Calcutta Notebook

People of the country are upset with the all-round increase in corruption and black money due to the complicity of the politicians. But the Finance Ministry is acting like an Ostrich. It is ignoring that huge amounts of black money generated by the doings of the politicians and focuses on the petty black money generated by petty officials and businesses.

Ministers collect huge sums for allotment of forests, minerals, spectrum, rivers and government land. These resources often command a hefty premium in the market. However, politicians sell these resources to companies at much lower price and collect part of the difference in cash. The Finance Ministry is essentially silent on this. It is said meekly that "oversight in the form of comprehensive regulations, independent regulator, and appointment of ombudsmen for grievance redressal... can be considered as a remedy." It is ludicrous to think an ombudsman appointed by a corrupt minister will help contain corruption of the same minister.

Second source is cuts in government procurement such as in Bofors' gun deal. The White Paper notes with satisfaction that the Government has brought the Public Procurement Bill to create transparency in the procurement process. However, one must not be under illusion that this will root out corruption. Much of the information is already accessible through the RTI Act. The standard practice of contractors is to make a cartel before the bidding. No matter how transparent the procurement process, the bids will be low. Also, officials routinely tweak the rules in favour of a preferred supplier. This is all done transparently. Provisions of the Indian Penal Code are adequate to deal with the problem. Difficulty is that the same corrupt ministers are bosses of the police authorities who have the responsibility to catch the culprits.

Third source of black money is changes in economic policies. One Chief Minister had perfected this art. Notification would be issued raising sales tax on certain commodities. Businessmen would soon reach with a suitcase and the notification would be promptly withdrawn. Policies can be made to make profits for specific businessmen as well. Hamish McDonald gives many instances of this in his book "Ambani and Sons." The Patalganga plant of Reliance came on stream in 1982. The Government imposed an additional anti-dumping import duty of Rs 15,000 per ton on PFY within three weeks of this. As a result domestic prices went up and Reliance made a windfall profit on its production. Black money generated from such policy changes does not find mention in the White Paper.

The fourth source of corruption is that from the officials. Thankfully this finds mention in the White Paper. It is mentioned that leakages are taking place in welfare oriented social sector programs. This writer had an occasion to study the flood relief program in Gorakhpur in the late nineties. The Patwari was collecting grease money of Rs 200 from grief-stricken folks to hand over cheque of Rs 1,000. It has been suggested that welfare money may be deposited directly in the bank accounts of the beneficiaries. However, the White Paper is silent on the corruption of the higher officials. It is well known that top officials get a cut from the bribes collected by lower officials in issuing drivers license or in providing copy of land records. Then lucrative posts would be auctioned to the highest bidders. It would be discreetly ascertained how much money an official was willing to pay for a particular posting. The posting was done upon receipt of the agreed sum. The official, in turn, would establish quotas for his junior officers. One paying Rs one crore to get a posting would collect Rs ten crores. Thus the top politicians sucked out the black money just as the top of the coconut tree sucks the water from the roots. The White Paper is woefully silent on the complicity of the politicians in generation of black money from these sources.

The focus of the White Paper, instead, is on the black money being generated due to tax evasion. Some good suggestions have been made such as imposing tax on bullion transactions. This is but the tail of the elephant. The share of politicians in the total black money may be about 65 percent. The White Paper makes not a single suggestion of rooting out black money from this source. It is happy to hold the tail of the huge black elephant.

The White Paper expresses helplessness in bringing back black money stashed abroad because of provisions of secrecy in laws of the host countries. The point is well taken. But there are other ways. American Jews had raised the issue of Nazi Gold in the nineties. It was alleged that many Jews had deposited gold and money in Swiss Banks during the Second World War. They perished in the holocaust before they could reclaim the money. The Banks simply sat on the money, effectively treating it as windfall gain. The Banks denied any wrongdoing saying that various commissions after the war had settled the matter. Not to be cowed down, Senator Alphonse d'Amato, Banking Committee Chair of the US Senate, threatened to revoke the right of Swiss banks to operate in the United States, and toward the end of 1997 New York City actually imposed sanctions against the Union Bank of Switzerland. That brought the Swiss Banks to their knees and they agreed to pay a compensation of more than a billion dollars. Government of India can similarly threaten that Swiss Multinationals operating in India shall be nationalized and their patents confiscated if they did not disclose and return the money stashed by Indian nationals. Similar pressure tactics can be applied against tax havens like Mauritius. Alas! Ministry of Finance has no stomach for such suggestions.

True objective of the White Paper is to fool the people into believing that the main problem is tax evasion by businesses and the Government is serious about checking it. The unsaid objective is to take corrupt politicians out of the limelight. The solution, of course, is to appoint honest ministers. But that is scarcely possible when those appointing the ministers are themselves corrupt. One cannot expect the thief to appoint an honest police inspector.

Vol. 45, No. 12, Sep 30 -Oct 6 2012

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