Economic Highlights

New Delhi, 26 August 2011

Anti-Corruption Movement

WHY CORPORATE LEFT OUT?

By Shivaji Sarkar

The anti-corruption movement of Anna Hazare has created a rare mobilisation against politicians. So far 27 political leaders are facing serious graft or misappropriation charges. However, Team Hazare has yet not spoken a word about the fountainhead of corruption – the corporate.

While making politician more accountable is welcome, an anti-corruption activist needs to understand that unless the corporate is put on the leash, corruption or financial frauds can never be stopped. From the Mundhra to Satyam, Subhiksha, Krishna Godavari, paid news in elections, the stock scams, 2G or CWG all have emanated with corporate involvement.

Rather all these were mooted by the corporate to rake in high profit by swindling public money. Neera Radia tapes are testimony of the linkages they created and even tried to buy out the most ethical news organisations.

It is known to the corporate. What Ratan Tata, chairman of Tata Sons and Anand Mahindra, Vice Chairman and Managing Director of Mahindra & Mahindra said recently at a Mumbai seminar is an important cue. They specifically said the corporate needs to be accountable.

But Tata has gone beyond. Referring to corrupt corporate practices he stated: “If you choose not to participate in this, then you leave behind a fair amount of business because unlike in 1991, it is not only in licence approvals. It is now in awarding contracts, in change in terms of contractual obligation”.

Tata sums it up and even does not exonerate any group. The CWG and 2G scams were the result of the phenomenon of changes made in terms of contractual obligation and method of awarding contracts. He also accepts that even in pre-1991 liberalisation era, the corporate used different ways to corrupt the bureaucrats and others to corner licences.

The corporate is also responsible for defrauding millions of employees over the past 65 years by “influencing” labour department officials or other devious means. Provident funds of employees were deducted and not deposited in their accounts. There had been hardly any prosecution of any corporate honcho. Still it demands relaxation in labour laws!

Till the 1960s the corporate involvement was not brazen. Even those days it was in league with the elected representatives and many were known to represent their interests. The elected representatives are at fault. But 1960s onwards as the election process became expensive they looked to the corporate for funding. The latter thus took the route and reaped rich dividend later through policy changes.

Since the 1980s the involvement of corporate has become more aggressive. It became an active player in political parties and started holding positions in the Government. Even earlier there were a few but those were exceptions. In some cases, the corporate planted its lobbyists after 1991 in political parties. In many case these lobbyists corrupted some Chief Ministers, who were known to be clean and had come up from the ranks, with the lure of all the Ws to make inroads and monopolise businesses in their States. In some cases, some similar clean political personalities in the Central Government too became its victim. Some of them became virtual protector of some large houses on such offers to become “key persons” in their parties.

In UP, a small finance company’s fortune rose as it became conduit for black money, real and imaginary – direct money paid by the company into the account of some politicians. The companies thus not only were giving funds but were also fund managers. It is yet another story that when some of them died prematurely, those companies gobbled up all that money, what they had paid and what the politician had earned.

In the aftermath of the Lokpal movement, industry watchers say the worst to hit has been the real estate sector. The flow of unaccounted money – black money – is the big source of funding for this sector. Now it is facing fund crunch. Businessmen and politicians park money and help in the rise of properties through speculative activities. The crunch may be temporary but the methods would continue because the sector forces even individuals to pay a part – often up to 50 per cent – in cash, The individual’s white money turns black for the sector.

CBI’s former Joint Director BR Lall in his 2010 book Financial Terrorism estimates the size of the real estate sector at 12 per cent of the country’s $ 1.8 trillion GDP and says at least $ 100 billion of it would be in black money. Many other sectors too would be functioning on similar funding. Do we really need to go to Swiss banks to retrieve it?

Subhiksha is a classic case of fraud involving or defrauding many other corporate, including the auditor, Deloitte Haskins & Sells, Premji Invest and ICICI Venture. The National Highway contracts have similarly been cornered and the quality of work in many cases remains suspect owing to such involvements. No ministry or department is left untouched. But unless there is a mammoth scam like the Harshad Mehta or UTI, the corporate and their owners and directors go scot free.

The corporate itself has now become cautious about such shady deals. There are cases such as the one of the Belgian malt manufacturer who complained in 2009 about its Indian partner’s misappropriation of funds. Foreign companies look at joint ventures with suspicion. Many promoters conceal information on litigations, tax liabilities and criminal records.

Overseas investors view India as high-risk, high-return market with haunting tales of scandals. They now do not enter into deals without checking the credentials through corporate forensic detectives.

India on a growth path needs a corporate system that is impeccable. But if for the sake of business, the corporate goes on developing linkages as in UP and Andhra, the growth not only would be stymied but its credit rating would too remain suspect. There cannot be a foolproof non-corrupt system unless the corporate biggies are brought in the ambit of anti-corruption measurers.

Politician must be above board but there is need for methods, not mere laws, to check the corporate manoeuvrings of the Indian economy. If Team Anna does not speak about it, then the Government needs to. ---INFA

(Copyright, India News and Feature Alliance)