The charges levelled against the Adani group of Companies by the US federal prosecutors and the Security Exchange Commission pose a formidable challenge to the Indian establishment. India’s large corporate groups — Ambani, Adani and Tata — are our national champions, critical for India’s growth ambitions over the next three decades. India needs a massive infrastructure push, and these three groups alone have committed over $250 billion investment in the coming years.
The license-permit-quota raj institutionalised until 1991 fed a system of massive corruption and rent seeking. In the post-1991 era, with economic liberalisation, competition among producers and choice for consumers became the norm. However, the Indian state failed to dismantle the political economy of rent seeking. Corruption is fuelled by greed for personal gain through abuse of power. The vast, unaccountable bureaucracy used the political vulnerability to extort money from businesses, as well as hapless citizens. Payment of bills due to a supplier, power purchase agreements and contracts even after competitive bidding, allocation of natural resources like land and mines, the myriad of regulatory powers, routine service delivery to which citizens are entitled, release of subsidies, registration of property transfer, tax assessments and many other business-government and citizen-government interactions are mediated by corruption. Surveys indicate that over half of the households of India are forced to pay a bribe for some service or other in a given year. Corrupt politicians and extortionary bureaucracy are in cahoots in this system of rent seeking.
Many politicians and civil servants are personally honest and incorruptible. But politicians preside over an electoral system that increasingly depends on vast, unaccounted, illegitimate expenditure for voter inducements, and even honest politicians are victims of this systemic imperative. If honest civil servants resist corruption too aggressively, they are quickly sidelined, or are neutralised by their peers and lower bureaucracy.
Given this background, our political system now has to confront the challenge posed by the Adani indictment. The earlier socialist era bred a culture of vilification of entrepreneurship and wealth creation. If we destroy the few industrial houses who are more often victims of extortion than villains, we will do irreparable harm to our growth prospects. But if we continue with a business-as-usual approach, there could be real harm to growth prospects. The central question is, can we convert the crisis into an opportunity and pave the way for probity in public life, genuine competition and ethical corporate governance, and transformation of our political culture?
The Adani crisis exposes some of our vulnerabilities. Already the negative fallout of this case is apparent. The Adanis had to suspend bond sales of $600 million. TotalEnergies, a French multinational energy company, has announced freeze on further investment in energy sector in India. Kenya revoked the projects worth about $2.6 billion for redevelopment of Nairobi airport and upgradation of power lines undertaken by the Adanis. Two global rating agencies downgraded the Adanis’ credit rating. Clearly India should act decisively to end the political economy of corruption and send a strong signal to the country and global community.
India has a robust and vibrant democracy. We are proud of our political freedoms, fierce electoral competition, fair regular, and periodic elections, peaceful transfer of power, genuine federalism, independent judiciary and many other democratic institutions and practices. We defied all prophets of doom and preserved our liberty and democracy. We also have several unfinished tasks. Mass poverty, low citizen awareness, weak local governments, poor bureaucratic accountability and first-past-the-post system make an explosive combination. We don’t have to be defensive about our governance challenges. The UK had terrible corruption and auctioning of public offices in the mid-nineteenth century. Gladstone and other leaders understood the political malaise and reformed the British system by the end of 19th century. The US had Tammany Hall politics in New York, machine politics in many states and clientelism, and Jim Crow laws of segregation well into the twentieth century. The US establishment confronted these challenges and systematically reformed their party system, elections and segregation practices over decades. Now the time has come for India to reform its politics and rule of law.
Two years ago in these columns (October 23, 2022) I raised a provocative question – can 19th century politics and 21st century economy coexist? We need to investigate the allegations of corruption energetically both by the CBI and state anti-corruption agencies. SEBI must act speedily and firmly to penalise the violations of law including disclosure norms. Let due process prevail in a transparent and verifiable manner, and let all recipients of bribes be awarded exemplary punishments in special courts constituted for the purpose. The Parliament, under Article 253, should swiftly create strong Lokayuktas in states on par with the Lokpal. Lokpal and Lokayuktas must be given the personnel and resources, and CBI and State anticorruption bureaus must be brought under them. This will send a strong signal to the country and the world.
The Prime Minister should take the initiative to generate a debate and build a consensus on electoral reforms needed to eliminate the need for unaccounted, illegitimate expenditure for voter inducements. There are many options we can consider. But only a strong leader with incorruptible personal image like Narendra Modi can lead this process. Sustained, rapid economic growth is well within our reach. But India must bring our politics and governance in alignment with our economic aspirations. India awaits the second set of reforms after 1991.
The author is the founder of Lok Satta movement and Foundation for Democratic Reforms. Email: [email protected] / Twitter @jp_loksatta
