In a season for scandals, allegations
of large scale corruption have captured political India's attention. The
instances to which such allegations relate are many, varying from the
sale of 2G spectrum and the mobilisation and/or disposal of land and mining
resources, to purchases made as part of large and concentrated public
expenditures (as in the case of the Commonwealth Games). Features that
these ostensible instances of corruption have in common are their large
size in terms of sheer magnitude and the brazen violation of the law they
involve. If true, the allegations not only indicate that corruption still
prevails but that it may have increased in scale, overwhelming the evidence
of small scale corruption among petty bureaucrats and local government
functionaries.
Some of these allegations of corruption on a large scale are of particular
significance because they point to changes in the profile and the qualitative
implications of corruption. Associated with such instances of the possible
misuse of powers held by state functionaries for substantial private gain
is huge profit for some of the richest individuals and for leading domestic
and foreign business groups. This leads to substantial surplus accumulation
among two groups. The first is among those serving the state apparatus
in high positions. The belief that this could be occurring is strengthened
by the growing nexus between politics and business with big business having
strong links (direct or indirect) with politicians and individual politicians
elected to parliament and the legislatures reporting huge increases in
asset holding over time. The second set of potential beneficiaries of
surpluses accumulated in this fashion consists of the business groups,
which derive gains from the purchase of pecuniary benefits for a small
price. Thus, if we go by the Comptroller and Auditor General's estimate,
the loss of revenues to the state from the mispricing of 2G spectrum alone
is Rs. 1.76 lakh crore or close to 10 per cent of Gross Fixed Capital
Formation in the economy in 2008-09. If a large share of that loss is
being transferred to those acquiring spectrum, it points to huge benefits
for business groups.
It needs to be noted that transfers of this kind to private capital are
not always seen as the result of corrupt practice. There have been many
instances where sections of the private sector have made huge gains through
means that are ''unfair'', even if not illegitimate, though they have
not been associated with credible allegations of corruption. One such
within the cellular industry that is the focus of current attention, was
the implicit bail out of investors who made erroneous and even irrational
bids for spectrum during the first round of auctions. A few players chose
to make huge bids for licences to operate in multiple circles and won
the right in many more than one. If they had been required to make payments
for all circles they had won, these bidders would have been in financial
trouble. The government, therefore, allowed them to retain a few of these
licences and give up the rest. But, despite this, when these bidders turned
operators, they discovered that they could not operate profitably if they
were actually required to pay the amounts they had bid to obtain their
licences. The government, therefore, allowed them to migrate to a revenue
sharing regime rather than a specific licence fee system, allowing them
to make huge profits subsequently.
The point to note is that the irrational bids made by these operators
had kept out a number of rational bidders who may have been more efficient
suppliers. When it became clear that those offering the highest bids were
unable to meet their commitments for one reason or the other, they should
have been penalised and their more rational competitors brought in. By
allowing the irrational bidders to limit the commitments they had to honour
and then dilute those commitments by permitting migration to a revenue-sharing
scheme, the government rewarded the irrational bidders. This was, to say
the least, unfair, even if not illegitimate because no clear evidence
of corruption emerged. This was one more instance where unfair business
practices and patronage from the state at the expense of the exchequer
permitted sections of the private sector to garner huge profits. Thus,
patently wrong policies that transfer surpluses to the private sector
are visible not only in instances where allegations of corruption are
involved.
It is to be expected that such instances would increase under liberalisation
since the state increasingly dilutes or gives up its role as an agent
influencing and regulating the nature and scale of private activity to
take on that of being a facilitator of private investment. In fact, the
very process of transition to a more ''liberal'' regime is fraught with
potential instances of corruption, as the allegations of under-pricing
of public assets in the process of disinvestment of public enterprises
illustrates. The process of decontrol and deregulation is also accompanied
by efforts at promotion of private investment, involving help to the private
sector to acquire land, grow in new areas, and expand its activities.
As a result, besides the old type of corruption where state functionaries
demand a price for favouring individual firms with purchase orders or
permissions and exemptions, there is a new form in which those benefiting
from state support could be called upon to share the transfers they receive
with the decision makers involved.
Advocates of liberalisation have always argued that by reducing state
intervention and increasing transparency economic reform would reduce
corruption. The allegations of, and evidence on large scale corruption,
show that this is not true. In fact, they make clear that liberalisation
does not mean that the state withdraws from intervention but merely that
there is a change in the form of state intervention, which also enables
the state to deliver illegitimate gains to individuals and private players.
The flip side of this process is that there are new avenues through which
the private sector can garner windfall gains that raise private profits,
increase internal resources and allow for an acceleration of private capital
accumulation. There is ample evidence of a substantial increase in private
profitability, corporate savings and private wealth since the launch of
liberalisation and especially during this decade. But this has been attributed
to the entrepreneurial energy released by liberalisation, with no role
given for to the benefits from transfers engineered by the state. In fact,
when discussions of corruption occur, the possibility that it serves as
a mechanism for private aggrandisement receives little attention. The
tenor of the discourse is that the virus of corruption afflicts only the
government officials and politicians who control and misuse state power.
This may have been a partly reasonable position to take if corruption
is merely reflective of the price to be paid to state functionaries for
private individuals or entities to realise what would have been legitimately
due to them. But increasingly corruption appears to reflect payments made
by the private sector to realise illegitimate gains that are not merely
violative of fair practices and/or the law, but damaging from the development,
environmental or fiscal points of view. Given the large amounts that can
be garnered in this fashion, the state seems to be turning into an important
site for primitive accumulation for the private sector during the phase
of liberalisation and economic reform. If true, this makes the private
sector not just complicit but a participant in the acts of corruption,
if any, involved.
An aspect possibly associated with such corruption is the flight of capital
from the country. Those making illegitimate or excessively large windfall
gains may need to evade the tax and/or other laws of the country. The
illicit transfer of wealth facilitates such evasion. Thus liberalisation
by making such transfers easier encourages capital flight. According to
a recent estimate by the Global Financial Integrity programme of the Centre
for International Policy, the money that had illicitly flown out of India
to accounts abroad over its post-Independence history stretching from
1948 through 2008 was around $213 billion. The adjusted present value
of those historical flows has been placed at $462 billion or around 36
per cent of India's GDP in 2008. Interestingly, there are signs that the
outflow has increased substantially in recent years and that more of the
money is now moving to offshore financial centres. According to the report
that includes, Global Financial Integrity's estimate, titled The Drivers
and Dynamics of Illicit Financial Flows from India: 1948-2008, ''68 percent
of India's aggregate illicit capital loss occurred after India's economic
reforms in 1991, indicating that deregulation and trade liberalization
actually contributed to/accelerated the transfer of illicit money abroad.''
It is in this background that the source of transfers needs to be discussed.
Their timing, size and direction in recent years suggest that corporate
players are likely to be involved.
Thus, a feature of the new liberalised economic environment seems to be
that private players begin to look for ways in which state influence can
be exploited for quick and substantial economic gain, sometimes at the
expense of the state exchequer. A concomitant is an increase in the instances
of alleged corruption. While sectors like real estate and mining are obvious
examples of how this can occur, the number of such instances is larger
and more varied. But this feature of the new environment tends to be missed.
A sudden increase in the wealth of an individual can be as much an indicator
of business acumen as of the misuse of power or the violation of law for
profit. But in a world where profit making and the accumulation of wealth
is celebrated and rewarded, where it is the ''bottom line'' that finally
matters, unless circumstances lead to the detection of fraud or a violation
of the law, there is no needle of suspicion when wealth is accumulated
rapidly and in large measure. An increase in the wealth of a private sector
player is normally seen as a virtue and a reflection of ''entrepreneurship''
and ''innovation''.
This does limit the degree to which the problem of corruption can be addressed.
If corruption tends to be embedded in the process of accumulation, it
is expected that it would be far more present than would otherwise be
the case. Whenever allegations of corruption emerge because of ''leaks''
possibly triggered by corporate or political rivalry, controversy ensues
and investigations begin, but little of significance results. The nature
and functioning of the law in the country is such that the investigations
drag on for such a long time that public attention wanes and is in any
case diverted to new instances of corruption. This makes the demand for
better ways of investigating and awarding punishment in proven cases of
corruption eminently sensible. But this alone would not do. What is required
is a change in the policy regime that legitimises the conversion of the
state into a site for the primitive accumulation of capital. Also required
is caution when celebrating evidence of quick and substantial enrichment
of sections of the private sector.