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Corruption: Take two

By Kanika Datta
April 14, 2011 17:02 IST
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In the anti-corruption sentiment that has overcome the general public, the corporate sector has somehow managed to get sympathetic billing as a victim of venal governments and bureaucrats.

This is a notion that was initially reinforced by Ratan Tata with his tantalising half-disclosure last November that a fellow industrialist suggested he pay an aviation minister Rs 15 crore (Rs 150 million) to acquire approval to operate an airline.

More recently, Infosys' Mohandas Pai said the company had also been asked by the government (he didn't specify whether it was the Centre or state) for a bribe to clear projects, which they refused.

Both complaints may be authentic but the impression they have created is not. The private corporate sector is not always a hapless bribe-giver in the interests of doing business.

The current scandal over telecom spectrum allocations is a case in point. Much has been made of the throwaway price at which these government-controlled airwaves were sold to new mobile operators.

But the bigger scandal was the abrupt change of the cut-off date for applicants to pay their licence fees, which benefited some operators at the expense of others.

It is former minister A Raja who now must explain this inexplicable haste but the needle of suspicion has pointed as directly, as it must, to the handful of companies that benefited from the advanced deadline. This is not a case of coercive bribe-giving but active collusion. 

Speaker after speaker in last week's nationally televised Jantar Mantar jamboree raised the demand that corruption be "rooted out" and many upheld the renunciatory integrity of Anna Hazare as the model to emulate.

This is naively utopian. Hazare attracts attention and approbation because he is an outlier, so to speak, among human beings. Corruption cannot be "rooted out" in any society -- even the developed western ones that we hope to emulate -- simply because people are not saints.

But there is certainly a range of policy options available to minimise corruption. People in western democracies or even south-east Asian countries are not, as many Indians enviously think, intrinsically more honest than Indians.

They are less inclined to be dishonest because public policies have been shaped in such a way that they have less incentive to be so; rules are enforced, access to resources is relatively easy and contracts are honoured.

One of the reasons younger entrepreneurs in India Inc were quick to appreciate economic liberalisation is that it shrank the government's powers in the conduct of business. 

It is telling that many older businesses were initially dismayed because they stood to lose the enormous rents they derived from limited competition and preferential access to resources.

As a result, a range of companies in the private sector that operated monopoly businesses -- whether it was automobiles, steel, power or cement -- could scarcely boast of being squeaky clean. This, as we know, is hardly novel, the documented side-effect of the licence raj.

But the striking point then was that in some cases the dismay over liberalisation went deeper than the promoters. Many executive also secretly mourned the passing of the licence raj and the rentiering opportunities that it offered in distributing scarce resources to customers.

Old timers in the corporate world will recall the openly lavish lifestyles of many corporate executives that were quite "disproportionate to known sources of income", to use the income tax department's quaint euphemism.

Little of this came from fiddling the bills for allowance claims. The bulk came from outright bribery. For large consumers of infrastructural materials paying for an overseas family trip or sending gifts of gold and diamond jewellery to senior executives' wives in return for preferential allocations was fairly standard practice, to name just two.

In one corporation, the problem of internal corruption became so rampant that an outgoing director was moved to exhort young executives and their wives to "cut your coat according to your cloth" in a farewell speech.

These practices were well known at the time but are rarely mentioned if only because the opportunities for such corruption have abated and corporate salaries have risen to such a point as to render corruption unnecessary.

But the issue then as now is that corruption is almost inevitable whenever access to resources and materials is left to the discretionary power of a few individuals, whether it is a minister, bureaucrat or an executive in a private corporation.

Efficient economies seek to reduce such monopolies by encouraging competition or establishing alternative structures of distribution.

In India, we have only gone some way towards that, which is why our global "Doing Business" ranking only crawls. Hazare became a hero in his village because his water harvesting projects not only provided villagers with easier access to a scarce resource, they freed them from the coercion of local officials.

Civil society may be better off lobbying for faster liberalisation than another cumbersome institution.

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Kanika Datta
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