Corruption in politics begs for a larger reform than a Lokpal Bill. It requires funding of political parties to be made transparent. Prem Shankar Jha on what ails the system and how to stem the rot
THE NEAR-unanimous decision of Parliament on 27 August to accept Anna Hazare’s three key conditions for ending his fast has been hailed as a victory for Team Anna. It was, in fact, a victory for democracy. Anna, the Bhrashtachar Virodhi Andolan, and the millions who answered their call, were the essential catalysts. But such a profound and peaceful victory would not have been possible without the determination of the Congress to cooperate with Team Anna, the free rein Prime Minister Manmohan Singh gave to the CBI to pursue its investigations into the 2G scam,and the relentless pressure mounted by the opposition BJP. As the debate in both houses on 27 August showed, in the end we saw parliamentary democracy at its best.
This is not how the public views it. This is not the way even Team Anna views it. The rhetoric today is one of victory and defeat — of confrontation, not cooperation. How has so deep a chasm developed between the people and the State? Why are the more radical civil society activists convinced that the State is an enemy that needs to be subdued?
The short answer is that despite 15 parliamentary and over 300 state elections, democracy has not empowered the people of India. Instead, it has created a predatory ruling class that has preyed upon them. The Anna movement draws its strength from a howl of protest: “We have had enough — we can bear no more.”
Dissatisfaction with democracy is not new. The Nehru years were undoubtedly years of empowerment: the government was honest; it drew up grand plans for ending poverty, and the people believed in them. But the euphoria did not last. Disillusionment first revealed itself in the so-called protest vote — a clear pattern seen in the 1967 General Elections and Congress defeats in state legislatures being associated with a sharp rise in the voter turnout.
Dissatisfaction became endemic in the 1980s. Voters threw out incumbent governments so regularly that this came to be known as the ‘anti-incumbency factor’ — a classic case of calling a symptom a disease. But people soon realised that changing governments made no difference to their lives. No matter who came to power, the same, extortionate and oppressive Mai Baap sarkar continued to rule their lives. Gradually, concerned citizens realised that to change things they would have to exert pressure from outside Parliament. That was when the civil society movement, as it has now come to be called, was born.
Anna has announced that his next goal will be electoral reform. By this he means giving voters the right to recall their elected representatives. But, like the demand to bring the judiciary under the Lokpal, this too could prove a stumbling block to the reforms by diverting the movement into a side alley. For just as even the strongest of Lokpals will not end corruption in the bureaucracy — just look at China — the right to recall will not end corruption, or the ubiquity of criminals, in the legislatures.
CORRUPTION, EXTORTION, criminalisation, the black trishool that has poisoned the heart of the Indian State, can only be eradicated if its roots are fully exposed. The origins of all three can be traced to two deep flaws in the Constitution India adopted in 1950. The first is the omission of a system for meeting the cost of running a democracy, i.e. the entire process of selecting and then electing the peoples’ representatives. The second is the failure to enact provisions that would convert a bureaucracy that had been schooled over a century into believing that its function was to rule the people into its servants.
The first arose from an unthinking emulation of the British practice. What the members of the Constituent Assembly forgot was that whereas the average British constituency was 375 sq km in size, and today has an electorate of 60,000, the average parliamentary constituency in India is 6,000 sq km in size and has 1.2 million voters. In Britain, a candidate for Parliament can therefore get into his car every morning, visit two or three towns and villages, and return home every night. But in its Indian counterpart, the typical constituency has more than a thousand villages. To man its 1,000-1,200 polling booths, every serious candidate has to employ at least 8,000 persons on polling day. The cost is, quite simply, enormous. The failure of the Constituent Assembly to understand how this difference in size made it impossible to copy the British model in India was surprising, to say the least.
The oversight could have been remedied with a constitutional amendment at a later date, but instead, in 1967, Indira Gandhi took the country in the opposite direction and choked off the only legitimate source of funds that had sprung up in the intervening years. This was the donations from corporations that all parties, except the Communists, had begun to depend upon.
Gandhi took this decision weeks after the Congress party came close to defeat in the General Election of 1967. Not only did its tally in the Lok Sabha fall from 353 to 282 — only 10 more than what it needed for a majority — but for the first time, it also lost the Assembly elections in six major states. It first repealed the tax concessions on donations to political parties and followed it up three years later with a complete ban on company donations to political parties. But while choking the political system’s main source of funds, she deliberately did not create an alternative.
She did this because her purpose was not, as her party claimed, to reduce the influence of big business on policy-making. The second Industrial Policy Resolution of 1956 had already done this. It was to cripple a rising threat from the right by depriving it of funds. In 1967, the pro-market Swatantra Party, formed by C Rajagopalachari in 1961, and the Bharatiya Jana Sangh (BJS) had fought the elections jointly and become a serious threat to the Congress in three states. These were Madhya Pradesh, where the BJS won 78 out of the 296 seats, Gujarat, where the Swatantra Party won 66 out of 168 seats, and Rajasthan, where, by winning 72 seats, they succeeded in reducing the Congress to a minority.
More than their share of the seats, the Congress feared their much larger share of the vote, for this threatened to turn them into a magnet for the then numerous smaller parties and independents. A two-party, or at least two-coalition, political system, therefore, seemed on the point of being born, but the threat that a second national party could pose to the Congress was too much for its leaders to stomach. It therefore, knowingly, passed a law designed to starve the Opposition of funds that only it, by virtue of being in power, could flout with impunity.
Indira Gandhi’s decision to ban corporate donations to political parties in 1967 took the country in the opposite direction from the one it had taken under Nehru
Birth Of The Predator State
The ban on company donations closed the only honest, open and transparent avenue for raising funds to fight elections, which had come into being since Independence. Like Solomon Bandaranaike’s Sinhala-only language policy of 1956, it was entirely opportunistic. And as in Sri Lanka, the harm it has done is beyond measure. For it has deprived all political parties, including the Congress, of the option of remaining honest. It therefore, opened the gates for the entry of crime and black money into politics.
Over almost half a century, we have become familiar with the corruption and extortion that this has bred. But few understand the deadly impact that it has had on Indian politics. Its immediate effect was to all but destroy the centrist Opposition in Indian politics, and strengthen its ideological extremes. The Swatantra, being the most dependent on funds from the corporate sector, simply threw in the towel: most of its members merged with the Jana Sangh. The two socialist parties, the Praja Socialist Party (PSP) and the Samyukta Socialist Party (SSP), weakened rapidly, merged, then joined the Janata Party in 1977 and finally, disappeared altogether. Their place was taken by a host of caste and ethnicity-based political parties that we are familiar with today.
Only the Jana Sangh and the two Communist parties survived relatively unscathed. By the late ’70s, therefore, the dream that India would one day develop a bipolar political system similar to that of Britain had vanished.
A second, more serious effect, has been to stifle intra-party democracy. The ban on company donations made it harder even for the Congress to raise funds, for its managers had to replace a relatively small and stable cadre of large donors with a much larger number of widely dispersed donors, who were prepared to contribute small sums in cash. Over time, the sheer difficulty of doing this every few years has made them extremely reluctant to disturb a financing network once it had been established. In 80 percent of the constituencies, these networks are inevitably local. All the favour-swapping that has to be made to establish them centres on gaining the favour of not only the party in power, but more specifically, the candidate who represents it in the legislature. This is the origin of clientelist politics.
The actual deals are struck by self-appointed lieutenants, who give candidates the elbow room necessary to modify, or get out of, conflicting commitments. Once a network is established, and especially once it has succeeded in getting its candidate elected, the lieutenants have the most powerful of interests in making sure that it is not threatened by a rival. New entrants into politics determined to change things stand little chance of breaking these clientelist networks. Thus, the more Indian democracy has matured, the more it has succeeded in shutting new people out of politics unless they too are prepared to become a part of the existing clientelist networks.
A corollary to this has been the rise of the so-called ‘princelings’ — a second generation of leaders in Indian politics who have inherited and not earned their constituencies. In western democracies, when a long-term member of Parliament, National Assembly or Congress dies, the party almost always chooses a successor on the basis of his or her standing in the constituency. In India, by contrast, the death of a senior politician triggers a rush by the operators of his clientelist network (who have all been inducted into the party by then) to Delhi or the state capital to make sure that there is no contest for the vacant seat, and that the dead leader’s wife, son or daughter is nominated to take the parent’s place. They do this because, sentiment apart, this is the one way of making sure that the clientelist network will not be disturbed. While some ‘princelings’ regularly capture headlines, they make up only a small visible fringe of the tribe. A study by Patrick French of the composition of the 2009 Lok Sabha showed 156 MPs (28.5 percent), including 78 from the Congress (37.5 percent), were selected as candidates because of their family connections. What is still more significant is the preponderance of princelings in the younger members. What is more, French found that “nearly half of all MPs aged 50 or under, are hereditary — selected to contest a seat primarily because they are the children of politicians. Thirty-three of the youngest 38 MPs and every Congress MP under the age of 35 entered Parliament because of their birth.
These figures are disturbing not because of their character and ability, which is much higher than the average, but because, as French concluded: “If you do not come from an established ruling family, you have almost no chance of progressing in national politics, unless you join an ideological party such as the Bharatiya Janata Party (BJP) or the Communist Party of India (Marxist), where lineage is not important.”
A third, unforeseen consequence has been the weakening of national leaderships of the main, non-ideological parties. In this too, the Congress was the first sufferer. When donations were legal, the money used to come directly to the president or treasurer of the political party. This ensured that the reins of financial power remained in the hands of its leaders whom the public recognised and could hold accountable for the way it was collected and spent. But once money began to be raised clandestinely, financial power slipped into the hands of anonymous, unaccountable and, more often than not, unsavoury characters. What is more, control over these new money collectors passed more and more out of the hands of the central party leaders into those of the leaders in the states.
Over time, the price that fundraisers demanded kept growing and, with it, the power of the elected leaders to choose candidates or determine policy, declined. One of the first victims of the change was Indira Gandhi herself. Scholars have severely criticised the way in which she concentrated power within the Congress in her own hands during the Emergency, but in reality, this was a defensive action to stem a weakening of her control over the party that only she fully sensed. For by the mid ’70s, she had all but lost control of several charismatic Congress chief ministers, including HN Bahuguna in UP and VP Naik in Maharashtra. Both were able administrators, and Bahuguna in particular, had restored efficient governance in UP after a lapse of several years. The main reason why Gandhi felt obliged to withdraw her trust from them was that they were no longer obeying the Centre’s directives. In all, Gandhi changed the chief ministers in the Congress-ruled states no fewer than 15 times between 1975 and 1977. That she did this during the 21 months of the Emergency, when, in theory, she was at the peak of her powers, shows how much the Centre had been weakened by the changes that had occurred within the party.
The weakening of the central leadership of the Congress has reduced the capacity of the national leaders to take hard decisions in national interest. In 1967, Gandhi was able to overcome the resistance of a powerful regional chief minister in Assam, BP Chaliha, and separate Meghalaya from Assam. Sixteen years later, her inability to control the Punjab Congress precipitated the Khalistan insurgency in the state. Not only was the Punjab Congress responsible for the rise of Jarnail Singh Bhindranwale, whom it actively fostered in an attempt to break the Akali Party, but three meetings between Gandhi and Sant Longowal in 1983 failed to produce an agreement over four long-standing demands that, if conceded, would have stemmed the rise of separatism in Punjab. This was because she was unable to persuade the state Congress party’s leaders in Punjab (and Haryana), to endorse anything that would give the Akalis an edge over them in the next election. The country paid the price for her failure with 10 years of insurgency and 61,000 civilian lives. Two thirds of the victims were Sikhs.
The fourth consequence is the entry of criminals into politics. Members of the current Parliament (29 percent) are facing serious criminal charges including murder, arson, rape, kidnapping, dacoity and illegal possession of arms. In the current Bihar legislature, the ratio is 44 percent and in the recently elected West Bengal Assembly, it is 35.1 percent. To think that West Bengal is one of the most law-abiding states in the country!
The final act in the cementing together of the clientelist State and denying access to power to ‘outsiders’ was the establishment of the MPs and MLAs’ Local Area Development Scheme (MPLADS and MLALADS) under which they are allotted plan funds to spend on development projects in their constituencies at their discretion. On paper, this power is hedged with elaborate safeguards to prevent misuse, but in practice there is no effective monitoring of how much of the allocated money is spent on projects and how much finds its way back into the MP or MLA’s pocket. This scheme has completed the conversion of constituencies into zamindaris. But when the allocations for it was raised from Rs 2 crore to Rs 5 crore a year for each MP and from Rs 1 crore to Rs 2 crore for each MLA in the middle of the 2G scam furore, no one, not even Team Anna, voiced a single murmur of protest.
The economic consequences of the total denial of honest funding to political parties has been, if anything, even more devastating, for it has transformed what was intended to be a developmental State into a predatory one. This has taken place in four stages.
29 percent of the current MPs are facing serious criminal charges. The ratio is 44 percent in the Bihar legislature. In West Bengal, it is 35.1 percent
In the immediate aftermath of the ban on company donations, the Congress party’s fund managers also found themselves at a loss for where to raise the money to fight elections. In the 1971 Lok Sabha and 1972 Assembly elections, they therefore went back to the same companies and trade organisations from whom they used to accept tax-deductible cheques in the past, and demanded cash. Although most of them complied, they did so unwillingly. Raising money to meet electoral and administrative expenses therefore became more difficult than it had been before. But the gap was filled by owner-managers of small and medium-sized enterprises, traders and shopkeepers, moneylenders, and others in the informal sector with cash to exchange for entitlements and allocations from the government. This was the base of the shift of power from the central to state units of the Congress described earlier.
But small enterprises needed space to grow and rich farmers needed subsidies. The former played a significant role in providing the rationale for Gandhi’s second round of ‘socialist’ controls on ‘big’ business enacted between 1970 and 1973. The latter converted support prices in agriculture that were designed to protect farmers from loss into ‘procurement prices’ that regularly elevated the market price of cereals and ensured a steady and rising stream of profits for rich farmers. The political power of this ‘intermediate class’ not only caused a further fall in the GDP growth rate from 3.7 percent between 1956 and 1967 to 3.1 percent from 1967 to 1975, but prolonged the life of the command economy by another 15 years till 1991.
The defeat of the Congress in the ‘post-Emergency’ 1977 elections triggered something close to a financial collapse in the central Congress party, but left more than half of its state units relatively unaffected. This triggered the second phase of the development of the predatory state, for when the Congress returned to power in 1980, restoring the financial autonomy and pre-eminence of the central command of the party became one of Gandhi’s first preoccupations. It did this by institutionalising a system of commissions and kickbacks on foreign contracts, notably in infrastructure and defence.
Over four decades, the cost borne by the people, in terms of opportunities foregone, has been astronomical. Two examples, highlighted in the media at the time when they occurred, show how it has been paid. In the late ’70s, the Janata government had obtained World Bank financing for the first of a new generation of fertiliser plants based upon the natural gas from Bombay High to be set up at Thal-Vaishet, south of Mumbai. Based upon international bidding, the consultants employed by the World Bank had recommended that the contract be given to an American firm, CF Braun. But when the Congress returned to power in 1980, it began to negotiate independently with several firms, including Toyo Engineering of Japan and Haldor Topsoe of Denmark, a subsidiary of the state-owned Italian engineering giant, Snamprogetti. When the World Bank refused to reopen the bid, and pulled out of the project, the government went ahead nonetheless, beating the nationalist drum against foreign dictation, hinting at the World Bank’s subservience to the US government, and hence, partiality to CF Braun, proclaiming that it would finance the plant from its own (non-existent) foreign exchange resources.
Eventually, it awarded the contract not only for the Thal-Vaishet plant, but for four others, to Haldor Topsoe. At the time, it was common knowledge that the government had given the contract to Haldor Topsoe in exchange for a handsome kickback. Only later did the public come to know how much the country had to pay for that deal.
CF Braun had been chosen because of all the bidders, it had by far the most energy efficient technology and lowest overall manufacturing cost. Had the original project been implemented with all the safeguards of the World Bank, it would have set the benchmark for the entire future generation of gas-based plants. But it would, unfortunately, have made kickbacks on future projects much harder to obtain.
The award of a single contract for five plants without any international bidding led to an inflation of the capital costs of all the plants. To make matters worse, Haldor Topsoe’s ammonia making technology used 15 percent more energy per tonne of output. These two disadvantages ensured that these plants would never be able to produce urea at internationally competitive prices. The Thal-Vaishet project therefore created a much higher benchmark for capital costs in later plants. These and its higher energy costs had to be offset by subsidies. Since subsidies were designed to ensure a minimum return on capital invested, it ensured that the cost of all future plants would be ‘gold-plated’. Indian taxpayers have been paying the resulting, inflated, subsidies till this day.
Even while the Thal-Vaishet project was being renegotiated, the Ministry of Defence had begun a similar renegotiation of major defence contracts entered into by the Janata government. Two that were eventually reinstated at immensely higher prices (and much higher kickbacks) were the purchase of groundhugging long-range Jaguar fighter bombers for the Indian Air Force, and the Harrier vertical/short take-off aircraft for the Indian Navy from British companies.
BUT THE country had to wait another five years to gain its first unequivocal understanding of the direction in which the political system had evolved. It got this from an exposé in the Swedish newspaper Dagens Nyheter in 1987 of what came to be known as ‘The Bofors Deal’. And in much the same way as is happening now, the details only came to light because of then prime minister Rajiv Gandhi’s determination to clean up the system he had inherited. The investigations that followed the Swedish exposé revealed no fewer than three layers of kickbacks, totalling a mammoth 17 percent of the $1.3 billion contract. So great was public indignation over the deal and its aftermath that the revelation of yet another massive kickback, of 6 percent on the purchase of submarines from the German firm Howalds Deutsche-Werke, went virtually unnoticed.
The loss of money is, however, the least part of the harm that the institutionalisation of kickbacks has done. Kickbacks take time to negotiate. This has meant escalations in cost and a loss of valuable time. The last is unforgivable in defence contracts because it has left the country vulnerable for long periods while kickbacks are being struck. For instance, both Pakistan and India decided to equip their armies with 155 mm Howitzers at more or less the same time in the late ’70s. The Pakistan Army got its guns by the early ’80s. The Bofors deal was only finalised in 1985.
The need to arrange the kickbacks has led to an unhealthy centralisation of even routine procurement in the hands of the civilian staff of the Ministry of Defence. Today, senior armed forces officers openly lament that it takes an average three years for their requisitions to be met.
The institutionalisation of kickbacks has also meant that contracts have often not gone to the most qualified bidders because these have the least need to pay kickbacks in order to secure orders. This was the probable cause of the cancellation of the agreement with CF Braun.
But by far, its biggest effect has been to put the State up for sale. And in doing so, align it with the predators in society. For once it takes a bribe from a bidder, it makes itself a party to whatever the bribe-giver has to do to recover his ‘costs’. The State, thus, ceases to be the people’s watchdog.
This is the source of all the abuses that have crept into the tendering system — the omission of time schedules, the obfuscation of penalty clauses and, once the deal has been struck, the repeated modification of tenders to ensure that only the pre-determined bidder secures the contract. In addition, since the presence of independent consultants makes deal-making more difficult and fraught with risks, government departments have been found to be shy of employing them to plan and execute projects and have insisted on doing so themselves. This has not only removed the last remaining safeguard against graft but contributed to it.
State governments in particular, have taken advantage of this by developing a stratagem for extracting money from projects that only Indian ingenuity could have dreamt up: they chop up large projects into numerous smaller parts in the name of preserving competition, and invite separate tenders for each part. This allows ministers and bureaucrats to award contracts to small companies without the capital base, equipment or track record required to qualify for large projects, but willing to offer almost anything in return for getting a piece of the cake. Highway projects, and more recently a rash of tiny solar power projects, are the most obvious examples of such parsing for profit. The cost in terms of delays, inflation and shoddy work can be judged from the fact that the Golden Quadrilateral highway project, to link Mumbai, Delhi, Kolkata and Chennai — started by former prime minister Atal Bihari Vajpayee in 1999 with the express purpose of providing a fiscal stimulus to the Indian economy after two years of recession — intended to be completed by 2004, is not even half complete in 2011. What is more, it is incomplete because there were unfinished portions in each and every section of the four highways! By contrast, Chinese companies have built 1,000 km of four-lane highways that measure up to European specifications in Kenya, and another 500 km of high-grade two-lane roads in just three years.
Team Anna would be indulging in wishful thinking if it believed that the Lokpal will make more than a dent in this awesome edifice of corrupt power
In the three decades or more, since kickbacks became the norm for financing political parties, these practices have spread to every corner of the country and every level of its government. Today, there is hardly a contract from the purchase of a new generation of Main Battle Tank to the construction of a rural road, which is not being preyed upon to extract money. Over the years, bureaucrats at every level, from the secretariats in New Delhi to Block Development Offices in each sub-division, have learnt that they can do with even greater impunity for themselves what their political bosses want them to do for their parties.
Economic liberalisation in 1991 ushered in the third phase of development of the predator-clientelist State. The ban on company donations was finally lifted in 2003, but by then the need for funds far outstripped what industrialists, in the new, fiercely competitive economy, with its vastly reduced scope for favour-swapping, were prepared to pay.
According to a recent study by Indira Rajaraman in 2009-10, corporates, large and small, donated only Rs 130 crore to political parties. But industrialists have found more direct ways of influencing government decisions: they now just buy the concerned decision-makers. This is what the spate of scams in the 1990s and 2000s has shown.
The fourth and final stage of development of the mature clientelist State occurred when coalition rule at the Centre became the rule. Look at all the five governments formed since 1996 and you will find that while the ‘national’ party, be it the Congress or the BJP, has retained the ‘power’ portfolios — defence, home, external affairs and the prime ministerships, all but a few of the ‘money’ portfolios have been taken by its regional coalition partners. That is the root of the 2G scam. But the 2G scam is only an extreme case of what is now everyday, routine ‘business’.
Team Anna would be indulging in wishful thinking if it believed that even the Lokpal of its dreams will make more than a dent in this awesome edifice of corrupt power. Nothing will change till political parties are once more freed from the need to break the law to stay in business and given the option to be honest once again. The only way to do this is to start a very large State fund for financing the electoral expenses of recognised political parties. This requires a much-strengthened Election Commission with a powerful auditing wing, and the adoption of strict and transparent criteria for awarding recognition to political parties. Other reforms can be built upon this foundation. But without it, all the rest will fail.
Prem Shankar Jha is a senior journalist.