Thursday, October 27, 2011

Corruption vs Democracy


As loot of public resources threatens the very foundations of Indian democracy, there is a need for a series of reforms.

At the peak of Anna Hazare-led Jan Lokpal Movement in August 2011, acclaimed actor Om Puri was caught saying something in public and on camera that represents one of the many ways in which people tend to talk about ‘corruption’.
Yeh anpadh hain. Inka kya background hai? (They are uneducated. What’s their background?),” Puri said of the MPs to a rally in support of the enactment of Jan Lokpal Bill at Delhi’s Ramlila Maidan, even as the TV cameras beamed the pictures live to national and international audiences.
What’s interesting about Puri’s comments was they were made while he participated in a nationwide demonstration against corruption. His address was supposed to express general frustration over rampant corruption and loot of public funds.
And yet he managed to say something that sounded like an attack on members of parliament in particular and the political class in general.
‘Isn’t there a direct relationship between the competence and moral standards of the political class and growing corruption?’ Some people might argue.
‘But what’s the relationship between being uneducated and corruption? Aren’t the well educated people behind most of the big-ticket scams?’ Others might counter. And the debate would continue.
Let’s consider some more scenarios of the way people typically talk about ‘corruption,’ especially in public.
(a) ‘How can you not have corruption when reservations in education and employment have been stifling meritocracy?’ someone might thunder.
(b) ‘A society that has tolerated centuries of caste-based oppression of certain communities can’t be anything but thoroughly corrupt,’ someone else might insist.
(c) ‘Don’t we indulge in corruption when we submit inflated medical bills to our employers?’ yet another might suggest.
(d) ‘What we badly need is a spiritual movement which will revive our age-old values and build character,’ another voice might add.

Going off at a tangent?
The scenarios cited above exemplify the mind boggling variety of ways in which people tend to think and talk about corruption, often seeming to go off at a tangent.
What explains this great variety? Why do people tend to link ‘corruption’ with a wide range of actions, ideas, concerns, phenomena and situations that often seem to be totally unrelated to the general understanding of ‘corruption’?
The answer lies perhaps in the term ‘corruption’ itself.
Of the eight different meanings of noun ‘corruption’ that the Shorter Oxford English Dictionary (fifth edition) lists, the two are (a) Moral deterioration; depravity; an instance or manifestation of this (b) Perversion of a person’s integrity in the performance of (especially official or public) duty or work by bribery, etc.
While (a) represents a very broad-brush definition of corruption, (b) is more specific and nearer to how the law defines ‘corruption.’
It’s clear from these definitions of ‘corruption’ that the term largely denotes a moral phenomenon and the first meaning is often thought to subsume the second.
This broad-brush meaning of ‘corruption,’ in turn, explains why people seem to apply an incredibly wide range of moral standards to an equally wide range of actions, phenomena and situations when they think and talk about corruption.
In simpler words, ‘corruption’, in an individual’s estimation, can be any instance of deviation from the moral standards that he or she has in mind in respect of any conceivable action, phenomenon or situation.
That should explain not only why people can have widely divergent views on corruption, but also why they often talk about a variety of things – Om Puri’s exasperation over MPs’ qualifications, for instance – which may sound to their listeners quite unrelated to the idea of ‘corruption.’
Then we also have very specific ways in which the law views ‘corruption’. Various versions of Lokpal Bill, for example, are essentially about various forms of corruption as defined in the Prevention of Corruption Act, 1988, even though the Anna Hazare-led campaign triggered endless discussions on ‘corruption’ in senses that its broad-brush definition allows.
Interestingly, even the Prevention of Corruption Act, 1988, refrains from defining ‘corruption,’ laying down instead offences like “Public servant taking gratification other than legal remuneration in respect of an official act”, “Taking gratification by corrupt or illegal means in order to influence public servant” and “Taking gratification for exercise of personal influence with public servant.”

Inadequacy of the law
Clearly, the Prevention of Corruption Act, 1988, largely views ‘corruption’ in the restrictive sense of bribery or pecuniary advantage. This restrictive legal sense explains why people tend to think of governmental corruption mostly in terms of giving and taking of bribes.
“However, experience of the past decades shows that such an indirect definition of corrupt practices is paradoxically restrictive and a whole range of official conduct, detrimental to public interest, is not covered by strong penal provisions,” says the Second Administrative Reforms Commission (ARC) about the way the Act defines corruption.
The ARC recommends bringing the following under the Act.
1. Gross perversion of the Constitution and democratic institutions amounting to wilful violation of oath of office.
2. Abuse of authority unduly favouring or harming someone.
3. Obstruction of justice.
4. Squandering public money.
Besides, the ARC also recommends bringing under the Act what it terms ‘collusive bribery,’ with double the punishment for ordinary cases of bribery.
Collusive bribery has been described as “cases where the bribe-giver and bribe-taker together fleece society and the bribe-giver is as guilty or even more guilty than the bribe-taker”
“These are cases of execution of substandard works, distortion of competition, robbing the public exchequer, commissions in public procurement, tax evasion by collusion, and causing direct harm to people by spurious drugs and violation of safety norms,” says the ARC.

Loot in public procurement
Public procurement, which means the government spending taxpayers’ money to buy various goods (from stationery to submarines) and services (from catering to airport construction), has long been a happy hunting ground for the corrupt.
Bofors, one of the most notorious cases of high-level, big-ticket corruption to have happened in India, was nothing but a public procurement scam. The string of scams in procuring goods and services by the organizers of Commonwealth Games 2010 is a more recent example.
A 26 June 2010 report in The Statesman says, “Railway supplier cartels have fleeced the public exchequer by about Rs 50,000 crore in the past decade. Indian Railways have been happy to play accomplice -- currently the Railways spends about Rs 16,400 crore annually via uncompetitive bidding.”
Citing a document written by a senior railway official, the report adds: “Out of Rs 20,500 crore of annual procurement, 80 per cent is completed in restricted competition. This virtual licence-raj of approving suppliers favours select firms over others, resulting in the creation of cartels that quote prices unrelated to market conditions and jack up prices of goods by a minimum of 30 per cent or Rs 4,920 crore annually.”
A 27 June 2011 report in the same newspaper estimates that total public procurement in India in the year 2009 – by all central, state and local government authorities – was about 30 per cent of the GDP, amounting to Rs 24 lakh crore, out of which at least Rs eight lakh crore was lost in corruption.
The loot in public procurement has reached such proportions that the Centre -- which purchases goods and services worth about Rs 11 lakh crore per annum – has been considering a series of reforms, including a draft public procurement law, suggested by an 11-member committee headed by Vinod Dhall.
The committee has also recommended that the Centre set up an independent public procurement department and an e-procurement portal, and formulate separate rules covering procurement of goods, works, and services, as well as rules for Public-Private Partnerships (PPPs), which are a new form of public procurement.
The PPPs, through which the government allow the private contractors to play a much bigger role in provision of public goods and services over a much lengthier time-frame (up to 20-30 years), do not seem to have been performing well in terms of value for public money and accountability to the citizens.
A July 2010 report in Business Standard, for instance, says that National Highways Authority of India (NHAI), the central government agency that has been spending thousands of crores of rupees on building roads through the PPP mode, is headed for bankruptcy.
The NHAI has been following a “flawed bidding process” causing the bids received for PPP projects to be far in excess of the estimates approved by the government authorities, says the report, citing an ‘issues paper’ on the subject leaking out of the Planning Commission.
The public-sector banks have been lending money to the NHAI’s PPP projects far in excess of the approved total project costs (TPC), thus enriching the private contractors at the cost of the public, says the ‘issues paper’.
It needs to be pointed out here that NHAI and its officials have frequently been found to be involved in corruption scandals.

Gifting away public wealth
Published in July 2011, a Lokayukta report on illegal mining in Karnataka said that the public exchequer lost Rs 16,085 crore in revenue on account of illegal mining, transport and export of iron ore between 2006 and 2010. The loss over a single year, i.e. 2009-10, was Rs 1800 crore, says the report.
The report indicts six ministers, including Karnataka Chief Minister BS Yeddyurappa (who was thus compelled to resign), Reddy brothers from Bellary district, health minister B Sriramulu, 784 bureaucrats, former chief minister HD Kumaraswamy, and over 100 private companies.
In June 2011, the Comptroller and Auditor General (CAG) blamed the government for favouring Reliance Industries Ltd (RIL) and other oil companies at a “huge” cost to the public exchequer. The charges include allowing RIL to inflate its capital expenditure for production at the Krishna-Godavari basin by 117 per cent between 2004 and 2006. The Central Bureau of Investigation (CBI) has filed three separate preliminary enquiries based on CAG’s findings.
Since the second ARC makes a mention of “tax evasion by collusion,” let’s get an idea of government generosity that Big Business enjoys.
“In six years from 2005-06, the government wrote off corporate income tax worth Rs 3, 74,937 crore — more than twice the 2G spectrum fraud — in successive budgets. The figure has grown every single year for which data are available,” reports The Hindu in March 2011.
“Corporate income tax written off in 2005-06 was Rs 34,618 crore. In the current budget (2011-12), it is Rs 88,263 crore, an increase of 155 per cent. That is, the nation presently writes-off over Rs 240 crore a day on average in corporate income tax. Oddly, that is also the daily average of illicit fund flows from India to foreign banks, according to a report of the Washington-based think tank, Global Financial Integrity.”
The Union budget for 2011-12 also gave away Rs 1, 74,418 crores in customs duties forgone, including “crores of rupees of sophisticated medical equipment imported by large corporate hospitals with almost no duty levied on it”. 
They are the same hospitals that flatly refuse to honour their obligation of providing 30 per cent of their beds free of charge to the poor in return for the government aid that they receive.

Stashing the wealth away
Global Financial Integrity (GFI) says that India lost a total of US $462 billion (Rs 20.92 lakh crore) in illegal capital flight from 1948 through 2008. These illicit financial flows were generally the product of tax evasion, corruption, bribery and kickbacks, and criminal activities.
From 2004 to 2008, India lost assets at a rate of US $19 billion (Rs 85,500 crore) per year. Total capital flight out of India make up 36 per cent of 2008 GDP and are more than twice the current external debt of US $230 billion. Illegal capital flight was primarily driven by High Net-Worth Individuals (HNWIs) and private companies, adds GFI.
According to reports published in April 2011, quoting Julian Assange, the founder of whistleblower site WikiLeaks, there is more Indian money in Swiss banks than any other nationality.
Unchecked corruption is usually reflected – as it does in India - not only in the stealing of national wealth, usually with impunity, but also in poor or absent public services, worsening standard of living of the ordinary citizens, growing poverty and disparities in income and wealth, rising crime graph, and several other social and economic parameters. 
Corruption also erodes the rule of law, democratic accountability, and the legitimacy of the State in the eyes of the citizens.

Weakening of institutions
The massive scale of corruption in the country, particularly in polity, has strengthened the belief that corrupt practices increasingly originate at the top and trickle down to the bottom.
In his book, ‘India’s Politics: A View from the Backbench’, first published in 2007, Bimal Jalan, former Governor of the Reserve Bank of India, who has also served as a member of the Rajya Sabha, writes: “The power to allocate scarce resources lies with the political leaders in power, who tend to cater to their own party interests and other special interests that are in a position to help them during and after elections.”
“Another important cause of political corruption is the high cost of contesting elections… The need to raise large funds for financing elections has made political corruption widely acceptable and unavoidable in most constituencies across the country,” Jalan adds.
Jalan’s observations provide arguably the most credible explanation of rampant corruption in all levels of government in India. To make sense of it, one just has to follow the money trail, like in the outline given below.

Parties and politicians receiving large funds, including black and ill-gotten money, from special interests groups or individuals to contest elections ------------------- After winning elections, angling for the most ‘lucrative’ ministerial portfolios ---------------------  Parties and politicians in power paying back to the groups or individuals who funded them by siphoning off public funds ------------------- the need to steal increasingly larger amounts of public money on account of the competitive nature of electoral politics and quid pro quo arrangements with private corporations and other ‘beneficiaries’ --------------------- ‘General acceptance’ or sufferance of this state of affairs by all political parties and politicians, including those who are not corrupt.

If elections are being won primarily on the strength of money, a candidate’s character and record of public service become irrelevant and immaterial. Thus, people, who have either no record of public service or a very dubious record, are able to ‘buy’ nomination of a political party to contest elections.
Interestingly, out of 543 members of the current Lok Sabha, whose records are available, as many as 314 are “crorepatis” with assets of Rs 10 million or more and 162 (or 29.83 per cent) have criminal charges pending against them, shows the data compiled by Association for Democratic Reforms (ADR), an NGO.

Anti-corruption agencies
An examination of our current systems of preventing and fighting corruption reveal why they have let us down.
The anti-corruption system at the central level consists of four agencies: the Central Vigilance Commission (CVC), the departmental vigilance, the CBI, and the police. 
While the CVC and the departmental vigilance deal with the “vigilance” aspects of an alleged case of corruption which usually translates into disciplinary proceedings against a public servant, the CBI and the police deal with criminal aspects.
Another categorization of these four agencies can be done on the basis of the hierarchical level at which corruption is reported. While the CVC and CBI deal with corruption at higher levels of the government, departmental vigilance and the police usually check corruption at lower levels.

Central Vigilance Commission
The CVC enquires into a complaint of corruption either directly or through the vigilance wings of various departments, but is constrained by the fact it is merely an advisory body. Government departments seek CVC’s advice on cases of corruption, but are free to accept or reject such an advice. 
Thus, an advice of the CVC to initiate prosecution of an accused may not be accepted and the recommendation for a major penalty may be turned into a minor penalty. Except for examining civil works of the government agencies, the CVC has no investigative power of its own and no power to register a criminal case. 
The CVC has no power over politicians or the elected public servants; it can at best bring a case involving a politician to the notice of the government.
Though the Central Vigilance Commission Act, 2003, gives the CVC supervisory powers over the CBI, the former can neither direct the latter to proceed in a case in a particular manner or to ask for a case file. 
The CVC has no control over officials in the vigilance wings of various departments to which it forwards a large number of complaints. The government merely consults the CVC in making appointments of the chief vigilance officers (CVOs) of various departments.
The ruling party or coalition is in full control of the selection of central vigilance commissioners because it is represented by two (the prime minister and the home minister) of the three members that make up the selection committee.

Central Bureau of Investigation
Though the CBI has the power to investigate any case related to a central government department or the one referred to it by a state government or a court, it has very little independence. 
It is directly under the administrative control of the department of personnel and training (DoPT) of the Ministry of Personnel, Public Grievances and Pensions. Being under direct control of the central government compromises CBI’s ability to conduct a fair investigation into complaints against a minister or politician who is part of the ruling party/coalition or a bureaucrat who enjoys the protection of such a minister or politician. 
Such investigations are widely expected to be scuttled in their initial stages or midway unless they are pursued under the supervision of the Supreme Court a la the 2G spectrum scam case.
The CBI has also been accused of being used by the ruling parties or coalitions to settle a score with their political foes.
The rate of conviction achieved by the CBI in the year 2009 was 62 per cent (meaning 38 of the 100 public servants booked for corruption were acquitted) --- not a reassuring number since the agency is hardly ever able to book, let alone prosecute, corrupt ministers and their favoured bureaucrats.

Departmental vigilance
Each department has a vigilance wing, which is usually staffed by officials from the same department, even though an outsider can be appointed as the chief vigilance officer (CVO) in a few cases. 
Since the staff of a vigilance wing is drawn from the department that it supervises and can be assigned any post in the same department, it is very difficult for them to act independently (even if they muster up the courage) on complaints against their own colleagues. 
Departmental vigilance does not investigate into criminal aspects of any case. It does not have the powers to register an FIR. Needless to say, the departmental vigilance officials are totally helpless in cases where politicians are the main culprits.

The police
The police have also not been successful in fighting corruption. Most people do not even know that they can take their complaint against corruption to the police. 
Those who do and have the courage to go to the police face problems in getting their FIR registered. In most cases, the corrupt are in a position to use their contacts to scare the police into submission. For example, if a local MP or MLA has been named in a complaint, the police are not likely to be very helpful.

Measures against corruption
The failure of the four agencies described above to curb corruption in an effective manner, severally and jointly, has strengthened the demand for a Lokpal. 
Anti corruption activist, Anna Hazare-led campaign, for example, advocates the enactment of Jan Lokpal Bill to create a commission that will be fully independent of the government and be able to do both investigation of complaints and prosecution without seeking anybody’s approval.
What is also needed is a forum for the ordinary citizens to register their complaints against any instance of corruption that affects their day-to-day lives and special protection for whistle-blowers and potential witnesses.
Notably, the Parliament recently passed a resolution accepting Anna Hazare’s three demands, (a) every government department adopt a citizens’ charter which will ensure time-bound rendering of public services (b) Lokayukatas be set up in states on the lines of Lokpal (c) the lower bureaucracy be made accountable to the citizens through Lokpal or any other mechanism.
Long-term solutions must include a series of electoral, police and judicial reforms, including curtailing the use of money in elections, promoting internal democracy in political parties, promoting transparency and accountability.
Also important is to reverse the weakening of Parliamentary oversight of the executive, especially in financial matters. It’s important that the Parliament, state assemblies, and their committees be ever vigilant in holding the executive responsible for its acts of omission and commission.
Since ‘eternal vigilance is the price of liberty’, strengthening grassroots democracy through Gram Sabhas is indispensable. Only an organized citizenry has the strengths and the resources to hold the government to account.
(This article was first published in Competition360 magazine.)
 

Thursday, October 13, 2011

An industry mogul or a con artist?

In today's India, a very successful industry mogul can be a crony capitalist without raising an eyebrow. He can also behave like a con artist without raising an eyebrow.

1.While blaming coaching classes for the decline in the scholarly quality of IIT entrants at PanIIT summit,  N.R. Narayana Murthy (of Infosys) omitted to tell his audience that he himself has substantial private investment in the lucrative IIT test preparation business.
Catamaran, Narayana Murthy's private equity firm, has invested Rs 25 million in ACE, a Bangalore–based test preparation firm that offers training for the IITJEE, AIEEE, PMPD, CBSE-11 & 12, CET, Foundation IIT and NTSE.

2. Catamaran, Narayana Murthy's private equity firm, has pumped a couple of billion of rupees into Manipal Universal Learning without the media telling the public (and some court of law taking suo motu notice) that all PE investments in education are illegal.
They amount to a backdoor entry into educational institutions that by law can only be run by non-profit trusts and societies.
The 'two tier' system that PE investors' employ by setting up a private company, which extracts private profits from the trust/society running an educational institution, is nothing but a fraud.
It invariably results in breaking of laws governing non-profit trusts/societies, income tax, and regulations governing educational institutions, which is what Narayana Murthy has been doing with impunity.

3. Catamaran has invested in Wellspring, a private healthcare provider, and yet Narayana Murthy has assumed the chairmanship of Public Health Foundation of India (PHFI), a fraud organization that influences, deeply and unabashedly, the government policy on healthcare and medical education.
Narayana Murthy's only claim to competence in public health is his wealth and supposedly 'clean image'. Describing itself as a public-private partnership (PPP), which itself is a fraud, PHFI has been receiving billions of rupees of taxpayers' money in the form of grants and parcels of free land for its public health schools from central and state governments with zero accountability. This fraud organization has remained non-compliant with the Right to Information Act 2005 for most of its existence and has been kept outside the scrutiny of Parliament and the Comptroller and Auditor General.
PHFI's public health schools are unrecognised and unaccredited by any statutory regulator. Government employees are being made to study PHFI's unrecognised and unaccredited courses for which PHFI charges the government a cool Rs 250,000 per candidate.
K. Srinath Reddy, PHFI's chief executive, who has long acted as a sidekick of Rajat Gupta, a convicted fraudster, has been engaged in fraud and forgery, as two articles posted elsewhere on this blog-site explain.
'PHFI' must indeed stand for 'Public Health Fraud of India'.

4. Clearly, Narayana Murthy has been using the carefully crafted image of "an ordinary middle class man turned successful and principled IT entrepreneur" to advance his illegal private investments in education and other dubious interests.

5. In the matter of PHFI, Narayana Murthy does not look very different from his predecessor, Rajat Gupta, a convicted fraudster who had to resign his chairmanship in March 2011 after being charged by US prosecutors with being involved in the Galleon insider trading ring.
(On October 27, 2011, Rajat Gupta, the former managing director of McKinsey, was arrested by the FBI, produced in a New York court, and charged by federal prosecutors with five counts of securities fraud and one count of conspiracy to commit securities fraud.
The 62-year-old Gupta faces over 100 years in prison and a $25 million fine if found guilty. He is accused of leaking information to Raj Rajaratnam, his Sri Lankan-born old friend, who managed Galleon hedge fund and turned a massive profit on the news. Gupta has since been convicted and sentenced to two years in prison.
Rajaratnam has been serving an 11-year jail term for the massive fraud.)

Rajat Gupta helped corner public resources in starting PHFI’s unregulated educational enterprises while also looking for lucrative opportunities in education for his private equity businesses.
Narayana Murthy has been doing the same.
Both Gupta and Narayana Murthy have no scruples about making PE investments in education in India, which are prohibited by the law of the land.
Notably, the law is circumvented by getting the non-profit managements of the educational institutions to outsource most of their work to the profit-making companies owned by PE investors.
Such a ‘two-tier arrangement’ results invariably in violations of laws governing public trusts/societies and the Income Tax Act, which mostly go unpunished due to the connivance of the regulatory authorities.
Will a person engaging in such shenanigans on a scale of millions of dollars know where to draw the line in commercializing education?

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References1. http://timesofindia.indiatimes.com/india/Poor-quality-of-students-entering-IITs-Narayana-Murthy/articleshow/10217469.cms

Poor quality of students entering IITs: Narayana Murthy
PTI | Oct 3, 2011
NEW YORK: Voicing his displeasure over the quality of engineers that pass out of the IITs, Infosys chairman emeritus N R Narayana Murthy has said there is a need to overhaul the selection criteria for students seeking admission to the prestigious technology institutions.
Addressing a gathering of hundreds of former IITians at a 'Pan IIT' summit here, Murthy said the quality of students entering Indian Institutes of Technology (IITs) has deteriorated over the years due to the coaching classes that prepare engineering aspirants.
He said the majority of the students fare poorly at jobs and global institutions of higher education.
"Thanks to the coaching classes today, the quality of students entering IITs has gone lower and lower," Murthy said, receiving a thundering applause from his audience.
He said apart from the top 20% of students who crack the tough IIT entrance examination and can "stand among the best anywhere in the world," quality of the remaining 80 per cent of students leave much to be desired.
Coaching classes teach aspirants limited sets of problems, out of which a few are asked in the examinations.
"They somehow get through the joint entrance examination. But their performance in IITs, at jobs or when they come for higher education in institutes in the US is not as good as it used to be.
"This has to be corrected. A new method of selection of students to IITs has to be arrived at."

2. http://www.vccircle.com/500/news/catamaran-accel-investing-rs-5cr-in-test-prep-firm-ace-learning

Catamaran, Accel Investing Rs 5Cr In Test Prep Firm Ace Learning
16 November, 2010
N R Narayana Murthy's Catamaran Ventures, which struck its investing debut with SKS Microfinance (India's first microfinance firm to go public), is making its second investment in Bangalore-based Ace Creative Learning Pvt Ltd, which provides educational support services to schools and colleges.
Accel Partners is the co-investor in the early stage investment round which will see both venture firms contributing Rs 2.5 crore each in Ace. This will be Accel's fourth investment in 2010.
When contacted, Accel India’s partner, Prashant Prakash confirmed the deal, but declined to divulge the transaction details. “We have decided to invest Rs 2.5 crore in Ace,” Prakash told VCCircle, adding that he can’t comment on the stake holding and other details.
Catamaran’s Managing Director Arjun Narayan also confirmed the investment in an email to VCCircle.
Banglore–based, Academic Center for Excellence or Ace, founded in 1998 by Dr. Ganapathy Sridhar, offers comprehensive training for the IITJEE, AIEEE, PMPD, CBSE-11 & 12, CET, Foundation IIT and NTSE, according to its website.

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