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Author: Ashok Chowgule
Publication: Hindu Vivek Kendra
Date: April 27, 2020
URL: http://hvk.org/2020/0420/90.html
INTRODUCTION
Various people have sought to explain the genesis of corruption in our society. Some have said that the tolerant attitude of the Hindus has made us accept corruption as a way of life. Some others have said that the way the elections are contested is the cause of the corruption. Some say that the human being by nature is corrupt.
The 3% per annum GDP growth rate achieved from 1950 to 1980, against the nearly 10% rate achieved by some Asian countries, was derisively termed as the Hindu rate of growth. The subtle message that was sought to be conveyed was that there was something in the ethos of our civilisation that was holding the country back.
Something seems to have suddenly happened to this ethos when, in the 1980s and 1990s, higher growth rates were achieved! What changed was not the Hindu mindset, but the policies that held the country’s economic growth back. The economy responded to the right stimulus and the country moved forward at a faster pace. Of course, there is much more that needs to be done. However, we need to understand the problem in its right perspective, rather than churning out some jingoism to explain away the issues.
If the famous tolerance of the Hindu philosophy were the cause of corruption, then surely we would not have had the various golden eras that are dotted in our history. Likewise, the people of India who have performed well outside the country would not have been able to do so. Even within India there are many cases of excellence which would prove that tolerance of wrong things is not a part of our philosophy.
Similarly, to say that the manner in which elections are conducted is the cause of corruption is to stand the problem on the head. People spend huge amounts of money on contesting the elections because they know that they can recover it if they win. In a true sense, the expenditure is an investment.
Recently, we have been hearing about the need to curb corruption, by enacting new laws, or making the existing ones more stringent. One ex-Prime Minister had used the platform of the Independence Day speech from the ramparts of the Red Fort to say that he will lead a satygraha against corruption. That he did no such thing was a sign of his insincerity more than anything else, and when he made an appeal to the giver of a bribe not to do so, no one took him seriously.
Another feature of the debate on corruption is the pontificating that one sees from ex-bureaucrats of how to deal with the problem. What no one mentions is that it was these very same bureaucrats who set out the rules that are the real reason for the prevalence of corruption in India. What this class of people should be asked is why they did not implement, when they had a chance, the wonderful ideas that they now propagate.
Going into the past is necessary not to put anyone on the mat, but to analyse properly why certain things happened. Solutions should be worked out on the basis of principles, not methods. Without principles we will not understand why a method has failed. So applying another method will not guarantee that the new method will succeed.
CAUSES OF CORRUPTION
One of the primary causes of corruption is the system of governance prevalent in our country. It is necessary for the citizens to seek permission to do many things, even some mundane aspects of his/her life. There are rules that say what a citizen can do and what he cannot do. However, he/she has to prove that he/she knows the rules and show his/her plans to follow them. These plans will be whetted by an ‘authority’ and only when they are approved will he/she be able to go ahead with the implementation. The citizen is not trusted that he/she is an honest person and will not wilfully break rules.
In the very nature of the working of such an ‘authority’, the same plan can either be accepted or rejected, and valid reasons for either action can be provided. It is possible to provide subtle differences in the applications why the distinction is made. An approval system has a certain amount of discretion, and it would be difficult to prove that there has been any mala-fide in either of the two different actions by the ‘authority’.
Very often the approval system has no time limit which can be practically enforced. Thus, while the ‘authority’ will all the time express willingness to give permission, the sanction is delayed on the basis of the flimsiest of pretexts, all valid in law. In such cases, the bribe is euphemistically called speed-money.
It is not contented that there should not be any regulation at all. A civil and democratic society cannot exist without some regulations. However, the regulations should be clearly stated, and should have a proper system of being able to identify the wrongdoers, who should then be severely punished.
The system of licensing and renewal is also a source of corruption. For example, under the Shop and Establishment Act, there is a system of registering the use of a premise for commercial activities, like office, hotel, shop, etc. The licence states not only the use that is being made, but also certain things like the area being used, the number of people working, etc. However, the licence is valid for a particular period of time, and this feature provides a large opportunity for corruption.
While the organised sector has the infrastructure to do the necessary follow up, a person who has a small shop, often self-manned, has no such luxury. He/she is obliged to pay a bribe to do a thing that should be available to him as a right. The concerned ‘authority’ will not deny the person the licence, but can delay the process on very specious grounds. The person, therefore, has to make frequent trips to the office of the authority concerned. In case of a small shop owner, this could involve shutting down the business for the duration.
This small aspect of governance explains the modus operandi that exists, which provides an opportunity for corruption. There are many such ‘small aspects’ that are part of a system that we have inherited from the British. As colonisers, they had valid reasons to do so – namely, control the colonised. But, the system has been carried on even after more than fifty years of our independence. It shows a mindset of the bureaucrats who have utilised the system of control for their own benefit. The excuse that the system is a hangover from the British times has become archaic.
The opportunity for corruption is available to only a small number of people in government. But, they encroach on the lives of the citizens to a large extent. Those government positions where corruption is possible are very much sought after. These postings are decided by the superiors in the administration and the elected representatives forming a part of the governing machinery. The grant of these postings are invariably discretionary.
It is here that the bureaucrat and the politician are able to rake in the loot. Since the postings are discretionary, a person seeks to pay for those positions where it is possible to make money. And if there is more than one person seeking the post, a bidding can take place, increasing the bribe that was until then the standard.
However, the more the person bribes to get a post, the more he seeks to make illegitimate income on the job. So, in consequence, the citizen has to pay a larger bribe to get his work done, even in case where he has the legitimate rights.
It is for this reason - that is, the opportunity to seek bribes - that a politician spends large sums of money to get elected. As said before, this expenditure has to be truly seen as an investment. In the nature of things, the ‘investor’ in this case works to get his/her money back in a very short time, and thus the returns become very large.
The ‘investment’ made is funded not from the politician’s own resources, but by collections from various sources. The support comes not on the basis of the ideology, but because of an expectation of some favours in return. And these favours can be granted because the system enables the politician to do so. The type of favours enables the one funding the politician to get some extra profits, which are much higher than what is obtained in the normal course of business.
This, too, creates competition amongst the various people funding the politician, and so the amount paid increases as time goes by.
Another reason why corruption takes place is due to shortages. Whenever there are shortages, there is always a call for what is called equitable distribution, and so the system is sought to be controlled. An ‘authority’ is created which will ‘satisfy’ itself that the need of the citizen is genuine, etc. As in other cases, there is a large degree of discretion that can be applied.
In the not too distant past, items like phones and cooking-gas were in short supply. A system of first-come-first-served was applied. However, there was a clamour that this system, while good in principle, it will not take care of the really ‘deserving’ occasions. For example, a person living with sick elderly people needs a telephone for emergency purposes. So, the politicians says that he/she must have discretionary quota which will enable him/her to serve his constituents better. Again, one sees why a politician is willing to spend a lot of money to get elected. The returns can be quite enormous.
The existence of the shortage is a fall-out of the planning system, which assumes that the planners (essentially bureaucrats) could adequately predict the demand for a product or service. The provider of the ‘essential’ items was also thought to be necessary to be under the direct control of the government, otherwise the private sector will exploit the shortage to make monopoly profits. And where private sector did exist, or was permitted to exist, a mechanism of price control was applied.
The decision to apply a fair price was in the hands of the ‘authority’ and not the manufacturer. Empirical data will show that this ‘authority’ always lagged behind in increasing the prices to compensate for cost increases. The shortages continued, since new entrepreneurs did not find it worthwhile to enter the industry, and the existing manufactures had no internal generation to make the necessary investment to increase production, either through fresh capacity generation or increases in productivity.
Since the shortages did not end, the control on prices, and hence the distribution system, continued. The licence raj, ostensibly to allocate scarce financial resources, compounded the problem in many ways. This has been dwelt by others in the past, and so I will not dwell in it. However, in industry after industry where shortages have been eliminated, corruption has come to an end.
On the issue of taxation I will dwell here only with the indirect taxes. One sees classification of products with an intention to levy differing rate of taxation. Thus, what are called luxury items are heavily taxed and those that are essential have a lesser rate. This is based on the theory of price elasticity of demand which will modify the behaviour of the consumer. The consumption pattern is then expected to be one which is in the interest of the society.
While a high tax rate may modify the consumption pattern to a certain extent, it is also a source of corruption. It becomes profitable to evade the tax, either by not declaring the sale in the books, or misclassifying it. This is invariably done with the connivance of the concerned ‘authority’, and the proceeds are shared between the various parties. The product is sold at a lower price than what it should have been, defeating the purpose of modifying the consumption pattern.
Often, the classification system is used to harass the taxpayer, since there is a certain amount of discretion available. An honest payer, to avoid getting mired in litigation, is forced to pay a bribe to avoid the harassment. Then, to recover the extra cost of conducting business, he has to indulge in improper practices.
THE CURE
One can give many such examples of a system of governance which would lead to corruption. This does not solve the problem, however, and one should also present what are the cures for corruption.
Let us look at one aspect of our life where we do not have to go to an ‘authority’ for taking an action. While driving on the road, it is expected that the rules will be observed by the user. One such rule in India is that he/she will drive on the left-hand side of the road. However, there is no rule that says that the person has to follow a particular route from one place to another, nor is he/she expected to apply in advance for permission to drive on the road at the particular time. The society will expect that the person will take a rational decision and go by the most appropriate route.
If a person drives on the wrong side of the road, or breaks any other traffic law, there is a policeman to catch the guilty person, and there is a system of fine. Invariably, the threat of being caught is sufficient deterrent to prevent a person from taking a wrong action.
Not having to ask for permission will ensure that a person who has every intention to follow the rules will not be handicapped – either by denial of permission, or delays in granting it. Those who intend to do wrong will do so whatever be the system, and he/she is able to sort things out, if caught. However, in a system where prior permission is required, an honest person, who goes through the proper procedures, gets penalised.
With respect to the system of governance, the essential change that is required is to have a paradigm whereby the citizen is not expected to approach the government as a matter of routine. It is not advocated that there be no rules and regulations. What is advocated is a need to trust the citizens of this country that they will follow the rules and regulations. After all, the politician asks the people to vote for him/her because he/she claims that he/she has a strong desire to serve the people. And the bureaucrat says that his/her job is to protect the interests of these very people.
Where licence is to be issued, let us look at the need to have a validity period. I have mentioned about the Shop and Establishment Act above. So long as there are no changes in the parameters on the basis of which the licence was given, there is no logic for asking a renewal. It should be made incumbent on the occupier that changes will be duly informed to the concerned department in the government.
In this way, the interaction between the licence holder and the ‘authority’ is reduced. The licence holder does not have to pay a bribe, because he does not have to go to the ‘authority’. If the ‘authority’ asks for some additional data, it has to be clearly stated. The licence holder can then provide the information sought in an unambiguous manner.
If at all it is felt that tht it is necessary to make the licence valid for a specific period, the renewal should generally be automatic, and that it will be sent to the concerned party within a stipulated period of time. If for any reason, the ‘authority’ feels that renewal should not be given, it is the responsibility of the department of the government to inform the party why, so that the person has an opportunity to take the corrective action. The licence holder should not be expected to approach the concerned department to ask for the status of the application for renewal.
This system can be enhanced by asking the ‘authority’ to display their performance on the office notice board for the information of the public. They should indicate how many cases of new applications, and how many cases of renewals were cleared within a stipulated time. These indicators should be given on a time-scale basis, to see if there is an improvement in the working of the ‘authority’, and a comparison made between different offices of the ‘authority’. This step will lead to a transparency, an essential feature to check corruption.
The postal system is a good example of minimal interface between the service-provider and the service-receiver. One goes to the post box to send the material to the destination. This is collected according to a time schedule. The postman comes to the doorstep to deliver the letter. He does not check whether there is anyone at home to receive it.
One does not need to bribe the postman to do the job. At the festival time, if he is not satisfied with the bakshish that he gets, the most he will do is to grimace and mutter a few words under his breath. But, the next day he will deliver the mail at the appointed time.
Another way to reduce the interaction between the citizen and the government is to introduce a system of third-party certification. Take for example the inspection of boilers used in the industry. The experts in the field can be granted permission to do the inspection and certify the continuing good health of the equipment. The responsibility for compliance is shared between the owner and the one who has issued the certificate. If it is found that there is a violation, then the certifying agency should also be ‘punished’. This will ensure that the third-party does a proper job.
There is another check in terms of the insurance cover that the owner will get. If the track record of the third-party agency is good, in terms of reduced payouts, the rate will be lower. Also, the insurance agency can say that they will not offer cover, irrespective of the premium paid, if the certification is done by an agency whose track-record is poor.
The system of third-party certification is prevalent in the marine industry for quite a long time. Ships are built as per the specifications set out by a classification society, which keeps a continuous tab about the compliance of the maintenance schedules set out. The classification society also ensures that the various structures and equipment on board are in good operating condition.
The experience in the marine industry has also shown that the third-party certification helps the industry to be more efficient. There is a practice of information sharing, whereby the third-party offers advice to the owner of the care to be taken. An accident is a great loss to the owner, and one can rationally expect him to take the maximum amount of care.
Angus Smith, who laid the foundation of inspectorate in the mid-19th century, said there are two modes of inspection. “One is by a suspicious opponent, desirous of finding evil and ready to make the most of it. The other is a friendly adviser, who treats those whom he visits as gentlemen, desirous of doing right.” The latter is the one that is the need of the day.
Practice has proved that it is difficult to control the consumption pattern in this manner. Consumption of luxury items are not price elastic, and so the demand will not be affected, except at the margin. Furthermore, the expenditure on ‘luxury’ items are a small part of the total economy, and hence reduction in the taxes on them will not have a great revenue impact.
Equally important, what is a luxury in one era becomes a necessity in another. The best example is that of a refrigerator. In an urban situation, particularly where both the husband and wife are working, daily shopping is a luxury. Thus, the refrigerator becomes a necessity for such a family.
A single rate of tax makes the whole process of classification redundant. Furthermore, a single rate of tax will make the whole administration of the system simple, benefiting not only the government but also the payer. The latter does not have to raise separate bills to take care of differing rates.
The points made here are not even the tip of the iceberg. My intention is to take a few items and go into some details about how to apply a system to reduce corruption. There are many more areas of coverage. However, the system changes that are to be applied will not vary much. I have deliberately picked up items of every day nature, to make a point about the system of governance that is in place. It is a tragedy that instead of dealing with such issues, the concentration is on what are thought to be exoteric matters. This has not led us anywhere.
Often one will hear that the bureaucracy will not allow these changes to take place, or that there is no political will for the changes. If this is a fact, then obviously there is nothing that can be done to check corruption, and so there would be no sense in wasting time in trying to tackle it. However, it is not the task of the intellectuals to second-guess what would happen. It is their task to make sensible suggestions, and work towards implementing them. If there are roadblocks in their implementation, the method to tackle corruption will have to be of a different type. Unless the right suggestions are made, there is only a supposition of a roadblock.
There is one additional benefit to make the system of governance friendly to the citizen. Corruption penalises the honest tax payer. When he sees that his competitor is indulging in it, and so under-cut him, he faces an unfair competition. To survive he has to follow suit, or stay out of the business. In either case it is a loss to the society, more so in the latter.
Catching the corrupt and punishing him/her means that we are locking the stable after the horse has bolted. This is what has been happening all these years. The process of punishment can be used as a route for corruption. In the zeal to give what are thought to be exemplary powers, a huge amount of discretionary powers are given to those doing the policing. In effect, the person is supposed to prove his innocence rather than the state proving his guilt. Corruption will stop only when we tackle it at the root – that is, reduce the opportunities for corruption.
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