Yatha praja tatha Raja

We The People Are Corrupt!

It’s virtually impossible to check the veracity of AIADMK leader J Jayalalithaa’s assertion that the loss to the public exchequer on account of l’affaire Raja is more than the cumulative loot of India by its colonial masters during the days of John Company and later the British Raj. We could try and compute the official gains of the Empire from records in India House, but the value of the loot, in the strictest sense of the term, would be anybody’s guess. It is possible that the profits, both legitimate and illegitimate, that filled coffers in Britain over 200 years of its colonial enterprise in this part of the world added up to less than `1.76 lakh crore. Or, it is equally possible that it far exceeded the net worth of the Empire of Greed that A Raja built during his tenure as Telecom Minister under the tutelage of Prime Minister Manmohan Singh. Politicians are given to exaggeration and Ms Jayalalithaa is no exception.

Yet, the enormity of Raja’s loot can be minimised only at the risk of aping spokespersons of the Congress who refuse to accept that spectrum was sold for a song to firms many of which came into being only to grab a slice of the 2G pie. There is the additional risk of being seen as justifying the Prime Minister’s refusal to prevent the ‘Great 2G Spectrum Robbery’ since not to do so would be to repudiate the dharma of coalition politics. Needless to say, there was nothing dharmic about either Raja’s stunningly bald-faced defiance of all norms of probity or the Prime Minister’s resounding silence over the plunder that took place under his watch. By no stretch of the imagination does coalition politics mean allowing allies to denude the nation of its wealth: Rs 1.76 lakh crore is not exactly small change even in these days of rampaging inflation.

The outpouring of moral outrage over Raja’s crime may have served the purpose of forcing one of the most corrupt Ministers (by no means was he the lone wolf in the Cabinet) in the present regime to quit office in disgrace although he remains defiant as ever. But it has also swamped a revealing report on Global Financial Integrity that was released last week. The details of the report indicate the extent of corruption in India and confirm what we refuse to accept: We are a corrupt society with a corrupt system; a nation that silently indulges in corruption while raucously protesting against it, as is being witnessed at the moment.

The GFI report says, “From 1948 through 2008, India lost a total of $213 billion in illicit financial flows (or illegal capital flight). These illicit financial flows were generally the product of corruption, bribery and kickbacks, and criminal activities.” Illicit financial flows pertain to the “cross-border movement (or transfer) of money earned through illegal activities such as corruption, transactions involving contraband goods, criminal activities, and efforts to shelter wealth from a country’s tax authorities”. The total of $213 billion is a misleading figure because “the present value of India’s illicit financial flows is at least $462 billion,” the GFI report explains, adding, “This is based on the short-term US Treasury bill rate as a proxy for the rate of return on assets.”

What we are looking at is illicit financial flows of Rs 20.85 lakh crore over 60 years. This, however, is not the sum total of all illicit gains through corrupt practices. “This estimate is conservative,” the GFI report says, adding by way of a cautionary note, “as it does not include several major forms of value drainages out of poorer countries not represented by money”. Among these ‘major forms of value drainages’, the report says, are trade mispricing that is handled by collusion between importers and exporters within the same invoice; the proceeds of criminal and commercial smuggling such as drugs, minerals and contraband goods; and, mispriced asset swaps where ownership of commodities, shares and properties are traded without a cash flow. All this should sound very familiar to Indian ears.

The GFI report points out that the “total capital flight represents approximately 16.6 per cent of India’s GDP as of year-end 2008”; that “illicit financial flows out of India grew at 11.5 per cent per year”; and, that “India lost $16 billion per year between 2002-2006”. Who are responsible for this huge outflow of illicit funds? High net-worth individuals and private companies were found to be the “primary drivers of illicit flows”. India’s “underground economy is also a significant driver of illicit financial flows”.

The report explains that from 1948 through 2008, “the Indian private sector shifted away from deposits into developed country banks and towards increased deposits in offshore financial centres”, also known as ‘tax havens’ from where money was accessed by many of the fly-by-night operators who benefited from Raja’s largesse. The fact that deposits in tax havens have increased from 36.4 per cent of illicit financial flows in 1995 to 54.2 per cent in 2009 tells its own story.

The GFI report provides some other interesting insights. For instance, contrary to the claims of successive Governments, more vociferously by the UPA regime, India’s underground economy, which is “closely tied to illicit financial outflows”, continues to expand with each passing day. The present value of illicit assets held abroad ($462 billion) “accounts for approximately 72 per cent of India’s underground economy — which has been estimated to account for 50 per cent of India’s GDP ($640 billion at the end of 2008)”. Just above a quarter of illicit assets are held domestically.

Champions of unrestricted free market economics and liberalisation insist that these will help fight the menace of corruption and the acquisition of illicit wealth. But this is what the GFI report says: “In the post-reform period of 1991-2008, deregulation and trade liberalisation accelerated the outflow of illicit money from the Indian economy. Opportunities for trade mispricing grew and expansion of the global shadow financial system — particularly island tax havens — accommodate the increased outflow of India’s illicit capital flight.” What should also cause concern is the statistical correlation between increasing illicit financial flows and deteriorating income distribution.

A country where lobbyists have Ministers wrapped around their little fingers and can get policy tweaked to suit the interests of unscrupulous corporates, a society which sees nothing wrong with greasing the palms of babus, policemen and politicians to access services to which people are entitled, a nation whose people believe it is perfectly alright to jump the queue by paying middlemen and bribing the crook at the counter, and a people inure to the crime of all-round corruption should not feign anger and outrage over Raja emptying the till of the store he was supposed to look after and manage while cocking a snook at one and all, including a Prime Minister too effete to protest. A severely compromised media only highlights the rot within.

We are what we are, and so are those whom we elect to office.

[This appears as my Sunday column Coffee Break in The Pioneer on November 21, 2010.]