Black Money Ballyhoo

Of all the doublespeak Indians have been sold at election time since we declared ourselves a sovereign socialist secular democratic republic, the elimination of corruption and black money has remained the all-time bestseller regardless of market sentiment. So why has this eternally winning formula never translated into any effective action on the ground? There are of course three sides to every story and the story you buy depends mainly on who you hate the most.

First up is the Robber Baron narrative, much favoured by those who truly resent the wealthy. It proceeds on the basis that we are a deeply fractured society and our elites have no sense of equal opportunityor equal protection of the laws.These elites offer kickbacks, rake offs, bribery and quid pro quos just so they can stay ahead of the queue. India then is a country of crony capitalists who promote whichever politicians best dish up rules that serve their purpose. Thus, a group of businessmen got together and hired Niira Radia to secure Spectrum Raja’s appointment as Telecom Minister so that they could corner telecom licences to the exclusion of those in the breadline out the door. There is great truth in this narrative because a great deal of corruption is about getting ahead of the pack in the allocation of scarce resources.

Next, there is the Power Usurpation narrative, best loved by those who truly resent political power or who are most vulnerable to it on the ground, as for instance cycle rickshaw pullers. This proceeds on the basis that politics remains the leading way to very quickly accumulate a very large amount of tax free wealth. Our democracy then is the procedure by which gang lords, hoods, crooks, racketeers and thieves propel themselves from the margins of society right into the legislature, thus acquiring the power to make and implement laws. They bully the bureaucracy on pain of victimisation and transfer and use their extensive powers to extort money from their own people. In this narrative, the queue jumping businessman reincarnates as the eternal victim, his business paralysed till he disgorges political payments. There is great truth in this narrative too, especially when you think of the extortionist activities of revenue collecting departments.

That brings up the final narrative: corruption and black money as a Democracy Tax, which appeals most to those who have a keen sense of pragmatic cynicism. In this narrative, corruption and black money are the means we employ to fund our much admired democracy. If you want to win an election – even if it’s only to the local gymkhana – you have to stitch together a coalition of politically significant groups and persuade them to vote for you. It doesn’t matter why you want power. You can want it for the good it will do the poor, the nation, your extended family or just because your daddy and his daddy before him had power. If you want to get what you want, you have to give those who put you there what they want. That is where corruption and black money enter the picture.

There is great truth in this narrative too. Every successful politician has basically been great at putting together such coalitions. Indira Gandhi successfully sold it to Brahmins and Scheduled Castes as a voting block: Chaudhary Charan Singh successfully sold it to Aheers, Gujjar, Jats and Rajputs; Arvind Kejriwal now sells it to slum and resettlement colony dwellers, scooter rickshaw drivers and kaabadiwallahs.

Running like a leitmotif through all narratives is your real problem. In general, righteous rhetoric notwithstanding, self-interest trumps morality every time. As our politics has now developed, the electorate expects payment for its votes in two instalments. First, there is the upfront pre-election earnest money paid in the political equivalent of shagan in an engagement ceremony. That includes cash, liquor, saris, laptops, et al. That’s just the beginning. If you win, you then have to deliver the big ticket payment: vast numbers of jobs in some yet to be built railway factory or PSU, lucrative contracts from the development funds allocated to parliamentarians to build imaginary roads to fictitious villages, contracts to build large local infrastructure with great scope for misappropriation of funds, stuff like that. Welcome to corruption.

So how are you going to win an election? Who will pay for the booze and the saris? You could hold out your hat to an industry lobby but unless you are offering a tax sop or an industrial license, why would they bother? Basically, unless your daddy left you rolling in it, you are compromised before you start your political career. Succeeding elections only compound your compromises because next time around, you are going to need even more money. A ministerial berth is the best chance you have of funding your next election and you’d be a fool not to cash it in. That explains why we allocate a significant sum of money as a constituency development fund to every parliamentarian, especially those who don’t become ministers. It’s not that the Government can’t more efficiently manage development budgets: it’s all a parliamentarian has to reward his constituency with!

Now, if you do become a minister, you have countless ways to make this money:

1.    Sell windfall profits disguised as economic policy. Increase customs duty here, allow imports of some items at concessional rates for a while there, change a tax rate here, allow a banned activity to select industrialists there, etc.

2.    Sell licenses, spectrum, mines, real estate development approvals, forest clearing permissions, and whatever else is controlled by Government in the guise of protecting the public interest, or the environment or whatever.

3.    Sell jobs and postings. Have you ever wondered why the petty bureaucrats hate working? They have purchased their jobs from politicians and the salary is just an interest payment on the cash deposits they made decades ago. If citizens want them to work, they expect citizens to pay cash for them instead of calling them bribes. As for posting, sovereign processes – like collecting taxes and managing long haul cross state border trucker traffic – generate large pay-off opportunities and it makes sense to auction the collection process to a pliable bureaucrat for an upfront payment. If you can get over your moral outrage, it’s no different from auctioning a parking lot to a local contractor.

So if someone with a crusading zeal comes along and wants to chance the whole shooting racket, chasing Swiss bank accounts seems like symptomatic treatment. Clearly, the key to changing the national paradigm comes down to two bullets. The public funding of electoral processes is the first bullet. If you can win without commercial sponsorship premised on post-election benefits, you’ve gone a long way in getting rid of the compulsion that makes politicians corrupt. It then frees development funds for developmental activities. State funded elections are not rocket science. It’s been done before by many societies using many models. Whether you have the public money to fund this is another question. Law enforcement is your second bullet. You have to catch the corrupt and you have to then send them to jail. In fairness, we’ve been doing a bit of that lately to the unpleasant surprise of Amma, Chautala and Lalu amongst others. We need to do a lot more, and that means much better policing and a way more effective judicial system.

In that view of the matter, what should we make of the oft repeated threats of incoming governments bringing black money back to India? First things first: if it is your fate to have the skill to generate a lot of black money abroad, what would you do with it? Would you fly down to Geneva, have some poor porter haul bags of crisp notes up the stairs and into the nearest bank? Would you then whip out your Indian passport, prove your identity to the bank and ask them to hold this money for you in a safe deposit box like you were Jason Bourne? Anybody smart enough to have money abroad is smart enough to know how to get it there anonymously and then put it to work multiplying itself without compromising the owner. That won’t happen if the money sits in a Swiss safe deposit box.

Clearly, the idea that vast Indian wealth continues to sit in Swiss bank account is incredible on the face of it. How do you get ‘black money’ to work? You have to set up a trust fund run by chartered accountants in a tax haven and then funnel money into ‘white money’ investments. You have to send it to a market you understand offering returns you can live with. If you are an Indian industrialist or politician, where do you think that is going to be? That really is the heart of the matter. If you check out FDI figures in the last decade or so, you will find that a lot of it is coming through tax havens, trust funds, Private Equity and Hedge funds. Have you the slightest reason to believe that these funds and trusts are owned by foreigners?

To put it bluntly, if you are a politician determined to bring black money back to India, you are twenty years too late. In announcing his globalisation policy and allowing FDI, late great Mr Narasimha Rao already did that in 1992 !

Originally Published on November 15, 2014 in Businessworld


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