War Against Corruption - Odyssey to Economic Super Power - Part II

-- By Dasu Krishnamoorty

The path to ESP becomes smooth if we can eliminate corruption from all walks of public life. Corruption is costlier than a running war with our neighbours. It sometimes brings war into the country because it is a well-known fact that there is a link between internal terrorism and corruption. Central Vigilance Commissioner N. Vittal says "the Bombay blasts case shows that by giving a bribe of Rs 20 lakhs to a customs official, the import and movement of RDX (kala sabun in the parlance of the smuggler) was made easy." Remember the Mumbai judge who engaged a member of the underworld to evict a tenant living in his house. In Mumbai and other metropolises, there are regular gangs whose business is to bring instant 'justice' to their clients frustrated by judicial delays.

The corrupt get away with their loot because court verdicts can be kept at bay through adjournments, stay orders, countless appeals, hostile witnesses and if the accused at the end of a few years receives an unfavourable verdict, he would have transferred all the money abroad or to trusted family members or relatives. He comes back from the jail to live a happier life. A judge of the Supreme Court is indicted for blatant corruption after due judicial scrutiny at the apex court but he is bailed out from impeachment in Parliament by the ruling party. The foreign minister who delivered a note to his counterpart in Switzerland asking him to hush up the Bofors case is not only free but a respectable member of the Congress party, headed by Sonia Gandhi who continues Vincent George as her personal secretary despite allegations of accumulating wealth beyond his means.

Look at the economic cost of corruption. Hiranmay Karlekar says "A number of government-sponsored development projects would have cost much less had large sums not been siphoned off to private pockets or had delays caused by the effort to extort money not pushed up costs. Also to be counted are the losses accruing from the collapse of substandard construction, tardy implementation of projects and poor performance by completed projects because they have been given to inexperienced and inefficient firms or individuals who have won licences and contracts through bribery. Besides, there is a massive loss of revenue (which could have accelerated development) consequent to evasion of vast amounts of taxes and duties through corruption." Among 83 countries ranked in the increasing degree of corruption, India ranked 66th.

Nobody has an idea of the loss of income to the treasury through tax evasion. Leading members of India Inc, do it. The small shopkeeper at the corner does it. A majority of eminent lawyers, doctors, architects, income-tax practitioners, contractors and other worthies who are self-employed do not pay taxes and become a great source of inspiration to the thousands of smaller businessmen and traders. Under the voluntary disclosure of income scheme (VDIS) in 1997, tax evaders declared an income of Rs 33,000 crores. But nobody has really an idea of what is the size of black money in the country.

According to C. Rammanohar Rao, "the guesstimates made by some economists of underground wealth are of as much as Rs 10,00,000 crores and an accretion of Rs 10,000 crores every year." To this must be added the more than 100 billion dollars Indians have stashed away outside the country. This implies that India's trade gap and balance of payments problems are artificial. Add to this the money illegally earned through wrong invoicing of exports and imports, through contractor-engineer-bureaucrat collusion and through excise-evaded manufacturing.

India will become an ESP as soon as our human material improves its quality. See how corrupt everyone of us is. The auto man rigs his meter, the grocer underweighs, the milkman adulterates, the teacher teaches outside the classroom for extra money, witnesses lie for consideration, the policeman destroys evidence for consideration, journalists accept motor cars, house sites, foreign tours and other freebies, babu's in government offices do not work without incentives. The list is endless. It is as though the entire nation is struck by an epidemic of self-destruction. All these are common people and very much part of our society. If everyone of us is honest, the gains to the country in terms of wealth are immense. We cannot, as a nation, rise above poverty level unless we destroy corruption as we did small-pox. The one solution is zero tolerance, as prescribed by New York mayor Rudolph Juliani.

For the benefit of those who need an academic elucidation of our deficiencies, Arun Ghosh, a former senior civil servant and former deputee to the World Bank and the International Monetary Fund, attributes our weaker economic position to

 

	A continuously mounting budget deficit at the centre
	Paucity of internal savings to finance development programmes and the increasing reliance on external savings
	Tardy growth of employment relative to the growth of workforce and
	A highly unbalanced growth, specially in agriculture. Deficit financing and external borrowings have become the chief props of development. Very little of our forex reserves are export earnings; the rest consist of borrowings and foreign capital repatriable at short notice.

Expenditure Management

Funds for development can be mobilised through huge expenditure cuts in several areas, apart from accruals from elimination of corruption and public waste. One area is to reduce fiscal deficit to almost zero by cuts in expenditure, efficient tax collection and recovery of dues. Fiscal deficits are mounting every year and last year's target of containing it at 5.1% of the GDP remains unachieved. Any government claims of gains on this front are based on inflated figures for revenues. There was a shortfall in tax collections even as expenditure on government servants and related organisations is on the rise. The salaries of all 37.2 lakh government (federal and state) employees is an annual Rs 75,000 crores. The salary bill of the federal government increased from Rs 18,094 crores (estimates) in 1996-97 to Rs 32,843 crores (estimates) in 2000-2001.

As the Governor of the Reserve Bank of India Bimal Jalan says "we spend more money in containing expenditure. We have liberated the public servant but imprisoned the public." Since market borrowings are a softer option, the federal government borrowed from the market in the very first month of the present financial year Rs 29,525 crores, 38% of what it should have borrowed in a year. April figures show a slump in exports which may be a fact but experience shows that such sob stories are circulated to wrench more incentives for export performance.

Prem Shanka Jha (the Hindu, 8 May 2001) says "the foreign exchange reserves are healthy at well over Rs 19,32,000 crores and rising. It is only when one looks more closely that the phoniness of the assessment becomes apparent. Let me state with the most obvious piece of self-deception. Our reserves are not genuine. On the contrary, more than nine-tenths consists of borrowed money. At the end of last year, foreign currency reserves amounted to Rs 17,02,000 crores and SDRs to another Rs 1,38,000 crores. Of this, vulnerable liabilities, that is, money that is fairly mobile and can leave the country at short notice added upto Rs 16,60,600 crores. These consisted of foreign institutional (portfolio) investment -- Rs 5,16,902 crores; NRI deposits Rs 6,14,790 crores and trade credit and short-term debt Rs 5,26,884 crores. But the so-called vulnerable liabilities do not reflect the true vulnerability of the rupee to a sudden loss of confidence in the Indian economy."

Last December, the federal government introduced a Fiscal Responsibility and Budget Management Bill in the Lok Sabha aimed at binding the federal government to reducing its fiscal deficit to two per cent of the GDP within five years. One way of achieving it is by expenditure reform. The country's overall spending needs to be brought down substantially as a proportion of the national product. Collection of taxes and other dues will have to be based on zero tolerance principle. Remember, just income-tax arrears at the end of September 2000 stood at Rs 24,000 crores; a meagre estimate puts non-performing assets of banks at Rs 54,000 crores. Excise and sales tax evasion, getting past customs barriers without paying duties and several other ways of swindling the national treasury account for thousands of crores of rupees uncomputed loss to the exchequer.

The state electricity boards owe Rs 2,000 crores to the Railways and Rs 10,000 crores to the National Thermal Power Corporation and Coal India. The Rajya Sabha was told in November last year that top industrial houses owed Rs 37,000 crores in tax arrears. A government statement shows that it had stood guarantee for loans taken by non-governmental bodies and that that amount stood at Rs 74,606 crores as on 31 March, 1999. A discussion paper on subsidies brought out by the Finance Ministry in 1997 shows that subsidies given by the federal and state governments totalled Rs 1,37,200 crores in 1994-95. On the other hand, a softer option of reducing deficits is by disinvestment and sale of public sector (wrongly called government) properties. The main aim of discrediting public sector is to declare that there is no alternative to free market.