'Unless exemplary action is taken
against erring individuals, it is impossible to think of any positive
change,' says Singh.