CORRUPTION BAD GOVERNANCE

The quality of public governance is deteriorating at an alarming rate, not only in India but also globally. Last week we witnessed several more distressing examples of this. 

In the Saradha collective investment scheme collapse, the attention of all our elected representatives across parties is focussed on pointing fingers at each other on TV talk shows, rather than on seizing the assets of the culprits and trying to recover as much of the illegally obtained depositor's money as possible. 

Depositors and agents committing suicide, but the thick skinned political leaders care not a whit. The CMD of Saradha has been charged, in an FIR (First Information Report) not for swindling the public, but for non payment of salaries! It is, perhaps, in order to later provide an escape routem, once a 'deal' is struck! What a criminal disdain for public sentiment and what appalling apathy. 

So public governance is all about how to whack those who abide by the law, and to do backroom deals with those who break the law, allowing them to swap their ill gotten gains for personal freedom. 

For example, buyers of flats of a few buildings in Worli, Mumbai, are to become homeless when these flats, found (after years) to have been illegal, are demolished. At the same time, the Adarsh flats remain standing, because of the connections enjoyed by their owners. 

We live in an animal farm, where some animals are more equal than others. 

T N Ninan has given several excellent examples of this 'robbing Peter to pay Paul' syndrome in his artricle in Business Standard April 27 

Or take the recently introduced LBT (local body tax) and LPT (local panchayat tax) which Maharashtra is seeking to introduce, to replace the revenue lost by abolition of octroi (a tax leviable on inter-state movement of goods). Traders in Maharashtra have called a strike against it. Their reasonable averment is that if the Government wishes to introduce these, they should merge it, as Gujarat has done, with VAT, to obviate the need to keep a different set of records, and thus be subjected to harassment and corruption demands by a different set of inspectors. 

But public governance is about whacking the law abiders, such as the traders, and doing deals with the law breakers, such as those who ferry illegal stuff across state borders. 

Consider, too, the ludicrous demand against Shell, by the IT Department, which has, under transfer pricing rules, slapped it with a penalty for 'underpricing' shares issued as rights to its parent, which owns 100% of the Indian subsidiary. Shell has gone to court over this, as it should. 

Juxtapose this with the modus operandi used by several policy makers to collect bribes. They get their family members to set up dummy companies and issue equity shares in them to the bribe givers at an exorbitant premium. A year or two later, the shares are sold by the bribe giver, to the promotes, at a pittance. The loss is the bribe. It is tax deductible! This modus operandi is well known and has been reported in the media last year. Why is this not investigated? 

Because - public governance is to whack the law abiders (such as the Shells of the world) and to do deals with the law breakers. 

Doesn't anyone in Government realise the harm this is doing to the country? Or, if they realise, does no one care? 

Whilst India was trying to get Rs 15,000 crores from Shell on the logic of an unsustainable tax demand, China gave permission to Shell to invest $ 100b. in developing its shale gas fields. 

Shale gas is the next major 'bridge' fuel to be used when fossil fuels start to taper off. Australia is fast becoming one of the major sources of shale gas, after the USA. Perhaps China may overtake both. But shale gas discovery and exploitation requires technical expertise and capital, and China has been wise to create an investment climate that attracts companies. Perhaps China will become energy independent after a decade. India will still be fighting with Shell in a court of law. 

In the case of the Sahara group, although Securities and Exchange Board of India (SEBI) attempted to forestall the collection of funds through OFCD (optionally fully convertible debentures), the group effectively used various courts of law and fora to stall SEBI's efforts, and go ahead with the collection. It has now bloated into humungous proportions. But it was only last week, after a decade, that the Supreme Court realised, and stated, that the group was manipulating the courts, something which was obvious years ago when it got a court order staying SEBI's order. 

Now, although this website has a different view on commissions to mutual fund distributors, this columnist feels that banning payment of commission to distributors could have contributed to the growth of such unregulated 'collective investment schemes' also known as chit funds. A better way would have been to inform investors in the regulated mutual fund industry that the kickback of commission they get from the distributors is, in fact, their own money! Thus informed, they could then decide if it was in their interest to invest in a regulated, mutual fund entity, or in an unregulated chit fund promising untenably high returns. 

We thus create our own messes and problems. 

And, to add insult to injury, the Government of West Bengal, which seriously failed to stop chit funds like Saradha from growing on the back of false promises, has set up a Rs 500 crores 'fund' to recompense investors. This will come (at least Rs 150 crores of it; the rest is unclear) from a 'sin tax' by imposing an extra tax on smokers. In a lamentable display of apathy, Mamata Banerjee exhorted smokers to smoke more, so that she could collect tax to pay for a fraud which her Government permitted to be continued! 

If this is not a Kafkaesque situation, one doesn't know what is! 

How can any leader suggest her people to smoke more, knowing it is carcinogenic? 

For that matter, how can any political leader of a region that faces water scarcity, as in Solapur, permit the setting up of 19 new sugar factories, as Maharashtra has done? Sugar factories are huge guzzlers of water. So the priorities of the Government are to provide a living to 19 families of the sugar factories, never mind if the livelihood of millions of farmers is hit in the process? This is criminal. 

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