Redefine Graft & Make it High Risk-Low benefit business
SEPTEMBER 30, 2011
By Naresh Minocha
POST-Anna fast, corruption continues to hum the country. Both the grand corruption as well as the petty corruption continue to make news.
In the former category, one can easily spot the alleged payment of Rs 50-lakh bribe by Everonn Education Ltd to an income tax official for reducing tax evasion charge from Rs 116 crore to Rs 60 crore. Count how Revenue would have been lost, had CBI not acted as spoilsport for both sides involved in gratification. Imagine how tax and non-tax revenue the country is losing every year due to seamless graft that flows through the corridors of power.
In the petty bribery category, one can put a commendable community initiative in an obscure village, Budania in Jhunjhunu district of Rajasthan. Here villages have pooled their own money to install 20 close-circuit cameras with high resolution and night vision facilities to monitor the working of public service delivery entities such as community health centre. The underlying logic is that transparency prevents corruption. The village sarpanch reportedly puts online even the minutes of panchayat meeting.
These and several other recent cases of prevention and detection of corruption that offer lessons in combating corruption, which has spread like cancer in all sectors across the country. Before discussing the lessons, a recap of the dismal situation would prove handy for drawing the way forward.
The country's global rank in the Corruption Perception Index (CPI) prepared annually by Transparency International has declined to 87 th in 2010 from 46 th in 1996. This free fall in the country's reputation has occurred in spite of all the political rhetoric such as zero tolerance for corruption.
CPI and several other similar yardsticks only indicate what surveyed stakeholders perceive as the level of corruption in different countries.
The actual level of corruption in India is perhaps worse than its CPI rank of being 87 th most corrupt country among 178 countries.
The World Economic Forum's (WEF's) Global Competitiveness Report 2011-2012 (GPR) gives a frightening image about prevalence of grant in India.
It ranks 95 th among 142 nations on the issue of `irregular payments and bribes', which is one of components of institution, the first pillar among 12 pillars that constitute global competitiveness Index (GPI).
The country's ranking on other corruption-related components such as ethical behaviour of firms and favouritism in government decisions is similarly disgusting.
GPR notes corruption and burdensome regulations have fueled "discontent in the business community" in the country over the last five years.
That corruption is blunting Indian businesses' competitiveness has been driven well home by a National Manufacturing Competitiveness Council (NMCC)-commissioned study on logistics cost of manufactured exports finalized in June this year.
A 2010 Study on Enhancing Competitiveness of Unregistered Manufacturing Units conducted by Indian Institute of Foreign Trade on behalf of National Manufacturing Competitiveness Council (NMCC) observed: "Efforts to tackle corruption are likely to have a significant impact on
restoring entrepreneurs' confidence in public administration and their willingness to formalise."
The third national manufacturing survey released by NMCC in 2009 identified corruption as one of the hurdles to the firms' global competitiveness in electrical and electronics, weaving sectors.
While no one can deny the urgency for a strong Lokpal to tackle the menace of grand and syndicated corruption in the top and middle echelons of power, the country needs to do much more to stem petty corruption. After all, the latter type of bribery hurts Aam Aadmi most.
Lokpal, whatever be its variant, cannot be the solution to all forms of corruption in all situations. The country has to look afresh at the entire gamut of graft right from redefining corruption. It has to enact new laws, plug loopholes in the existing ones and speedily penalize the giver and taker of gratifications.
The anti-corruption brigade would perhaps have to put in place different strategies to deter and detect bribery in different sectors. The application of management concept of value chain analysis in the realm of corruption can provide handy in tackling graft in different situations as suggested by governance brief issued by Asian Development Bank (ADB) in December 2007.
Let us start with redefining corruption. The Government's reluctance on this issue itself confirms the lack of political will to wage a war against graft. It last year rejected the recommendation of Administrative Reforms Commission (ARC) to bring certain activities under the ambit of corruption.
In its 4 th report on `Ethics in Governance', ARC had recommended that corruption should be redefined by including four offences under the Prevention of Corruption Act 1988 (PCA).
The offences are 1) Gross perversion of the Constitution and democratic institutions amounting to willful violation of oath of office. 2) Abuse of authority unduly favouring or harming someone. 3) Obstruction of justice. 4) Squandering public money."
In its action taken report (ATR) on ARC reports, the Government has rejected this recommendation without specifying any reason for its decision. It also dismissed ARC recommendation on `collusive bribery'.
ARC suggested that an offence could be classified as `collusive bribery' if the outcome or intended outcome of the transaction leads to a loss to the state, public or public interest. In all such cases if it is established that the interest of the state or public has suffered because of an act of a public servant, then the court shall presume that the public servant and the beneficiary of the decision committed an offence of `collusive bribery'. The punishment for all such cases of collusive bribery should be double that of other cases of bribery. The law may be suitably amended in this regard."
The Government countered this recommendation as: " " It may not be feasible to attribute mens rea at the time of taking decision/action for subsequent loss to the State, public and public interest. Possibility of loss in commercial decisions in particular may not always be attributable to only the decision/action in the past due to changing commercial environment."
Yet another ARC recommendation rejected by the Government relates to speedy trial of the corrupt under PCA.
As put by ARC: "A legal provision needs to be introduced fixing a time limit for various stages of trial. This could be done by amendments to the CrPC."
The Government also steered clear of ARC recommendation to bring both the private sector and partly Government funded NGOs under PCA. The Government felt that "CGAR (Core Group on Administrative Reforms) may examine these recommendations in greater depth."
In fact, the Government should have not only accepted ARC recommendations but also moved one step ahead by bringing rampant corruption in the private sector within the ambit of PCA.
Is not a fact that marketing executives in several private companies take gratification in diverse forms from existing and potential vendors for entering into business transactions?
The entities/individuals aspiring for dealership of big companies are willing to pay underhand to executives who decide such appointments. How many cases come to light? Hardly any and when the briber complaints to police against corrupt executives for failing to do the quid pro quo, it becomes a case of fraud and cheating under different sections of Indian Penal Code (IPC).
Recall the 2003-04 case of arrest of two senior executives of Ranbaxy including a general manager for allegedly taking Rs 8-lakh bribe in two installments from one of its drugs distributors in Haryana.
Is it uncommon for promoters of Indian companies taking kickbacks in secret overseas accounts or in cash from engineering, procurement and construction contractors that set up their plants? No.
It is thus heartening to learn from the President that the Government is taking legislative steps in this direction. Inaugurating the ` ADB-OECD Anti- corruption Intiative's conference in New Delhi on 28 September, the President Pratibha Devisingh Patil said: " A process to consider changes in the Indian penal laws, has also been set in motion for criminalizing private sector bribery."
PCA is silent on corruption within the private sector. It is high time PCA is amended to adopt ADB's definition of corruption or any other such appropriate explanation.
According to ADB's Anti-corruption Policy issued in July 1998, "corruption involves behavior on the part of officials in the public and private sectors, in which they improperly and unlawfully enrich themselves and/or those close to them, or induce others to do so, by misusing the position in which they are placed."
In the illustrative list of illicit actions that constitute `corruption', ADB has included design and selection of uneconomical projects, misappropriation of confidential information for personal gains, the deliberate disclosure of false or misleading information on corporations and obstruction of justice and interference in the duties of anti-corruption agencies.
A corruption-combat guide j ointly developed by International Chamber of Commerce ( ICC) and three other international entities in 2010 lists several probable cases of bribery and extortion. Under probable scenario, "A union leader demands payment to an employee welfare fund before allowing his/her members to unload a ship."
This illustration shows that the Government ought to redefine corruption to bring under one single law all types of public and private sector bribery. The initiative should cover solicitation by NGOs and the media, both of which often enjoy the patronage of decision makers.
The ability of corruption to change its shaper like amoeba is amazing. This prompts one to raise issues that have so far been kept under the carpet. Is it not a fact that certain companies and NGOs have developed promiscuous relationship under the garb of corporate social responsibility? Are there not instances of companies incurring the wrath of NGOs for their failure to make donations? Would the Group of Ministers on paid news muster political will to do plain-speaking and recommend setting of a powerful, independent media regulator?
The Government ought to back up the enlarged definition by specifying stiff penalties. It should transform corruption to high risk, low reward business from the present high reward, low risk activity.
Apart from amending PCA, the Government has to plug loopholes and deficiencies in the anti-corruption provisions of the Indian Penal Code, Central Vigilance Commission Act and other relevant laws. More important is the need for it shed inertia over enacting a separate legislation for CBI and another for public services to empower officials to act independently against corruption.
A plenty of research and advice on these issues is available in official and non-official documents. The Government has to just muster the political will to act.
As for proceeding clinically against graft, we can revert to the ADB's governance mentioned earlier in this column. Advocating a practical approach to combating corruption, the brief says: " corruption should perhaps be addressed `in the small': chop up the elephant into tractable bits that allow micro-level reforms, however small, to occur and enable progress to be evaluated and measured more readily. This would imply that the typical broad remedial measures anchored on increasing accountability and transparency will need to be translated into concrete actions targeted to and tailor-made for specific areas. One promising approach in this direction is the value chain methodology applied at the sectoral or subsectoral level."
This methodology breaks any activity into a sequence of activities leading to provision of a service such as issue of a driving licence or a product say construction of games village for an international sports event.
"The approach forces one to focus on the output(s) of a sector, offers a useful way for identifying the vulnerabilities to corruption along different points of the chain, and consequently provides a concrete basis for devising practical measures to reduce the incidence of corruption throughout the "production process." Since it enables one to gain a better understanding of the real nature of corruption in a specific context, the approach opens up new avenues for developing actionable indicators—indicators that reflect the nature of corruption in a particular area."
This approach brings one to the need for creating a multi-tiered or multi-organization with mandatory coordinates to fight corruption at national, state and local levels with different approaches in various sectors.
The existing multiple anti-corruption agencies draw lonely furrows and reluctant to share information and tips with each other. Many of them are under-staffed or partly-equipped to take on the crooks.
This ineffective approach, coupled with lack of political will, has let corruption flourish as confirmed by all global anti-corruption yardsticks including the ones sponsored by the World Bank such as Doing Business 2011 or Paying Taxes 2010.
Singapore-based anti-corruption and governance guru, Jon S.T. Quah believes that the amalgam of weak political will and inadequate anti-corruption measures result in a hopeless strategy.
Prof. Quah has thus put India, China, Indonesia, Mongolia and Philippines in the `hopeless strategy' category.
Prof. Quah, who has authored several studies and research papers on corruption, says: "As can be seen in the cases of Singapore and Hong Kong, curbing corruption in Asian countries is not an impossible dream, but it does require the sustained commitment of political leaders and populations. Since this political will is scarce in Asian countries, it is not surprising that many leaders have adopted "hopeless" strategies that perpetuate corruption instead of stifling it."
Mr. B.R. Lall, former CBI joint director zeroed in on PM on the issue of political will in his popular book ` Who Owns CBI'. Lall has reported stated: "A strong and determined Prime Minister can make the difference….All we require is a straightforward, effective, honest, bold and a well-meaning Prime Minister for a few years at least."
Will the Prime Minister Dr. Manohan Singh bite the anti-corruption bullet and trash his image as a batsman serving as a night watchman on the dynastic pitch?
SEPTEMBER 30, 2011
By Naresh Minocha
POST-Anna fast, corruption continues to hum the country. Both the grand corruption as well as the petty corruption continue to make news.
In the former category, one can easily spot the alleged payment of Rs 50-lakh bribe by Everonn Education Ltd to an income tax official for reducing tax evasion charge from Rs 116 crore to Rs 60 crore. Count how Revenue would have been lost, had CBI not acted as spoilsport for both sides involved in gratification. Imagine how tax and non-tax revenue the country is losing every year due to seamless graft that flows through the corridors of power.
In the petty bribery category, one can put a commendable community initiative in an obscure village, Budania in Jhunjhunu district of Rajasthan. Here villages have pooled their own money to install 20 close-circuit cameras with high resolution and night vision facilities to monitor the working of public service delivery entities such as community health centre. The underlying logic is that transparency prevents corruption. The village sarpanch reportedly puts online even the minutes of panchayat meeting.
These and several other recent cases of prevention and detection of corruption that offer lessons in combating corruption, which has spread like cancer in all sectors across the country. Before discussing the lessons, a recap of the dismal situation would prove handy for drawing the way forward.
The country's global rank in the Corruption Perception Index (CPI) prepared annually by Transparency International has declined to 87 th in 2010 from 46 th in 1996. This free fall in the country's reputation has occurred in spite of all the political rhetoric such as zero tolerance for corruption.
CPI and several other similar yardsticks only indicate what surveyed stakeholders perceive as the level of corruption in different countries.
The actual level of corruption in India is perhaps worse than its CPI rank of being 87 th most corrupt country among 178 countries.
The World Economic Forum's (WEF's) Global Competitiveness Report 2011-2012 (GPR) gives a frightening image about prevalence of grant in India.
It ranks 95 th among 142 nations on the issue of `irregular payments and bribes', which is one of components of institution, the first pillar among 12 pillars that constitute global competitiveness Index (GPI).
The country's ranking on other corruption-related components such as ethical behaviour of firms and favouritism in government decisions is similarly disgusting.
GPR notes corruption and burdensome regulations have fueled "discontent in the business community" in the country over the last five years.
That corruption is blunting Indian businesses' competitiveness has been driven well home by a National Manufacturing Competitiveness Council (NMCC)-commissioned study on logistics cost of manufactured exports finalized in June this year.
A 2010 Study on Enhancing Competitiveness of Unregistered Manufacturing Units conducted by Indian Institute of Foreign Trade on behalf of National Manufacturing Competitiveness Council (NMCC) observed: "Efforts to tackle corruption are likely to have a significant impact on
restoring entrepreneurs' confidence in public administration and their willingness to formalise."
The third national manufacturing survey released by NMCC in 2009 identified corruption as one of the hurdles to the firms' global competitiveness in electrical and electronics, weaving sectors.
While no one can deny the urgency for a strong Lokpal to tackle the menace of grand and syndicated corruption in the top and middle echelons of power, the country needs to do much more to stem petty corruption. After all, the latter type of bribery hurts Aam Aadmi most.
Lokpal, whatever be its variant, cannot be the solution to all forms of corruption in all situations. The country has to look afresh at the entire gamut of graft right from redefining corruption. It has to enact new laws, plug loopholes in the existing ones and speedily penalize the giver and taker of gratifications.
The anti-corruption brigade would perhaps have to put in place different strategies to deter and detect bribery in different sectors. The application of management concept of value chain analysis in the realm of corruption can provide handy in tackling graft in different situations as suggested by governance brief issued by Asian Development Bank (ADB) in December 2007.
Let us start with redefining corruption. The Government's reluctance on this issue itself confirms the lack of political will to wage a war against graft. It last year rejected the recommendation of Administrative Reforms Commission (ARC) to bring certain activities under the ambit of corruption.
In its 4 th report on `Ethics in Governance', ARC had recommended that corruption should be redefined by including four offences under the Prevention of Corruption Act 1988 (PCA).
The offences are 1) Gross perversion of the Constitution and democratic institutions amounting to willful violation of oath of office. 2) Abuse of authority unduly favouring or harming someone. 3) Obstruction of justice. 4) Squandering public money."
In its action taken report (ATR) on ARC reports, the Government has rejected this recommendation without specifying any reason for its decision. It also dismissed ARC recommendation on `collusive bribery'.
ARC suggested that an offence could be classified as `collusive bribery' if the outcome or intended outcome of the transaction leads to a loss to the state, public or public interest. In all such cases if it is established that the interest of the state or public has suffered because of an act of a public servant, then the court shall presume that the public servant and the beneficiary of the decision committed an offence of `collusive bribery'. The punishment for all such cases of collusive bribery should be double that of other cases of bribery. The law may be suitably amended in this regard."
The Government countered this recommendation as: " " It may not be feasible to attribute mens rea at the time of taking decision/action for subsequent loss to the State, public and public interest. Possibility of loss in commercial decisions in particular may not always be attributable to only the decision/action in the past due to changing commercial environment."
Yet another ARC recommendation rejected by the Government relates to speedy trial of the corrupt under PCA.
As put by ARC: "A legal provision needs to be introduced fixing a time limit for various stages of trial. This could be done by amendments to the CrPC."
The Government also steered clear of ARC recommendation to bring both the private sector and partly Government funded NGOs under PCA. The Government felt that "CGAR (Core Group on Administrative Reforms) may examine these recommendations in greater depth."
In fact, the Government should have not only accepted ARC recommendations but also moved one step ahead by bringing rampant corruption in the private sector within the ambit of PCA.
Is not a fact that marketing executives in several private companies take gratification in diverse forms from existing and potential vendors for entering into business transactions?
The entities/individuals aspiring for dealership of big companies are willing to pay underhand to executives who decide such appointments. How many cases come to light? Hardly any and when the briber complaints to police against corrupt executives for failing to do the quid pro quo, it becomes a case of fraud and cheating under different sections of Indian Penal Code (IPC).
Recall the 2003-04 case of arrest of two senior executives of Ranbaxy including a general manager for allegedly taking Rs 8-lakh bribe in two installments from one of its drugs distributors in Haryana.
Is it uncommon for promoters of Indian companies taking kickbacks in secret overseas accounts or in cash from engineering, procurement and construction contractors that set up their plants? No.
It is thus heartening to learn from the President that the Government is taking legislative steps in this direction. Inaugurating the ` ADB-OECD Anti- corruption Intiative's conference in New Delhi on 28 September, the President Pratibha Devisingh Patil said: " A process to consider changes in the Indian penal laws, has also been set in motion for criminalizing private sector bribery."
PCA is silent on corruption within the private sector. It is high time PCA is amended to adopt ADB's definition of corruption or any other such appropriate explanation.
According to ADB's Anti-corruption Policy issued in July 1998, "corruption involves behavior on the part of officials in the public and private sectors, in which they improperly and unlawfully enrich themselves and/or those close to them, or induce others to do so, by misusing the position in which they are placed."
In the illustrative list of illicit actions that constitute `corruption', ADB has included design and selection of uneconomical projects, misappropriation of confidential information for personal gains, the deliberate disclosure of false or misleading information on corporations and obstruction of justice and interference in the duties of anti-corruption agencies.
A corruption-combat guide j ointly developed by International Chamber of Commerce ( ICC) and three other international entities in 2010 lists several probable cases of bribery and extortion. Under probable scenario, "A union leader demands payment to an employee welfare fund before allowing his/her members to unload a ship."
This illustration shows that the Government ought to redefine corruption to bring under one single law all types of public and private sector bribery. The initiative should cover solicitation by NGOs and the media, both of which often enjoy the patronage of decision makers.
The ability of corruption to change its shaper like amoeba is amazing. This prompts one to raise issues that have so far been kept under the carpet. Is it not a fact that certain companies and NGOs have developed promiscuous relationship under the garb of corporate social responsibility? Are there not instances of companies incurring the wrath of NGOs for their failure to make donations? Would the Group of Ministers on paid news muster political will to do plain-speaking and recommend setting of a powerful, independent media regulator?
The Government ought to back up the enlarged definition by specifying stiff penalties. It should transform corruption to high risk, low reward business from the present high reward, low risk activity.
Apart from amending PCA, the Government has to plug loopholes and deficiencies in the anti-corruption provisions of the Indian Penal Code, Central Vigilance Commission Act and other relevant laws. More important is the need for it shed inertia over enacting a separate legislation for CBI and another for public services to empower officials to act independently against corruption.
A plenty of research and advice on these issues is available in official and non-official documents. The Government has to just muster the political will to act.
As for proceeding clinically against graft, we can revert to the ADB's governance mentioned earlier in this column. Advocating a practical approach to combating corruption, the brief says: " corruption should perhaps be addressed `in the small': chop up the elephant into tractable bits that allow micro-level reforms, however small, to occur and enable progress to be evaluated and measured more readily. This would imply that the typical broad remedial measures anchored on increasing accountability and transparency will need to be translated into concrete actions targeted to and tailor-made for specific areas. One promising approach in this direction is the value chain methodology applied at the sectoral or subsectoral level."
This methodology breaks any activity into a sequence of activities leading to provision of a service such as issue of a driving licence or a product say construction of games village for an international sports event.
"The approach forces one to focus on the output(s) of a sector, offers a useful way for identifying the vulnerabilities to corruption along different points of the chain, and consequently provides a concrete basis for devising practical measures to reduce the incidence of corruption throughout the "production process." Since it enables one to gain a better understanding of the real nature of corruption in a specific context, the approach opens up new avenues for developing actionable indicators—indicators that reflect the nature of corruption in a particular area."
This approach brings one to the need for creating a multi-tiered or multi-organization with mandatory coordinates to fight corruption at national, state and local levels with different approaches in various sectors.
The existing multiple anti-corruption agencies draw lonely furrows and reluctant to share information and tips with each other. Many of them are under-staffed or partly-equipped to take on the crooks.
This ineffective approach, coupled with lack of political will, has let corruption flourish as confirmed by all global anti-corruption yardsticks including the ones sponsored by the World Bank such as Doing Business 2011 or Paying Taxes 2010.
Singapore-based anti-corruption and governance guru, Jon S.T. Quah believes that the amalgam of weak political will and inadequate anti-corruption measures result in a hopeless strategy.
Prof. Quah has thus put India, China, Indonesia, Mongolia and Philippines in the `hopeless strategy' category.
Prof. Quah, who has authored several studies and research papers on corruption, says: "As can be seen in the cases of Singapore and Hong Kong, curbing corruption in Asian countries is not an impossible dream, but it does require the sustained commitment of political leaders and populations. Since this political will is scarce in Asian countries, it is not surprising that many leaders have adopted "hopeless" strategies that perpetuate corruption instead of stifling it."
Mr. B.R. Lall, former CBI joint director zeroed in on PM on the issue of political will in his popular book ` Who Owns CBI'. Lall has reported stated: "A strong and determined Prime Minister can make the difference….All we require is a straightforward, effective, honest, bold and a well-meaning Prime Minister for a few years at least."
Will the Prime Minister Dr. Manohan Singh bite the anti-corruption bullet and trash his image as a batsman serving as a night watchman on the dynastic pitch?
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