Why should a democracy block Islamic banking? (PO)

M D Nalapat

Although efforts have been made over the past twenty years to bring Islamic banking into India — a country that has more Muslims than Pakistan — as yet the Reserve Bank of India and its master, the Union Finance Ministry, has not given permission for the same. The reason is simple. Across the financial establishment in India, the influence of US and EU financial interests is overpowering. Several senior civil servants have their close relatives working in such institutions, and therefore accept the advice given by them. Certainly, banks in foreign countries will not want the Indian government to clear the way for the establishment of Islamic banking centres, for that may result in funds flowing from Zurich, London, Frankfurt and New York (all major “Islamic” banking locations) to Mumbai or Kochi. Acting on cue, the monetary and finance authorities in India have continued to block access to Islamic banking avenues, thereby denying millions of observant Muslims in India a chance to keep their assets in safety.

As has been mentioned earlier in these columns, the “British” law that boosters of the Nehru family such as Amartya Sen and Sunil Khilnani are so proud of pointing to is in reality English law for colonial subjects, a construct very different from English law for Englishmen. The laws in India give overwhelming powers to the administrative machinery, and no redress to the citizen except through the goodwill of some other governmental agency.Over time, the duration of cases in India has lengthened in a way calculated to resemble the “yugas” of the ancient Indian epics (each of which lasts millions of years). Many civil cases take sixty to ninety years to finally get decided, while in a criminal matter, the final verdict usually comes after the convict has passed away due to old age. Days ago, there was a “superfast” judgment delivered in a Karnataka court against an individual accused of the murder of a software company employee. The time taken was five years, and this is only the first stage. Even at such a “superfast” pace, the appeals process can drag on for fifteen or more years before conclusion. India’s judicial system is now internationally known for the frequency of “stay orders” and the length of time that it takes for verdicts to get delivered.

Of course, any effort at ensuring adherence to the maxim “Justice delayed is justice denied” gets smothered by the army of beneficiaries of the present system: those guilty, who seek to prolong the period in which they will be legally exposed as wrongdoers In property matters in India, there are individuals who tempt owners of property into signing agreements in exchange for a pittance, without any intention of developing the property. All that such people do is — in future — to blackmail the owners or intending buyers to part with large sums of money to avoid litigation that could take forty years to complete, if done at a rapid speed (by Indian standards). The wealth of talent within India makes it easy for the country to grow at 15% per annum. The fact that it is growing at only half the speed is because of the numerous restrictions that are in place to prevent activity and initiative.

Of course, several within the business community favour the present system, as it helps to prevent competition. Given the fact that the quantum of bribes is in proportion to the density of regulations, it is no wonder that none of India’s governments since 1947 has sought to dismantle the choking web of controls found in the system. One Prime Minister tried, and he was hounded since his downfall in 1996 by criminal cases to the end of his life for daring to dilute the monopolies of the influential. In his second and final term in office, Prime Minister Manmohan Singh is seeking to do the same, only to meet the same resistance. It is no accident that attacks on him have multiplied since 2009,when he began to bring some accountability within the system by proceeding against even the powerful. Now that the Commonwealth Games has been exposed for the gigantic scam that it is thanks to a handful of fixers, what is the chance that any of them will be brought to book? Despite an honest PM, the odds are that the guilty will escape, because of the protection they enjoy from those even more powerful Islamic banking is another idea that has fallen victim to the constricting web of British-era restrictions on freedom of activity, rules that have been substantially added on to by Jawaharlal Nehru, who deprived Indians of so much of free choice (save by governmental approval) and yet is revered by historians as a “great democrat”. A democracy should give freedom to its citizens except when what they do harms another. Who would get harmed by bringing Islamic banking to India? Only financial institutions in London, Zurich, New York and Frankfurt, whose deposits from devout Muslims would flow to India, a country whose banking structure is much more stable than those found in the US or the EU.

Opponents of Islamic banking say that this is a “Muslim” issue. Even if it were, there would be no harm in it, for Muslims are as much a part of India as Hindus or Christians, Sikhs or Jains. However, the fact is that the introduction of such institutions would benefit all of India and not merely a single community. The Reserve Bank of India follows principles developed in the UK, which is a largely Anglican country. Can we therefore call the RBI an “Anglican” institution? Can we call baseball a “Christian” sport, because it was originated in a country that is overwhelmingly Christian? Any system should be judged on its own merits, and not linked to matters of faith. The reality is that even non-Muslims can take advantage of Islamic banking institutions, the same way as so many non-Muslims are working in the GCC countries. If Indian officialdom were free of its over-dependence on foreign models, it would realize that India can become one of the world’s major Islamic banking centres, because of its growing economy, educated people and centuries of Islamic tradition that has made India one of the globe’s top centres of Islamic thought.

The city of Kochi in Kerala has the potential to be an international Islamic banking hub, should Prime Minister Manmohan Singh take courage in his own hands and sanction the same. During October 4-6,there was a conference on Islamic finance that was held there, at which scholars from several countries participated. The Union Home Ministry has made India one of the worst places in the world to hold international conferences, as the organisers of the Kochi meet soon found out. On the first day of the three-day meeting, they were informed by the authorities that as several of the foreign delegates had come on tourist visas, “they should not speak at the conference”. Preventing visitors to the country from expressing their views in public is among the many restrictions that have been placed by the Home Ministry after Palanipappan Chidambaram took charge in 2008,following the attack in Mumbai by terrorists who came from Karachi.

Earlier Chidambaram, as Finance Minister, ensured that draconian powers were given to the Income-tax and other departments, that have put the Indian citizen at the subjective mercy of officials if he or she is to avoid being driven into bankruptcy. This week, the Home Minister has made Delhi unlivable, by putting in place severe restrictions on human movement and even on occasion closing down schools and shopping malls, all in the name of security for the Commonwealth Games. If a city has to be shut down to provide security, the very purpose security - which is to ensure that life goes on as normal - gets defeated. Strangely, on matters where he should be firm - such as dealing with the troubles caused by anti-India elements in Kashmir - the minister is adopting a weak policy that is encouraging such groups to intensify their activities. Also, Chidambaram is seeking to plant his acolytes in all key state agencies, rather than working with those already in charge. A leader can motivate even his rivals, as Abraham Lincoln demonstrated.

However, Home Minister Chidambaram seems comfortable only with yes men. Those foreign delegates at the Kochi conference who were prevented from speaking on the dais can be forgiven if they consider India to be less than a perfect democracy. The reality is that this country is still a work in progress. While society has evolved and become mature, the institutions of government are still imbued with the colonial spirit. For example, a VVIP in India never stirs out on the road unless accompanied by a fleet of cars with blaring sirens. The ordinary citizen is pushed to one side of the road or removed altogether to make way for such elected royalty. As for long-distance travel, increasingly VVIPs rely on corporate rather than commercial jets. Mahatma Gandhi travelled Third Class to experience the same standard as the common people, but today’s “followers of the Mahatma” live lives that even Bill Gates would envy. The blocking of Islamic banking in India is just one more link in a long chain fashioned by the government to prevent competition and protect privilege. In this case, those enjoyed by foreign financial institutions. Thanks to the duty structure and imperfections in the distribution system, it is much more expensive in India to enjoy the benefits of high technology than in many other countries. For example, it is much cheaper to import a good music system and pay customs duty than to buy it at a local store. The same for most electronic products. A second round of liberalisation is needed, and the many public attacks on Prime Minister Manmohan Singh seem designed to steer him away from attempting this essential reform.

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