Never before has graft dominated the national mind space as it is doing at present. It has even topped the allegations surrounding the purchase of the Bofors guns (which, by the way, were top-class) and the securities scam in the early 1990s. The frenzy around graft, or at least allegations of it, has achieved manic proportions, largely due to a combination of a series of revelations in big-ticket public projects such as the just concluded Commonwealth Games, the well-publicized political impasse in Parliament, the incredible censure by the Supreme Court of the Prime Minister, and, last but not least, the hysteria created by the 24/7 news channels.
In itself, it is not a bad thing. The exposure of people engaged in public office would not only act as a deterrent, but also ensure better spending of tax receipts. Is that all? The present mood of the nation, however, suggests something more.
For one, the sentiment of disgust over such misdemeanours may well have extended beyond urban pockets dominated by the middle class. Second, the inability of somebody with a Teflon image like Prime Minister Manmohan Singh to get a handle on this endemic problem suggests that something more drastic needs to be done.
It is as if the country may have reached the tipping point of corruption. If handled well, this could well be the lowest point in the country’s social history. Alternatively, it could well plunge the nation into social chaos.
Similar moments in the past have given rise to social movements, a classic example being the social action against graft in the 1970s against Gujarat chief minister Chimanbhai Patel and serving as ballast for Jayaprakash Narayan to put together what is now popularly referred to as the “JP” movement.
The stakeholders of today include the 50% of population aged below 25 years. The youth of today, especially since the Indian economy has taken off, have much more to lose. So effectively, they offer a vast reservoir of discontent waiting to be tapped.
An equally scary fallout is that allegations of graft are steadily nibbling away at the credibility of political parties, institutions, and now in the aftermath of the leaked audio tapes, even begun to creep up on journalism—a key pillar of democracy. It is another matter though, at least as one expert told Mint last week, that not a single politician has been successfully prosecuted to serve out a sentence (Capital Calculus is unable to verify this claim, but anecdotal evidence suggests that this may well be possible). But the allegations and the trial by circumstance is clearly doing incredible damage.
If all this was not enough, an international think tank, Global Financial Integrity, put an empirical number to these allegations. According to it, between 1948 and 2008, around $462 billion (Rs20.92 trillion) was siphoned out of the country; strangely, this trend increased in the period of accelerated economic liberalization beginning 1991—it claimed that the rate of growth of illicit outflows was 16.4% in this period, little less than double the average of 9.08% between 1948 and 1990. Very counter-intuitive because the lifting of controls normally denies perpetrators the incentive to duck the regulatory system.
There is hope yet. I am convinced that there are enough honest people in this country; it is just that they need something to be galvanized—the present sorry state of affairs may well be that trigger.
On a more practical note, there is an idea, proposed in a recent academic paper submitted at the just concluded 10th Indira Gandhi conference in New Delhi hosted by Sonia Gandhi; it makes a strong case for radical tax reform to deliver a body blow on public graft and provide an incredible incentive to potentially spur growth to an entirely new trajectory. The paper is co-authored by Vijay Kelkar (former chairman of the 13th Finance Commission) and Ajay Shah.
What they say is that corporate tax should be abolished. It may on the face of it sound facetious or the wild imagination of a free market votary. Not so if you hear out the authors. According to them, companies are a means to generate income for individuals; taxing them would therefore be tantamount to double taxation. At the same time, it would provide a greater incentive for companies to plough back profits, provide more investible resources, reduce compliance costs, and most importantly, completely eliminate lobbying—the genesis of crony capitalism and graft.
Politicians are bound to react adversely to this. Just as they have done in the move to create a uniform goods and services tax regime that, among other things, would have unified the country as one market and provided for transparency.
But power is with the people. The momentum is towards some kind of systemic change. The constellation of circumstances suggests that something radical (and not the usual lip service) needs to be done. The proposal by Kelkar, a former finance secretary and someone who has advised on some key tax reforms, may be a good starting point.
Are the politicians listening?
Anil Padmanabhan is a deputy managing editor of Mint and writes every week on the intersection of politics and economics.