Posts Tagged ‘corruption’
The decision by the BJP government on 8 November to demonetise the 500 and 1,000 rupee currency notes has been presented as “strength in the fight against corruption, black money, money laundering, terrorism and financing of terrorists as well as counterfeit notes”.
The release added: “Prime Minister Shri Narendra Modi made these important announcements during a televised address to the nation on the evening of Tuesday 8th November 2016. He said that these decisions will fully protect the interests of honest and hard-working citizens of India and that those five hundred and one thousand rupee notes hoarded by anti-national and anti-social elements will become worthless pieces of paper.”
Rs 14 lakh crore – 86% of the value of Indian currency currently in circulation – became useless from midnight of November 8, 2016. The Rs 500 notes amount to Rs 7.85 lakh crore and Rs 1,000 notes amount to Rs 6.33 lakh crore, according to Reserve Bank of India data. The immediate result was panic, in hundreds of towns and cities, as citizens ran for ATMs. Confusion prevailed as on the next day, 9 November, all banks were to shut to the public and ATMs too.
There was chaos outside hospitals, railway stations and petrol pumps which were allowed to accept Rs 500 and Rs 1,000 notes till Friday (but interpreted the directions as they pleased). Smaller denomination notes such as Rs 100 and Rs 50 were in short supply due to the heavy demand. Small traders, rickshaw pullers, taxi and auto-rickshaw drivers, daily wage labour, and unorganised sector workers said they have been hit hard.
This public inconvenience was necessary, said the government, to have the time to restock bank branches and ATMs with new currency notes and to prepare the bank branches for the exchange services they would have to begin on 10 November.
The government explained that:
1. A law was passed in 2015 on disclosure of foreign bank accounts. In August 2016 strict rules were put in place to curtail benami transactions. During the same period a scheme to declare black money was introduced. These efforts have over the past two and a half years, brought more than Rs. 1.25 lakh crore of black money into the open.
2. These efforts have led to India emerging as “a bright spot in the global economy”, a preferred destination for investment and an easier place to do business in. “Leading financial agencies have shared their optimism about India’s growth as well.”
3. Indian enterprise and innovation has received a fillip due to the ‘Make in India’, ‘Start up India’ and ‘Stand up India’ programmes for enterprise, innovation and research in India.
There is no doubt that India’s economy has been plagued by the creation of wealth in some quarters that is obscenely disproportionate to the stated sources of individual and family income (see the press release from the Department of Economic Affairs, pdf). This has for long signalled corruption, and the means by which the corrupt (both giver and taker) become so is cash (but not only). The demonetisation has affected the political class and bureaucracy which accounted for the bulk of the corrupt money. The other difficulty the government and enforcement agencies have grappled with especially over the last decade is counterfeit currency notes, which have been used to maintain anti-national, secessionist and terrorist networks.
With about 86% (by rupee value) of currency in circulation being in the notes that have been demonetised. There are 16.5 billion Rs 500 notes and 6.7 billion Rs 1,000 notes in circulation now, and replacing them with lower denomination notes, and also the new series of Rs 500 and Rs 2,000 notes, will take several weeks.
I have several concerns about the demonetisation of the 500 and 1,000 currency notes, and the accompanying directions that the banking and financial services sector in India is now pushing the public.
Question 1 – Estimates are that currency in public circulation in 2006 was around Rs 4 lakh crore. In 2016 it was about Rs 16 lakh crore. If this estimate is of what RBI printed, why did it for ten years print physical currency at a rate higher than top annual GDP growth estimates?
This article explains the extraordinary rise of cash economy through high denomination notes, powered by generation of black money in real estate, stocking of gold, bribery and corruption. But it does not help answer my question above. “While the high denomination notes made illegal businesses, including hawala transactions to transfer money out of India easy to execute, it has facilitated huge tax evasion even in the otherwise lawful businesses. High denomination notes have made it easy for the bribe taker to handle huge bribes with ease.”
Question 2 – As the 500 and 1000 notes are ‘high value’ and so used for hoarding ‘black’ cash, why is the higher of the two (1000) being replaced by a note twice its value, that is, Rs 2000?
Since yesterday, there have been explanations offered about the effect of demonetisation on consumption and on slowing down an economy whose GDP growth is rated as the best amongst the large economies. “Consumer spending will likely fall in the immediate weeks as households adjust to the new system. India’s economy grew 7.1 percent during April to June, the slowest in 15 months, but the government and experts have been pointing out that a pick-up was likely in the next few months riding on good rains, a pay bonanza for government employees and festive-season buying.”
According to the national income data for the first quarter (April-June) of 2016-17, private final consumption expenditure (PFCE) – which measures household spending – at current prices is estimated at Rs 21.19 lakh crore, or about 55% of the gross domestic product (GDP). These are the numbers that a new class of ‘growth’ advocates in India are betting on. There is a connection to inflation – in the price of services, cost of manufactured articles and the prices of food – which however has not been answered as yet. Raising the denomination of the highest value currency note from Rs 1,000 to Rs 2,000 is in my view such a signal.
A number of petitions challenging the notification by the Department of Economic Affairs, Ministry of Finance, Government of India (which is the order for demonetisation) have been lodged at various High Courts and with the Supreme Court. Some protest the order as “illegal and arbitrary” and others for the order not granting reasonable time for ordinary citizens (presumably with legitimate cash in hand) to comply without jeopardising livelihood (by having to spend time in bank branches, for which leave is to be taken or a day’s income has to be foregone). While the Supreme Court may hear a petition next week, the response of the Madras High Court – that it cannot interfere in the policies of the government related to monetary system – should help prise open to greater public scrutiny one of the most opaque areas of policy making: the public monetary and fiscal system.
Question 3 – Is the net monetary gain by Government of India – more physical money from the ‘black economy’ brought onto the national accounts books – a way to ensure that India will next financial year also record the ‘fastest GDP growth’ (without the manufacturing, service and agriculture sectors doing so)?
For this question I can see only a few partial answers. These have to do with the enlargement of the digital rupee and digital payments, and this is the most serious concern. A government-appointed panel was set up in August to suggest ways such as tax rebates and ‘cash back’ to incentivise card and digital transactions. The government is also examining the feasibility to create a history for all card and digital payments, how to use the Aadhar database for authenticating card/digital transactions, providing low-cost micro-credit based on credit history.
Another partial answer comes from the Ministry of Finance, which said that “weak global demand” is among the “strongest challenges” in the near term for Indian economy. “Weak global demand is one among the strongest challenges in the near term. Exports and imports together constitute 42 per cent of the GDP (gross domestic product), even at the reduced levels in 2015-16.” The ministry said that reviving the savings and investment cycle in economy is challenging. The savings rate that stood at 34.6% in 2011-12, declined to 33% in 2014-15. Investment rate declined from 39% of GDP in 2011-12 to 34.2% in 2014-15. So these are the conventional macro-economic arguments, but the demonetisation will as I see it push any revival in savings and investment in quite a different direction from what the rural and agricultural base of the population require.
That direction is the ‘cashless’ one, with cash being blamed for fuelling the black economy. This is a danger-filled direction, one which we have already had a troubled history to look back at recently – the micro-credit bubble of the 2000-10 decade – to serve as a guide of what not to do. The banking and financial services industry has been expanding over the last two years, in tandem with the mobile telecom industry, with mobile payments and ‘wallets’.
“You cannot have 12% of India’s GDP in shape of currency,” Finance Minister Arun Jaitley has said. “Ideally developed countries have only about 4% and therefore you have to squeeze the amount of currency available and you need to get people into the habit of using digital, cheques, plastic currency and so on.” This – apart from the short-term gain by herding cash hoards into banks to be taxed – is what the direction is: the rupee as a bit, the rupee’s already tenuous basis in a physical standard now becoming more virtual, and this in a monetary and fiscal environment about which the public has scant understanding and in which the public has no participation.
Such a direction only widens the already troublesome gap between an acceptable physical basis for a value that the rupee represents (we have no gold standard, or any other acceptable equivalent) and the assigning of a notional value to a digital rupee whose issue, transfer and control will be entirely electronic. When viewed against the increasing “liberalisation” (or increasing “reforms”) of the banking, insurance, non-banking finance, financial services, small credit industries that has taken place in the last two years, and especially the opening up of these new services to foreign direct investment (FDI), the picture of the cashless economy so strenuously advocated by Finance Minister Arun Jaitley.
Consider this gleeful reaction from what is called the fintech sector (we had IT, BT and there’s FT): “We might grow 10x when it comes to digital payments. Today, three to five percent of the transactions happen digitally, but we will see a 10x growth to almost 15–20% when it comes to digital transactions in the country. This is huge and this rise in digital transactions will lead to a digital exhaust where better credit risk scoring will happen, catapulting into exponential growth.”
This is the very troubling new landscape that the demonetisation decision – taken with the good reason of weeding out a black economy – has brought the rupee into.
Foreign direct investment (FDI) has been rolling into India at a steady pace, whether in banking and finance,whether in insurance (general insurance and health), pharmaceuticals, automobiles (particularly automobiles), information technology, food and beverages (very much so), and engineering and manufacturing. And then there is retail, which has so incensed all those who have firmly believed that India and Bharat need none of this and that the swadeshi and swarajya of the Independence movement are, 66 years on, needed even more than they were in the 1920s and 1930s. And I count myself amongst those so incensed.
It comes as a surprise then to read about the ‘brake on the economy’ that low-level corruption is in India, as a recent Reuters report has put it. The report is well done, and is right to probe the methods of corrupt underlings, but I find it bordering on the absurd that these practices – in short, hand over the moolah for the licence you want – are treated as hindering India’s ‘growth story’ (as the country’s finance minister monotonously calls it, ignoring the ecological idiocy of desiring more growth, unmindful of the millions of new deprivations his story has no place for).
Reuters has reported: “India is the next great frontier for global retailers, a US$500 billion market growing at 20% a year. For now, small shops dominate the sector. Giants from Wal-Mart Stores Inc to IKEA AB have struggled merely for the right to enter, which they finally won last year.”
This breathlessness, well captured by Reuters, is part of P Chidambaram’s favourite fairy tale. But of course, real life in curbside India is full of smoke and mirrors. Reuters said that a “daunting array of permits – more than 40 are required for a typical supermarket selling a range of products – force retailers to pay so-called ‘speed money’ through middlemen or local partners to set up shop”.
Speed money is a colourful term, and suited to the technicolour life and times of the retail business in India. Reuters sounds prudish when it reported, citing interviews with middlemen and several retailers, that the “official cost for key licenses is typically accompanied by significant expenses in the form of bribes”. The added cost, said Reuters, erodes profitability in an industry where margins tend to be razor-thin, and “creates risk for companies by making them complicit in activity that, while commonplace in India and other emerging markets, is nonetheless illegal”.
Commonplace and illegal as much as underpaying workers in the USA, I presume, which is what the retail capitalists do. See this report about workers at McDonald’s, Wendy’s, Yum! Brands, Burger King, Domino’s Pizza and Papa John’s going on strike in New York City demanding wages that are twice the current $7.50 an hour, which is described as impossible to live on. As for Walmart, it’s rankly exploitative imprisoning of its workers, paying them just above minimum wage but denying them freedom of association (the USA is a member state of the ILO, the International Labour Organisation) and medieval working conditions can hardly, in any country, make it a paragon or corporate virtue.
But the Reuters report, useful as it is in explaining the very broad-based and low-level graft that layers our cities like a fog, cannot venture into the area of the demands of international finance capital led neo-liberalisation. This seeks to prise open our economy – aided eagerly by the astoundingly greedy political class in India (Delhi, Bombay, Bangalore, Hyderabad, Ahmedabad, Calcutta and every other large city) – for profit maximisation. Never mind the few bleating complaints about streetfront corruption repeated by Reuters, there is optimism aplenty amongst financiers, business people, bankers, commodity brokers, the realty sector, the automobile and FMCG sectors, all fed by the fact that the United Progressive Alliance government of India is more than willing to bend, break and jettison wholesale regulations that favour the proletariat in order to satisfy international capital and Indian big business.
Only last December (2012) both the houses of Parliament in India were told that there would be an inquiry following media reports concerning the submission made by the global retail giant Walmart to the US senate that it had spent around Rs 125 crore (Rs 1.25 billion or about US$23.2 million) during the last four years on its lobbying activities, including the issues related to “enhance market access for investment in India”. Now, really, what’s a bit of ‘speed money’ compared to a sum like that? Or compared to the US$100 million (about Rs 455 crore) that Walmart is reported to have funnelled into India (to its Indian partner Bharti Enterprises) and at a time when multi-brand retail was not permitted?
There has been no progress in the disucssions between the government in India and the leaders of the massive movement against corruption, led by Anna Hazare, who is still on a protest fast in New Delhi [see earlier post on the movement]. A meeting of all the political parties was held on the issue of the Lokpal, an institution proposed to redress public grievances on corruption and abuse of public office. An excellent summary of the matters before the citizens of India, and the best choices available to achieve probity and equity has been provided by the Communist Party of India (Marxist), in its note placed before the participants of the meeting of all political parties. Titled ‘Lokpal: For An Effective Anti-Corruption Body’, here is the full text of the note:
Corruption has become a major public concern in the wake of successive scams unfolding over the past few years. In a country like India, where millions of people still suffer from acute poverty, hunger and lack of socio-economic opportunities, the pillage of public resources through corruption amounts to a crime of a very serious nature. Besides impeding economic development, accumulation of ill gotten wealth through corruption is widening the inequalities and ruining the moral fabric of our society.
The recent exposures in the 2G spectrum allocation case, CWG scam etc. have shown how thousands of crores worth of public resources have been illicitly cornered by a section of corporates, bureaucrats and ministers. What is worse, tainted ministers have been allowed to remain in office for months and the investigations manipulated, in order to obstruct the course of justice. While corruption in high places has been a feature of our political system for many decades, what has emerged as a dominant trend in the post-liberalization period is a thorough distortion of the policy-making process at the highest levels of the government. A nexus of big corporates, politicians and bureaucrats have matured under the neoliberal regime and is threatening to subvert our democracy. It is clear that the current economic regime has made our system more vulnerable to cronyism and criminality.
The battle against corruption, in order to be effective today, can be achieved only through a comprehensive reform of our political, legal, administrative and judicial systems and not through one-off or piece-meal measures. The establishment of an effective Lokpal institution is one such measure. This needs to be complemented by other measures. There has to be a grievance redressal set-up for citizens, based on a legislation. There has to be a National Judicial Commission to oversee the higher judiciary; there has to be electoral reforms to check the use of money power in elections which is another source of corruption. Urgent steps also need to be undertaken to reform our tax system to plug loopholes and unearth black money, much of which is stashed in offshore bank accounts and tax havens. Firm steps need to be taken to break the big business-politician-bureaucrat nexus. Only a comprehensive systemic reform can effectively curb corruption.
The institution of Ombudsman, which exists in many countries across the world, has provided avenues to redress public grievances on corruption and abuse of public office. However, the fact that the Lokpal Bill could not be passed in the Indian parliament in four decades exposes the lack of political will to fight corruption. Several governments in the past have taken it up only to shelve it later under various pretexts. The present government has also been compelled to initiate discussion on this bill because of public outcry over successive corruption scandals. It is imperative that a Lokpal Bill which deals with corruption in high places is tabled in the forthcoming session of parliament.
In the wake of the on-going debate on what should be the scope and role of the Lokpal, the Communist Party of India (Marxist) wishes to set out its stand on the main issues concerning the constitution of a Lokpal.
1. Definition of Corruption
Corruption involves a whole range of activities from bribery, influence peddling, patronage or favour, nepotism, cronyism, electoral fraud, embezzlement, kickbacks to officials and involvement in organized crime. The Prevention of Corruption Act, 1988 has defined the offences that constitute a corrupt act. This definition requires to be widened. The linkage between misuse of public power for private gain or enrichment is a highly restrictive understanding of corruption. In many cases, power is misused to benefit an entity like a private company which is not a ‘person’ as required under the PCA 1988. Often, there may be no traceable kickbacks or embezzlement but there may be a huge loss to the public exchequer and breach of public trust for example through sale of PSUs due to a willful misuse of power. The definition of corruption has to be widened to include “willfully giving any undue benefit to any person or entity or obtaining any undue benefit from any public servant in violation of laws or rules”.
2. Clarity on Functions
The Lokpal should essentially be a fact-finding body that receives complaints, enquires, investigates and forward cases to Special Courts where prima facie there is a case of corruption for prosecution and punishment in a time bound manner. It should have powers to recommend an enquiry and investigation suo moto. It should oversee the entire machinery related to corruption cases at the Central level. Finally, it should have the powers to recommend executive action and to approach Courts when these are not accepted. The Lokpal should be entrusted with quasi-judicial powers and autonomy to fulfill these functions in an independent, accountable, transparent and time-bound manner. The separation of powers between legislature, executive and judiciary is a part of the basic structure of the Constitution. The institution of Lokpal should conform to this basic structure. An issue to be considered regarding the functions of a Lokpal is whether it will deal with corruption or will it also perform functions of grievance redressal. The CPI(M) favours separation of these functions. There must be a separate mechanism for grievance redressal. This should be set up by a separate legislation. The grievances of citizens about the citizens charter etc should be brought under this set up.
3. Selection & Composition of Lokpal
The Lokpal Act should lay down an objective and transparent criteria such as competence, experience, qualification etc for the selection of candidates for appointment to the Lokpal. The selection committee should be broad-based consisting of members of the executive, leaders of parliament, members of the higher judiciary, jurists and academicians. The search committee constituted by the selection committee should also be broad-based. Composition: Apart from the chairperson, there should be 10 members in the Lokpal. Out of these four shall be judicial members, three can be persons with administrative and civil service backgrounds and the other three should be drawn from fields such as law, academics and social service. There should be no member drawn from commerce and industries just as there can be no politician.
While corruption in high places has to be tackled on a priority basis, for the ordinary citizen, it is the corruption faced by them in daily life and in dealings with public authorities that also needs to be urgently taken up. Much of this sphere of corruption falls in dealings with authorities at the states-level. The Lok Ayuktas set up on the lines of the Lokpal should bring all state government employees, local bodies and the state corporations under their purview. Further, a citizen’s grievances redressal machinery that we have proposed be set up separately, should address all grievances regarding delivery of basic services and entitlements for citizens.
a) Prime Minister: The Prime Minister should be brought under the purview of the Lokpal with adequate safeguards. The office of Prime Minister along with all public servants was brought under the purview of Lokpal by the V.P. Singh Government in 1989 and in all subsequent draft legislations, the Prime Minister has been placed under the Lokpal. In fact a Parliamentary Standing Committee headed by Shri Pranab Mukherjee had made precisely this point while examining the 2001 Lokpal Bill. For the first time since 1989, this government presiding over a large number of scams, is unwilling to ensure accountability of the highest executive office. Clearly, all public servants of the Union Government within the definition in the Prevention of Corruption Act, which includes the Prime Minister, must fall within the purview of the Lokpal.
b) Judiciary: The judiciary too needs to be brought under scrutiny and made more accountable, and the stringent requirement of prior permission and sanction from the Chief Justice to file FIRs and investigate corruption charges has resulted in a de facto immunity to them. But the proposals to bring them under Lokpal encroach upon the constitutionally guaranteed independence of the Supreme Court. If a mere allegation of mala fide is enough for the Lokpal to start an inquiry into the actions of judges, it may not allow judges to act without fear.
Complaints about corruption against the judges of the Supreme Court and the High Courts should be handled by a separate body, the National Judicial Commission. This Commission should take care of the appointments in the higher judiciary and oversee their conduct and enquire into the complaints of corruption. For this, necessary legislation will have to be passed. The Judicial Standards and Accountability Bill, 2010 is woefully inadequate for this purpose.
c) Members of Parliament: At present, the scrutiny of the conduct of Members of Parliament with regard to any corrupt practice is weak and unsatisfactory. For Members of Parliament, Article 105 of the Constitution provides protection with regard to freedom of speech and voting. The real issue is how to ensure that this freedom and protection does not extend to acts of corruption by Members of Parliament. This can be done through an amendment to Article 105, on the lines recommended by the National Commission to Review the Working of the Constitution. Alternatively, if feasible, there can be legislation that if any Member of Parliament indulges in any act of corruption that motivates his or her action in Parliament (voting, speaking etc.), then this act falls within the purview of the Prevention of Corruption Act and the IPC.
5. Lok Ayuktas
In the states, Lok Ayuktas should be set up on the model of the Central Lokpal.
6. Protection of Whistleblowers
Whistleblowers must be protected in order to combat corruption. Monitoring and ensuring protection of whistleblowers can be a part of the mandate of Lokpal, but this needs a comprehensive statutory backing. The provisions of the Public Interest Disclosure (Protection of Information) Bill, 2010 needs to be strengthened and the bill enacted expeditiously.
7. Big Business-Public Servant Nexus
It is necessary to recognise that an important source of corruption since liberalisation stems from the corrupt nexus between big business and public servants. It is necessary for the Lokpal to have investigations in cases which involve business entities to recommend cancellation of licences, contracts, lease or agreements if it was obtained by corrupt means. The Lokpal should also have the power to recommend blacklisting companies from getting government contracts and licences. Similarly, if the beneficiary of an offence is a business entity, the Lokpal should have the power to recommend concrete steps to recover the loss caused to the public exchequer. The government should normally accept these recommendations and act upon it.
The CPI(M) holds that along with a law for setting up an independent Lokpal, simultaneous measures to strengthen the legal and administrative framework
against corruption are required. These include:
(1) Setting up of a National Judicial Commission to bring the conduct of judiciary under its purview
(2) Law to protect citizens charter for redressal of public grievances
(3) Amendment of Article 105 of the Constitution to bring MPs under anti-corruption scrutiny
(4) Electoral reforms to check money power in elections
(5) Setting up of Lok Ayuktas in the states to cover all public servants at the state-level
(6) Steps to unearth black money and confiscate the funds illegally stashed away in tax havens.
The German weekly newspaper, Die Zeit, is easily among the best designed papers in the world. It is also consistently critical in its investigations and reporting, and just as consistently innovative in the manner in which it presents subjects. Visually, Die Zeit’s pages have few peers worldwide, if at all.
The title of this arresting full page graphic is ‘Seid verschlungen, Milliarden!’, which means ‘Billions swallowed up’. The graphic purports to be an aid to politicians who notoriously have no idea, says Die Zeit, how many zeros there are in a billion but who blithely continue to agree to spend billions (of public money).
There are some eye-popping numbers represented by the coloured squares on this page. The German healthcare system is 245 billion euro, the income of the church in Germany is 330 billion euro, Germany’s federal budget for ‘Bildung und Forschung’ (education and research) is 11 billion euro, Germany must reserve 283 billion euro for pensions (which is separate from the 36 billion euro to be spent on pensions for its government officials).
The cost of sending all children in developing countries to school for five years is reckoned to be 321 billion euro, the development aid of the richest developed/industrialised countries is 72 billion euro, the cost of halving the incidence of poverty in developed countries (as under the UN’s Millennium Development Goals) is 32 billion euro, the cost to the USA of the 2003 Iraq war was 40 billion euro, and the cost to date of the Iraq and Afghanistan war to the USA is 1,242 billion euro.
While on the subject of money and public spending, The Economist has reported the issue of the zero rupee currency note. The surprising note looks like the typical 50-rupee note, except it is for ‘zero rupees’. In place of ‘Reserve Bank of India’ it says ‘Eliminate Corruption at all Levels’ and in the same vein has replaced the usual “I promise to pay the bearer…” with “I promise to neither accept nor give bribe”. This excellent public campaign has been launched by a Chennai-based NGO called 5th Pillar (P O Box No 5338, Chennai 600024, phone +91 44 65273056).
Vijay Anand is president of the NGO and is also, according to the Economist report, an expatriate Indian physics professor from the University of Maryland “who, travelling back home, found himself harassed by endless extortion demands. He gave the (zero rupee) notes to the importuning officials as a polite way of saying no.” 5th Pillar reportedly had 25,000 zero rupee notes printed and publicised to mobilise opposition to corruption. The idea caught on and the NGO says it has distributed a million zero rupee notes since 2007. Haven’t seen any in Mumbai though – although in Mumbai it’s at least a hundred that the most junior traffic policeman will settle for and for municipal jobs one starts with 500 rupees, so 5th Pillar will need to do a Mumbai and Delhi set of zero-rupee notes in those colours, not 50-rupee colours.