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.
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