Sunday 28 April 2013

Cheat funds not the only crooks India should worry about (Sunday Guardian)

Saradha group chief Sudipta Sen being taken to court in Kolkata on Thursday. PTI
he topic of the week has moved on from brutal assaults against minors to chit funds, specifically to one in Kolkata that seems to be close to a gaggle of politicians; hardly a surprise. Laws in India are deliberately made in such a way that only a divine being can escape their numerous — and onerous — provisions. An example is the Shops and Establishments Act, which mandates that all such sites be unpopulated by dirt or insects, and indeed, the surrounding areas too need to be similarly free of grime.
Professor Vaidyanathan of IIM (Bangalore) was talking about his own favourite kirana store, which is separated from its customers by a foul-smelling drain. He and other aficionados of the outlet stretch their arms across the fetid waters and garbage to exchange currency with household goods. And what of the fabled Shops and Establishments Act? Each week, a crisp Rs 1,000 note gets exchanged between the shopkeeper and those who are tasked by the state to enforce its unenforceable provisions. Practically every piece of regulatory legislation in India is similarly entirely divorced from the reality of "facts on the ground". Then why have such laws been passed?
Apart from the necessity of keeping the growing army of lawyers in the country occupied, each such law ensures a steady flow of untaxed cash to multitudes of officials. Small wonder that government servants, as a collective, swear by the same "Nehruvian Democracy", as do geniuses residing abroad such as Amartya Sen or Sunil Khilnani. Of course, a goodly portion of each rupee goes to the political class, which has taken the place of British colonial authorities as a rent-seeking layer sucking away the cream from what little progress there remains after the colonial-style (but of course, fully democratic) administration takes its cut.
While estimates of such "rent" vary, those having to dish out such largesse say that in well-administered states such as Gujarat, it is about 10% of the total spent on an activity. In poorly-administered states such as Uttar Pradesh, the figure rises to 30% and on occasion 35%. In today's Delhi, evidence has it that the cut taken from contracts has risen to an effective total of 40% and above. Small wonder that projects are simply not getting completed, and are generating so few benefits to the public in the rare instances when they get commissioned.
If there has been any accountability at all in matters of misgovernance, it is because of the media and the courts. The former, goaded out of its torpor by the whiplash of adverse comment from the blogosphere about its blindness to specific instances of VVIP graft, is picking on a new target every few days. Eventually, of course, the vagaries of the justice system in India may ensure that most of the depredators — if not all of them — will end their lives peacefully and naturally, while being out on bail or acquitted for lack of evidence.
The police in India, notably the CBI, can always be relied upon to ensure that the evidence presented is in a form designed to accommodate the wishes of their political masters. The 1862 Indian Police Act, retained by successive governments of varied hues, ensures that the political executive has sufficient levers at hand to ensure obedience to their dictates of the men and women in uniform, of whom — it must be admitted — a surprisingly large number are admirable in their often hazardous dedication to the public interest.
However, in India the relatively small fry get caught while the whales escape. The financial sector is an example. Recently an internet website documented dozens of cases, which conclusively prove that huge commercial banks (many owned by overseas interests) are guilty of money laundering on an epic scale. However, while the RBI is insistent on damaging economic growth and the competitiveness of Indian companies, it has kept near-silence on the website's revelations.
Could the reason be that many friends and relatives of the well-connected work in the giant institutions, who daily indulge in speculation and money laundering? Certainly chit funds in India are usually harmful to the financial health of the depositor. But so are the much bigger financial agencies who, while being fined millions of dollars even in London and in New York, escape unscathed in India, despite indulging in the same activities for which they have been penalised abroad. Hopefully, the scanner now shining on chit funds will get extended to these agencies as well, if the people of India are to be genuinely protected from financial fraudsters.

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