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© 2012 Sanjeev Sabhlok's revolutionary blog
There are many reasons why the Jan Lokpal bill has to be questioned. Some are related to its design (see the summary of submissions made to the Parliamentary panel on this topic). But there are many others.
Sharad Bailur points out a number of other relevant issues on his FB note (I agree broadly with the extracts below from his note, with a few qualifiers that I've provided within parentheses).
EXTRACTS
The Lokpal/Janlokpal, as a solution is, at best, bound to fail, and, at worst, can cause a complete general paralysis of governance as a cost of the new rectitude imposed from above.
Here is why: Put yourself in the shoes of a government servant. You have been (reluctantly or inefficiently) doing the work assigned to you lubricated by bribes up to now. Tomorrow a Lokpal (pristine and uncorrupt and a firm devotee of Anna) ensures that your bribe gravy train comes to a dead halt overnight. Will you still do the work? Or will you stop doing the work? On the one hand the ‘carrot’, the bribe is no longer available; on the other a big stick is now held over every move you make.There is no clear way to punish a government servant for not doing his work. You cannot get rid of him. His job is secure under a government mandated law.This makes any efficiency on the part of the Lokpal in doing his job a perfect recipe for instant and total paralysis of governance. As it is ‘pre-audit’ by the CAG for any and all expenditure at governmental level is one such road-block. A ‘pre-audit’ sought from the Lokpal on each and every action before it is put into effect by every single department all over the country can paralyse the Lokpal within days and bring all governance to a halt in less than a week.If ‘Economic Determinism’ works, as it must, the Lokpal itself will become the fount of corruption. For the citizen there will be an additional layer of bribing to be done to get his work done. This is quite apart from the constitutional questions and the threat to democracy that the Lokpal poses.As a general rule, any law that has an aspect that adds to the moral stature of individuals in society, is a law that plants the seeds of corruption. Even a law against murder is not a law against an individual because, isolated, he can do nothing, however murderous his thoughts may be. It is for the protection of society and the other individuals who are part of it that the laws against murder are needed. Where this fine distinction has been ignored, the law should be repealed. Before the promulgation of any law therefore, this aspect must first be ‘pre-audited’. The problem with the Lokpal/Janlokpal is that they seek to control individual behaviour.It should be obvious to anyone that the clearing away of this vast thicket of laws cannot be allowed to take place to be replaced by uninhibited anarchy. It needs to be replaced by more efficient enforcement of the laws that must remain; those that form the essential bedrock of any civilized society.Towards the end of more efficient enforcement of existing laws I have the following suggestions to make:
- Make all appointments in any government or semi-government organisation mandatorily dependent upon performance. This should include the Police. This means that the present mandatory protection in service that public servants and employees of government and semi-government owned organizations are entitled to, must cease. In essence all such appointments should be made subject to dismissal from service for non-performance on the same lines that prevail in the private sector.
- Change the laws on election expenses to make them compulsorily transparent and make donations to political parties legal and/or, alternatively, let the government fund all election expenses by reimbursing candidates on the basis of the number of votes polled by them individually.
- Make the cost of flouting laws much higher in terms of punishment.
- Why can we not get rid of industrial licensing altogether? Or for that matter the Shops and Establishments Act? We can have specific enforcement to prevent abuse in industry or in shops and establishments but there ought to be no need for licensing for factories (only zoning or pollution control rules), restaurants, hotels and bars or private clubs so long as they obey rules regarding cleanliness, public behaviour, proximity to schools, or for obstruction of traffic. What about the licensing and laws that affect the building industry? Except for zoning rules and rules about water and electric supply that affect people other than those who are constructing or living in the buildings, the rest are superfluous. [Sanjeev: A good point but I'd retain licensing for at least the high risk industries. E.g it shouldn't be possible to establish a nuclear plant or produce toxic chemicals without rigorous licencing requirement]
- Another instance: I would suggest the abolition of the entire licensing system imposed upon the driving public. This may sounds radical but if it is backed up by traffic policemen being compelled to perform – or else; and if the cost of infringement is unacceptably high in terms of punishment to those who flout it, the issue of the infringement of road rules can be solved without anyone having to go through the process of securing a licence to drive – thus taking care of a major cause of corruption at the level of the RTO. [Sanjeev; this is indeed radical, but raises an important policy option for further analysis]
I'm reproducing below an important article published last week by the Liberty Institute. Please read this carefully if you are SERIOUS about elimination of corruption.
Of course, if you are only interested in drama then enjoy the show being put up by Anna Hazare talkies. I must say that this man is turning out to be quite a savvy politician, having smashed the UPA's resolve into a rubber ball that bounces from one end to the other each day. Clearly this government is SUPER-INCOMPETENT, with no capacity to think straight or to act straight.
Note that if Hazare was contesting elections, I'd understand his strategies. But he claims to be interested in removing corruption. That doesn't add up - for he is chasing after shadows.
On the other hand, while Hazare so successfully chases after shadows (!), I'm offering a DEAD SERIOUS REMEDY for corruption and a way to dramatically increasing India's prosperity. But the solution I offer is much harder. And few, it seems, are capable of understanding it, or rising to the occasion.
Well, do read Barun's and Mohit's views below. Very well researched piece:
Chasing Black Money: In search of red herrings
Barun Mitra and Mohit Satyanand
Tuesday, August 16, 2011
In the past few months, the debate over black money and corruption has been raging across the country. Some social activists and the government have been at loggerheads over the scope and structure of a new anti-corruption authority being proposed. There have been claims ranging from tens of billions of dollars to over a trillion dollar, money that may have been illegally acquired or wealth that evaded taxation. But the issue of corruption is not just about policing, but should be about about policies that help generate black money in the first place. The current focus on the Lok Pal, as a super cop, is only diverting attention from the real roots of corruption, write Barun Mitra and Mohit Satyanand.
This is a discussion paper from the Liberty Institute, New Delhi. Comments are welcome.
In the past few months, the black money debate has also been stoked by some citizens’ groups, and even by a popular yoga teacher. The activists and the government have been at loggerheads over the scope and structure of a new anti-corruption authority being proposed. There have been claims ranging from tens of billions of dollars to over a trillion dollar, money that may have been illegally acquired or wealth that evaded taxation, and deposited in banks invarious tax heavens.
One side is accusing the government of being insensitive to the popular concerns over widespread corruption. The politicians are accusing the activists of seeking to denigrate parliamentary democratic procedures. The 24-hour news media, as usual, is stoking the fire in search of TRPs. What is getting lost is the fact that corruption is the consequence of the distortions in the normal economic functioning caused by legal and regulatory interventions. The resultant mismatch between supply and demand for goods and services are then attempted to be mitigated through the discretionary powers in the hands of various government agencies and ministers. This opens the door for patronage for a considerations, that is corruption.
A study by the Global Financial Integrity estimated black money stashed abroad at $462 billion. On the other hand, the Swiss National Bank (SNB) has estimated that the total deposits of Indian individuals and companies with allthe Swiss banks put together stood at about $2.5 billion (Rs 11,100 crore) at the end of 2010. And all of that can’t be illegal.
The government has been reiterating its intent to bring the black moneyhome, even as easily excited people's groups say such money should be declared a national asset. The Supreme Court, taking note of the matter, has asked forthe appointment of a Special Investigating Team (SIT), to bring black money back.
The government has offered to strengthen the money laundering law. Dual Tax Avoidance Treaties are being negotiated with over 80countries, including Switzerland, in an attempt to share information about financial transactions and taxation. At home, the government has also proposed amendments to the Benami Transactions(Prohibition) Act 1988 to make it easier to seize benami property, auction them and pass on the proceeds to States, where the property is located, for development activities.
In the past two years, the Indian income tax department had collected some 7,700 pieces of information from treaty countries on payments received by Indian citizens in various countries and on bank accounts. “We have made more than 175 requests to our treaty partners in cases of specific taxpayers in the last financial year,” claimed Mr Pranab Mukherjee, India’s Finance Minister recently.
A slew of initiatives are also being proposed to tackle corruption. The Lok Pal Bill, pending for over two decades, has been introduced to inquire and investigate corruption among political leaders and senior bureaucracy, at the national level. Another new law, the Judicial Accountability bill is on the anvil to check corruption in the higher echelons of the judiciary. And to encourage people to expose instances of corruption, a law to protect whistleblower is under discussion. A more structured public grievance redressal mechanism is also being proposed.
While the list measures may be impressive, and the intent of the political and civic leaders may be genuine, we believe these developments are naïve at best. However, far worse is the prospect that the plethora of initiatives just turn out to be red herrings to detract from the underlying problems.
The problem corruption and black money originate in bad public policy, rather than poor policing. Let us begin with trying to define black money, generally held to be income on which taxes are not paid. We believe there are 3 constituents of black money.
- legally earned income on which taxes have not been paid
- illegally earned funds, such as bribes, and contracts whose face value does not reflect the transactionvalue,
- earnings from criminal activities
As far as the first category is concerned, this is primarily the tax collector's problem, and strengthening the mechanisms we already have in place is an on-going exercise. As more and more of our economy moves into the formal sector, and data collection systems are strengthened and cross-linked, this will be less and less of an issue. According to Dr Surjit S. Bhalla, a prominent economist, and who heads an investment company, the total amount of income tax evaded annually could be in the range of Rs 100,000 crore (i.e., Rs1,trillion or USD 22 billion), or about 1.5% of India’s GDP. A portion of itmay find its way to foreign tax heavens.
In the financial year 2010-11 (April to March), the official estimate of income tax collected is Rs 446,000 crore, which is around 46 per cent of the revenue for the Union Government treasury and 6.13 per cent of the GDP.
As far as the third category is concerned, this is primarily the remit of criminals and police agencies. The money being generated from such activity is not the most serious of the problems it creates and in any case fighting crime is the primary task of any government. But bad laws criminalise what should be legitimate economic activity. For instance, India restricted jewellery to 14 carat, with the infamous Gold Control Order of 1962, and then banned gold imports. Not surprisingly, for a people who consume the highest volume of gold in the world, the prohibition made gold smuggling a very lucrative proposition in India. In the 1980s, less than 4 tons of gold were being mined domestically, but it is estimated that about 150 tons were being smuggled in each year to meet the demand.
Inevitably, gold smuggling turned into a major source of income generation for gangsters which subsequently diversified into becoming guns forhire, international terrorists, and drug runners, corrupting almost everyinstitution of the state. In addition, this opportunity acted as a catalyst for the money laundering phenomenon, knows as the Hawala. It was only in 1992, that the restrictions on imports of gold were lifted, and smuggling has mostly evaporated.
Let us focus, then, on the second category. Begin with contracts where there is a divergence between the real value of the transaction, and that stated on paper. Ask any Indian, and they will tell you that the largest category of such transactions is real estate. In the Delhi and the surrounding region, our estimate is that the average property deal reflects only 50% of the value on paper (in the case of 'farm-houses', less than 25% of the property value is typically declared; for condominiums in the suburbs, it may be as much as 80%. A 100% 'white' money deal in property transactional is a rarity.) Over the last 5 years, property and real estate have generated almost 25% of the GDP of this region, one of the nation's most prosperous. This means that, this single area of untruth leads to 12.5% of regional GDP going underground. Nationally, the most conservative estimate is that property transactions generate black money worth about 1 to 2% of India’s GDP, annually.
From a policy point of view, it becomes important to ask why real estate deals generate so much black money. We believe that the primary cause is extremely high government fees for registration of land sale, between 5 and 10% of the value of the transaction. The desire to evade this levy is the starting point of evasion. Over time, real estate has become the parking lot for blackmoney of all sorts: this includes such money generated from sale of property, a self-reinforcing cycle; as well as speed money and slush funds, garnered from all manner of favours granted by powerful administrators and politicians.
Judging by the World Bank's “Doing Business Report 2010”, India ranks 134th among 183 countries. India is one of the most trouble some places for dealing with public authorities. Such frictions inevitably leads to the payment of 'speed money', whether for the tiniest of transactions, such as a driving licence or hawker's permit; or for major resources over which politicians have control, such as awarding telecom spectrum, mining and exploration rights, or large infrastructure contracts.
The higher transaction cost of carrying out normal economic activity in India, not only adds to inefficiency, but also raises the cost of doing business. This also explains, at least partly, the fact that anything between 25 to 40% of Indian economic activity takes place in the informal sector, mostly under the official radar.
Corruption is not rocket science, and India is not an exception. Globally, countries that rigidly regulate their economies, and restrict the economic freedom enjoyed by their people, also tend to be also among the more corrupt ones, and generally poorer. While India has improved its standing in the Economic Freedom of the World Index, over the past two decades, its has not changed fast enough, and the low rank on the Doing Business Report indicate that the changes have not been deep enough to make substantive impact on corruption.
Graph 1: Difficult business environment breeds corruption (click for bigger image)
Graph 2: Greater economic freedom lowers levels of corruption (click for bigger image)
Whether in real estate, or in administrative corruption, it is worth noting that the illicit money is generated in India, not overseas (large defence deals would be the only major exception). Some of the funds generated in India are definitely 'exported' to keep them out of view, but much of this is brought back, through a variety of routes, including the stock markets. The money held abroad at any point in time is only funds in transit – a flow, rather than a stock. Looking to put a tag on such funds is like trying to catch the wind in a basket!
If the intent was to actually cut down the amount of black money being generated, the answer would lie in a slew of reforms in India. To name a few, these would include:
- real estate registration fees that are reasonable – less than 1%; or flat fees per unit area
- policy framework that reduces the discretionary authority of administrators and politicians
Transparency and economic freedom, however, may not suit a political class that has grown used to enjoying the spoils of the discretionary power. Focusing on money held abroad is 'exporting' the problem, passing the blame to an 'immoral' banking system in Switzerland or Liechtenstein, rather than having a public debate on the origins of black money.
Even if the funds held in Switzerland were a substantial percentage ofthe black money in circulation – which we doubt – the long-standing discussion of the issue, and government's repeated assertion that it will tackle this would have given any half-intelligent account-holder ample time to relocate his funds to discreet banks in any one of half a dozen locations in the world, not to mention laundering them through the convenient tax arrangements with Mauritius.
There are already quite a few existing organisations and institutions that are supposed to be investigating black money, tax evasion, money laundering and other crimes. There are a number of organisations involved in exposing financial misdemeanours and wastages, and fighting crime andcorruption, among them the Comptroller and Auditor General of India, the Enforcement Directorate, the Directorate of Revenue Intelligence, the Central Vigilance Commission, and the Central Bureau of Investigation. Also there are many existing laws, such as the provisions of the Indian Penal Code, the Prevention of Corruption Act, the Foreign Exchange Management Act, Benami Transactions Act, among others, all aimed at curbing black money and corruption. Finally, there are the Supreme Court and High Courts, which often decide to monitor the progress of investigation in important corruption cases.
Yet, there are very few successful prosecutions and convictions. Given such a poor track record, why do we expect a new anti-corruption institution or a more draconian law to have any dramatic success?
One wonders if the Indian political leadership is really serious about tackling corruption and tax evasion at its roots. Or is the posturing only an attempt to defuse the political tension currently caused by the likes of yoga guru Ramdev or civic activist Anna Hazare. The tragedy, however, is that many concerned citizens while sincerely campaigning against corruption, have only further legitimised the search for red herrings, by failing to focus on the root of the problem – the policy framework that breeds corruption and generates black money. One can only hope that even if the focus is misguided at the moment, the greater public churning will finally turn the spotlight on the real reasons for generation of black money in India.
Please send your comments and criticism to
Liberty Institute
C-4/8 Sahyadri,Plot5,
Sector 12, Dwarka, New Delhi 110078. India
Email:info@libertyinstitute.org.in
Websites: www.InDefenceofLiberty.org| www.EmpoweringIndia.org
C-4/8 Sahyadri,Plot5,
Sector 12, Dwarka, New Delhi 110078. India
Email:info@libertyinstitute.org.in
Websites: www.InDefenceofLiberty.org| www.EmpoweringIndia.org
This article was published in the Liberty Institute on Tuesday, August 16, 2011.
Authors :
Mr Barun Mitra is the director of Liberty Institute, an independent public policy think tank in New Delhi.
Mr Mohit Satyanand is a management consultant, investor, columnist, and is the Chairman of the board of Liberty Institute.
Mr Barun Mitra is the director of Liberty Institute, an independent public policy think tank in New Delhi.
Mr Mohit Satyanand is a management consultant, investor, columnist, and is the Chairman of the board of Liberty Institute.
Corruption in India can't be removed without first implementing fundamental electoral reforms. Without such things it is like a balloon. If sqeezed on one side, it simply moves to other places. Btw, that is what is GUARANTEED to happen with Lok Pal bill (about which Anna Hazare the innocent dreamer is making such a fuss) without first ensuring that good people are able to enter politics.
When ONLY the corrupt are eligible to become MPs and Prime Minsters, the possibility of removal of corruption is zero.
What is happening today is that RTI and other methods have put pressure on day-to-day sources of corrupt money. So the government has to use public sector undertakings in a bigger way than ever before.
The Opposition members, including Gurudas Dasgupta (CPI), Murli Manohar Joshi and Shahnawaz Hussain (both BJP), asked the government to “come clean” on how large aircraft orders were given, why the losses mounted heavily after the merger two State-run airlines and “giving away” of profitable routes to private and foreign airlines. [Source]
I gather that these large orders for new airplanes were given when the existing fleet was underutilsed!
And why not! It is, after all, YOUR money. It is meant to be looted. That's what socialist governments are for.
No wonder the Air India is bleeding billions of dollars today, most perhaps going to Swiss accounts (or wherever else these things are "banked" by Congress).
The idea of bulk corruption – which has been the staple of the Congress party ever since I know of it (since at least the early 1980s), appears now to have moved to Air India and other public sector undertakings -not that these organisations were ever free of large-scale corruption.
The solution?
This racket can only be ended if the government of India GETS OUT OF RUNNING ANY BUSINESS.
Air India must be privatised - urgently. Else it will continue to be misused as a source of CORRUPT MONEY by the government.
Public sector undertakings = super-incompetence, super-corruption.
जहाँ की सरकार हो व्यापारी
वहां की जनता हो भिखारी
वहां की जनता हो भिखारी
(Translation: When a country's government engages in business (or trade), its citizens inevitably become beggars.)
Addendum
The Economist calls Air India a "state owned zombie"
Came across an interesting hypothesis in a FB note. He argues that Indians have a "transactional" culture and therefore Indians have rarely fought - preferring instead to buy and sell kingdoms.
Is this true?
[Addendum: Corrigendum dated 15 August 2011. Sharad Bailur, to whom I erroneously attributed this hypothesis initially, has clarified: "Please go to my Note and read it carefully. All I have done is quote an e-mail I got from my brother. This is not my original writing. Second even my brother got it from somewhere else. So attributing the view to me or even to my brother is not correct. ... I quoted it merely in order to elicit a discussion."]
Also, could those who know about history please tell me whether such things are unique to India (as this view suggests). I suspect there would be many examples in the world where kingdoms were bought and sold, not just in India. Where such things did not happen, I suspect there would need to have been "fervour" – religious, nationalistic, or egotistic.
Second, the fact that rulers are treacherous does not mean that citizens are treacherous so these things do not represent the entire country. Corrupt actions among the powerful do not imply a corrupt national culture. Just because the rulers of independent India are THOROUGHLY corrupt does not mean that Indians have a corrupt culture. Instead, these actions confirm that incentives matter. It also confirms why there is so much corruption in India today – because we have our incentives all wrong.
In sum, I suspect that this hypothesis is not valid, although I'd welcome your thoughts.
This perspective on Indian transactional culture
Indian history tells of the capture of cities and kingdoms after guards were paid off to open the gates, and commanders paid off to surrender.This is unique to India… !!!Indians' corrupt nature has meant limited warfare on the subcontinent. It is striking how little Indians have actually fought compared to ancient Greece and modern Europe.The Turks’ battles with Nadir Shah were vicious and fought to the finish.In India fighting wasn't needed, bribing was enough to see off armies.Any invader willing to spend cash could brush aside India’s kings, no matter how many tens of thousands soldiers were in their infantry.Little resistance was given by the Indians at the “Battle” of Plassey. Clive paid off Mir Jaffar and all of Bengal folded to an army of 3,000.There was always a financial exchange to taking Indian forts. Golconda was captured in 1687 after the secret back door was left open.Mughals vanquished Marathas and Rajputs with nothing but bribes.The Raja of Srinagar gave up Dara Shikoh’s son Sulaiman to Aurangzeb after receiving a bribe.There are many cases where Indians participated on a large scale in treason due to bribery.Question is: Why Indians have a transactional culture while other 'civilized' nations don't?
Came across this here. Ambedkar's views on this matter:
What perturbs me greatly is the fact that not only India has once before lost her independence, but she lost it by the infidelity and treachery of some of her own people. In the invasion of Sind by Mahommed-Bin-Kasim, the military commanders of King Dahar accepted bribes from the agents of Mahommed-Bin-Kasim and refused to fight on the side of their King. It was Jaichand who invited Mahommed Gohri to invade India and fight against Prithvi Raj and promised him the help of himself and the Solanki Kings. When Shivaji was fighting for the liberation of Hindus, the other Maratha noblemen and the Rajput Kings were fighting the battle on the side of Moghul Emperors. When the British were trying to destroy the Sikh Rulers, Gulab Singh, their principal commander sat silent and did not help to save the Sikh Kingdom. In 1857, when a large part of India had declared a war of independence against the British, the Sikhs stood and watched the event as silent spectators.
The ridiculous idea that hanging the "corrupt" (as they do in China) can reduce corruption has been fully exposed in an article that shows the DEEP levels of corruption in semi-socialist China – and how their methods end up PUNISHING THE HONEST.
The government of China has become a BLATANT EXTORTIONIST, using its might to imprison a totally innocent, hard working industrialist.
Let me cite a few extracts from this article on this miserable case of corruption in China. I do so with the hope that Indians who are enamoured of the idea that corruption can be stopped by "punishing" the corrupt will learn two key lessons:
a) When the WHOLE system is corrupt, the HONEST will be punished (AS IS THE CASE IN INDIA), not the corrupt
b) Even if someone who is corrupt actually gets punished, it is not going to reduce corruption EVEN SLIGHTLY – since the underlying causes of corruption remain untouched. The solutions to corruption are different, but I won't repeat them here.
Now, listen to this:
Communist Party's feared and ultra-secretive internal discipline commission swept down through Guangdong province and carried out what was probably the most aggressive anti-corruption blitz in modern Chinese history. Of all China's murky channels of Chinese justice – as every Chinese cadre knows – few are more arbitrary, more secretive and more unpredictable than when the Communist Party decides to go after its own.
There are very few accounts of what takes place in these sustained internal Party interrogations known as shuanggui, except that they take place outside the purview of any law. Scholar Flora Sapio says the extra-judicial interrogations are designed to extract confessions because investigators ''lack the human and financial resources'' to gather evidence in a more professional way.
Usually, shuanggui is designed to avoid open court trials so as to control the public flow of information.
''Corruption is universal but you can only target some examples so that the others can be warned,'' the official said.
''In China you know everyone has some connection with corruption, so if you detain one person and investigate you will certainly find some wrongdoing.''
From the news:
Chief Election Commissioner SY Quraishi believes..proposed constitutional amendments on debarring criminals from contesting elections & transparency in political funding will be greater fundamental reforms than the new lokpal Act for..Indian democracy.
"These will be the most crucial reforms to decriminalise elections and check the flow of black money in the electoral process," Quraishi said.. [Source]
My comment on FB
I'm afraid that's nice in theory but a very difficult idea to implement – because of false cases that can be brought against people. Quraishi has still not got to the root of the issue. Even if you were to exclude "evil" people I can GUARANTEE that the "non-evil" people will STILL be corrupt unless more fundamental reforms outlined in BFN are implemented.
ADDITIONAL COMMENT
Let me add that transparency in political funding is CRUCIAL, but it STILL won't help us – without other underlying reforms. Those who use black money will disclose something (as they already do) but if electoral funding limits are not removed, and state funding not available, then NO HONEST candidate will be able to contest successfully.
So what should be done?
Back to the basics, please. BFN has a comprehensive analysis of the issues. For a shortcut, start with this. For other blog posts see this.
YES, we should have a way to prevent criminals from contesting, YES, we should have Lokpal, etc. etc. But these are SUBSEQUENT and secondary reforms. The main reforms must ensure that good people can contest elections successfully.
POSITIVE REFORMS, not NEGATIVE REFORMS are needed, as a first step.
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