My nine-year-old daughter and I regularly enter into contracts. She pleads, whines, pouts, cajoles or charms her way to successful completion of each. In turn, I try to be fair, entering into only those contracts wherein I believe both of us can deliver. After all, I have to protect not only my individual obligation, but also the responsibility of parenthood. “Not fair,” she says occasionally, not yet schooled in the social contract theory of Hobbes and Locke.
The essential trust that works between entities in a society and the institutions that guarantee “contract” delivery are fraying at the edges in our country. What separates India from anarchy is a handful of institutions. This may be an exaggeration, but bear with me.
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I did a quick survey among my learned friends about institutions in India that upheld the notion of credibility. The list was dismally short—the Supreme Court (with increasing caveats), the Election Commission (barring an appointment or two), the Securities and Exchange Board of India and the Reserve Bank of India, the railways (with low but clear expectations), the Union Public Service Commission, the Indian institutes of technology and management (for their transparent exams), the defence establishment (for its non-interference in politics) and Amul (the butter is melting now). The list of institutions that were not credible ran into pages, with the Central and state governments in the lead, and included municipal governments, private companies, high courts, state public service commissions, self-regulating organizations such as the Medical Council of India and the Institute of Chartered Accountants of India, and others.
There is much, many would say futile, focus on individual corruption. Equally cancerous is the erosion in the credibility of institutions to deliver upon contracts. Governments are arbitrary, companies cheat with impunity, judges are bought, the press colludes or destroys, doctors routinely receive kickbacks. The tragedy is a simultaneous failure of all four estates of liberal society.
Consider the recent Antrix-Devas deal. Assume for a moment that the two parties to this deal entered into it in good faith in 2003. Given that many of the senior players in Devas worked at one time for the Indian Space Research Organisation (of which Antrix is the commercial arm), this seems plausible. Who is the guarantor of the contract? Can one side unilaterally annul the contract under political pressure? Is its credibility dented if it abrogates a contract that it has willingly been party to? While the clamour for cancelling the allocation of S-band spectrum has reached feverish pitch, is anyone arguing for the sanctity of a contract, howsoever flawed? Will this too wind up in the Supreme Court after many years? Why is there confusion in deciding between the potential wrongdoing of allocating the spectrum to Devas and the actual wrongdoing of annulling a legally enforceable contract? The trial by the press has already concluded that the allocation was wrong. On what basis?
Take the Karnataka government’s permission to Metro Cash and Carry to trade in 112 notified commodities after a 12-year wait period. Within a matter of days and under severe pressure from traders at the Agricultural Produce Marketing Committee yard, the licence was revoked. Yet 12 years would have been ample time to fully examine the issue and arrive at a fair conclusion. Why rescind the contract in a matter of days? I am not arguing that the licence should have been awarded. But if it was, after due process, then it should not have been cancelled without due process either.
Once the high courts of the land had the last word. In 2010, after deliberating for many years on the Babri masjid case, the Allahabad high court delivered its panchayati-style justice. The credibility of that high court is low (“something is rotten in the court of Allahabad,” said Supreme Court judges Markandey Katju and Gyan Sudha Misra recently, invoking Hamlet). No surprise that the judgement has been appealed to the Supreme Court, and many years and much angst will pass before the final verdict is delivered. Imagine the potential implications of the Supreme Court’s credibility eroding between now and then, as it is threatening to do with the latest corruption investigations.
Social scientists have convincingly argued that decreasing social trust causes the societal cost of contracting to increase, and vice versa. There is much anecdotal evidence to suggest that the cost of contracting is increasing in India, and the number of institutions that can credibly enforce contracts is decreasing. Winning the war on corruption is as much about renewing credibility in our institutions and protecting them from corrosion as it is about criminally prosecuting individuals.
For your daughter’s sake and mine, let us begin now.
P.S.: Groucho Marx, the American comedian, said: “I wish to be cremated. One-tenth of my ashes shall be given to my agent, as written in our contract.”
Narayan Ramachandran is an investor and entrepreneur based in Bangalore. He writes on the interaction between society, government and markets. Comments are welcome at email@example.com