Sunday 5 February 2012

From ‘Pay & Play’ to ‘Pay & Pray’ (Sunday Guardian)

Prashant Bhushan, a lawyer and the main petitioner in the 2G case, speaks with the media after a verdict outside the Supreme Court in New Delhi on Thursday. REUTERS
lthough the evidence was overwhelming that A. Raja allocated 2G telecom licences to 122 players on considerations other than merit, corporate India clung to the belief that the Supreme Court bench comprising J.J. Singhvi and A. Ganguly would not take the "extreme" step of cancelling the licences. Just as first the Bush and later the Obama administration concluded that some US financial institutions were "too big to fail", and therefore made available a trillion dollar bailout to them, despite the lack of ethics revealed in their decisions, corporate India believed that the wholesale cancellation of the 2G licences would be too "destabilising to the business environment" to be considered an option. While there was an expectation that some of the licences would get annulled, the bigger players were readying themselves to make additional payments to the exchequer as the price for being allowed to retain their licences. None expected that all 122 would get cancelled.
Since the 1960s, a cosy symbiosis has evolved between corporate India and the government. The latter would put in place multiple barriers to the smooth implementation of business decisions. The more vexatious these were designed to be, the higher the bribes needed to get around them. Those businesses that either had a surfeit of ethical principles or a deficiency of unaccounted cash fell by the wayside. The others ensured that the higher rungs of governance remained lubricated, by transfusions of cash as well as by services such as the provision of corporate jets or holiday homes complete with welcome drink and companionship. A financial adviser to several industrial groups estimates that such a "politico-official cess" amounted to around 20% of the cost of business, given the size and greed of the governmental mechanism in the country. "Had such a hidden surcharge not been operative, prices of Indian products would be lower than that offered by the Chinese over wide swathes of product," he claimed.
Besides the high maintenance cost of politicians and officials keen to keep up with the Gates and the Buffets, government policies in India tended to add rather than subtract costs, examples being super-high RBI interest rates and the cascading effect of multiple taxes on the same item or service. Transport in India was slow and therefore expensive, while power supply was erratic when present at all. A business executive who has implemented more than two dozen projects, said that "deliberate inefficiency in governance has raised the cost of doing business in India by nearly 40%" (including the 20% spent on bribes and undeclared personal services). The prices charged to the domestic consumer reflected this cost structure. Looking at the other half of the glass, what this implies is that the country can emerge as easily a more cost-effective manufacturing and service location than China, provided corruption and planned inefficiency gets reduced to the levels found in SE Asia.
Justices Singhvi and Ganguly, by decreeing that a criminal act has legal consequences no matter what the collateral effect, have forced corporate India to re-examine the relationship it has had with the agencies of governance. Indeed, several companies have already done so, "voting with their feet" by diverting investments to other parts of the world, despite scolding from a Prime Minister who seems unaware of the extent of the governance deficit in the country. If a company cannot get a decision in its favour even after ensuring substantial "goodwill", then the only option before it is to press for a set of rules and procedures that obviate the need for graft through simplicity and transparency. "Since the CWG scam broke, we have moved from the Pay & Play period to Pay & Pray," said a corporate head, who estimated that more than two-thirds of decisions "paid for in full" did not become operational". Of course, neither officials nor politicians in India have heard of refunds for non-performance.
The 2G judgement may ensure that more corporates join with the handful that are even now pressing for a decision-making matrix that is based on perceived merit rather than on bribes. "In India, usually the worst option gets selected, because this generates the highest bribe," a senior official complained, adding that "all that the system needs is good leadership", pointing to the examples of Gujarat and Bihar. Hopefully, the next time he goes on fast, Anna Hazare will be joined by corporate India.

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