Over the last few years, surfacing of a string of
multi-billion scams has shaken the trust of global investors in the Indian
economy. The first of the recent scams was the 2G telecommunication licence
sales in 2008 which allegedly cost the Indian state $39 billion in lost licence
fee due to under-selling which also led to estrangement between Congress and UPA
ally DMK which accused the former of not protecting party leader A Raja who was
heading the telecom ministry when the scam broke. The second was the illegal sale
of iron ore worth billions of dollars to China by firms related to G Janardhan
Reddy, whose meteoric rise to economic and political prominence from being an
anonymous employee of local chit fund near Bellary in Karnataka proved what one
could achieve if he/she has the right political connections to supplement
inherent shrewdness. The third was the alleged siphoning off of around $1
billion by Madhu Koda, former chief minister and mining minister of Jharkhand,
reportedly amassed through corrupt mining deals during his ministerial tenure.
While corruption is nothing new in the Indian
socio-political space, these recent high-profile scams have made global
investors more jittery about investing in the country as their long-prevailing
scepticism in India’s ability to emerge a mature economy without traces of
corruption ballooned.
The move from ‘licence Raj’—where businesses were
governed by rules and quotas aided by bribes to bureaucrats—to liberalisation
opened fresh, widened opportunities for bribery and graft, as sectors like real
estate, metals, mining, infrastructure, aerospace, defence, power and utilities
became multi-billion juggernauts governed by poorly paid officials. Over the years, graft has become such an
integral part of Indian reality that corruption is seen as a normal way of life
and only a few people think the ‘powerful’ can be put behind bars for indulging
in and enhancing an ever-growing system of bribery. Of late, of the 10 biggest
family firms by sales, seven have faced controversies related to corruption and
kickbacks. In a recent survey, 95 per cent of Indians said corruption became a
larger menace over the last five years. According to Transparency
International, an organisation that tracks corruption, 54 per cent of Indians
say they paid a bribe in the last year, compared with Nigeria with 44 per cent
and Indonesia with 36 per cent.
The huge amount of money siphoned off by industrialists
and politicians to clandestine entities domiciled in countries with friendly
tax regime and regulatory rules has further enhanced the nature and scope of
corruption. Bribes are also transferred to entities outside India through what
is called ‘mis-invoicing’. For instance, an outfit in India controlled by a
politician buys gold jewellery worth millions of dollars from a firm domiciled
in a free-trade zone such as Dubai at exaggerated prices and imports it. The
excess tax-free earnings are pocketed outside India in a firm controlled by the
same person with limited scope of scrutiny and investigation. According to
research organisation Global Financial Integrity, gross illicit outflows from
India have averaged $52 billion a year since 2007. The unaccounted-for money
held in global banks including those in Switzerland adds to the enormity of the
problem. Offshore assets of Indian residents held in global banks are estimated
to be close to $150 billion.
The country cannot be imagined to be on the road to growth
without the contribution of the private sector which plays a role in building
factories, roads and larger infrastructure. However, for getting required
permission for these infrastructural initiatives, companies in these sectors
need to grease the palm of ministers, politicians and bureaucrats. They also
need to pay ‘speed money’ to avoid red tape.
Corruption leaves a dent on the country’s economy in
various ways. First, graft means lost revenues from privatisation, taxation,
excise and customs. It also impedes investment and in turn growth, besides
hurting the poor who are left to bear the brunt of ‘cost overruns’ passed on by
corporates through spiked prices of products and services.
A core trigger for graft is the funding of political
parties, especially to meet election expenses. As political parties assume
power, they have a clear obligation to ‘pay back’ their spongers in the
corporate world and other wealthy individuals who lavishly opened their wallets
for helping them win polls.
The application filed in the Supreme Court by the
Narendra Modi-led government recently saying it cannot disclose the details of
foreign accounts held abroad by Indians, citing bilateral double taxation
avoidance treaties, means that the new regime is not fundamentally different
from the previous UPA government when it comes to uprooting corruption.
Modi government needs to take drastic steps including
measures to curb funding of political parties and elections by corporates and
to dig out sources of billions of black money held outside the country, to win
back trust of the global investment community and enhance the scope of overall
economic growth.
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