Wednesday, November 17, 2010

Corruption Trips Up India's Rise

The growing scandal over a newly built apartment tower in Mumbai, and the collapse of an old building in Delhi on the night of November 15, killing over 60 people reflect the peril that haunts Indians everyday - lack of secure property right, and strangulating regulation. The result is the pyramid of corruption that weighs heavily on citizens, and retards India's progress. This kind of systemic corruption cannot be dealt with by symbolic resignation of a minister. A shorter version of this article has been published in the Wall Street Journal, on 17 November 2010.

Just a week ago President Barack Obama received repeated applause from Indian Parliamentarians for saying that India has risen, not merely rising! In the week since, Indians have been witness to the scourge that has held India back, corruption, with a capital C. President Obama’s host in Mumbai, Mr Ashok Chavan, Chief Minister of Maharashtra, resigned due to serious allegations of malpractices surrounding an apartment tower in the heart of the city.

That India’s rise could literally collapse, was tragically brought home when a building collapsed in Delhi on Monday night killing over 60 people. Collusion between unscrupulous builders and various officials allowed the addition of two more floors to an old three-storey building when the tragedy happened.

In this past week, Mr Suresh Kalmadi, a member of parliament, and a senior office bearer of the Congress Party, resigned from his party post. Mr Kalmadi heads the much ridiculed Commonwealth Games organizing committee, for various acts of omission and commission. The allegations involve gross misappropriation of public money by a number of public and private bodies, operating under lax supervision, leading to deliberate delays, massive cost escalation, and last minute procurements at highly inflated price. The public games provided a golden opportunity for private loot to the tune of hundreds of millions of dollars.

Just this Sunday, Mr A. Raja, the minister for telecommunication, resigned. Since 2007, there had been growing questions over his decision to allocate 2G spectrum slots on a first come, first serve basis to companies many of whom were not even in the telecommunication business, at very low prices. Some of these companies then sold their allotments within months to others at five to six times the original price. Some have not bothered to launch their services in the past few years. The 2G spectrum scandal, which notionally involves a loss of about US$ 30 billion, to the exchequer, is a consequence of arbitrary exercise of discretionary power by the minister.

The winter session of Parliament which begun last week, have been continuously disrupted by opposition parties on three counts of corruption – the misappropriation of funds in Commonwealth Games, the loss to the exchequer from sale of 2G spectrum at a fraction of the market price, and the scandal surrounding the Adarsh housing society in Mumbai. Various official committees, departments, and law enforcement organizations have begun looking in to all these issues. Cases are being heard even at the Supreme Court. But very few Indians believe that anything substantive will come out of all these procedures. At the same time, unfortunately, influential sections of Indians believe that corruption is a consequence of moral failure, rather than inevitable outcome of the rent seeking regulatory and legal regime that have been established with the design to extort, behind the facade of public welfare.

Over the past six decades, Indians have heard about many financial irregularities in the government, and many people have resigned. Yet, hardly anyone has ever been convicted much less imprisoned for these alleged misdeeds. The current set of corruption charges has once again highlighted the systemic nature of the problem afflicting India.

The Adarsh housing society was formed with a few members in the mid-1990s, but it was only in 1999 that real action started. While Indian soldiers valiantly fought to push back the intrusion by Pakistani forces in to the Kargil hills in Kashmir region, a group of officials, military and civil, were strategizing to lay their hands on a piece of prime real estate in downtown Mumbai.

The society claimed to help provide low cost housing to the widows and soldiers who had sacrificed so much in the Himalayan hills of Kargil. For this noble effort, they received 3800 square metres of land at 15% the market price, for a six-storey block, very close to a navy establishment.

Neither the state government nor the defence ministry was sure about the ownership of the plot. Not unusual, since in most of India, land settlement has not been undertaken since the departure of the British. The state of land records are pathetic, and so very convenient to manipulate. Across the country, hardly any land transaction, particularly in urban India, takes place completely legally. In major cities like Delhi and Mumbai, it is believed that typically 60% of the payment is made in cash for high end properties.

Today, Adarsh housing society is a 31-storey tower, with 103 apartments, for which owners have paid between US $ 140,000 and 180,000 for the 625 to 1000 sq feet of carpet area. But market rates for these apartments are believed to be over 10 times that. Hardly, anyone of the members seems to have fought in Kargil, and in addition to defence officials, the society includes relatives of senior bureaucrats and politicians as well. So egalitarian has been the operation, that rich businessman and their chauffeurs have been given a roof in the same tower. People with monthly salary of US $ 250, seem to have got generous loans of US $ 150,000 from their companies.

According to news reports, the modus operandi of the promoters of the housing society was to simply offer an apartment to any bureaucrats or politicians who either helped in securing various permissions, or turned a blind eye to the various regulatory violations.

The scandal had been brewing for the past two years, but it really hit the headlines in the past couple of months. Today, every department of the state and central governments, from defence and environment ministries to land and revenue, are competing with each others to point out the various violations by the society. Yet, the same departments had by their acts of omission and commission had allowed the tower to come up in the first place.

In Mumbai, over 8.6 million live in slums, out of 18-20 million people in the city. Yet, Mumbai regularly finds itself among those with the highest real estate prices in the world. Here, land is almost completely controlled by the political mafia. No surprise that traditionally, the urban development ministry in the state always remains with the chief minister. Successive chief ministers of different political hues have had no reason to kill the goose that laid the golden eggs.

For instance, a former Chief Minister had secured a prime land at a fraction of the price, in the city of Pune, for his educational trust. Across India, massive land grab under diverse welfare initiatives are rampant, with the powerful getting access to public property at notional prices.

Resignation of the political leaders will not help resolve the regulatory mess, but may only detract attention from the real source of the problem.

It is time to realize that the legal and regulatory framework in India, particularly that surrounding land, has been tailor made to facilitate the wheeling and dealing of the powerful and privileged class, all in the name of protecting the poor, and providing them affordable housing. While yet another official panel has just found that over 93 million Indians live in slums today, an increase of 18 million from 2001.

India’s poverty can be traced to this single most important factor – poor land records, and lack of respect for private property rights. Thus greatly limiting the capitalization potential of assets for the vast majority of Indians. This is coupled with arbitrary regulatory regimes, which instead of facilitating smooth transactions among people, invite powerful middlemen to extract their pound of flesh.

President Obama may have pleased India’s political leaders, by acknowledging India’s rise, but ordinary Indians are unlikely to be able to rise as long as they are weighed down by systemic corruption of their regulatory regime.

Wednesday, November 3, 2010

Obama calling India: Is anyone listening?

President Barack Obama will be coming to India later this week. He is the third US president to visit India in this decade, and the only one to have done it so early in his term. Yet, the visit has not triggered any great popular interest. In my article titled "In Bush's footsteps in India" in the Walls Street Journal Online, published on November 2, 2010, I outline the possible issues on the agenda, and the reason for the lack of expectation from this visit.

In a longer version of the article "Obama calls on India: Is anyone listening?" I contrast the different political contexts between President Obama's visit now, and that of his predecessor President Bush in 2006. I suggest that President Bush and Prime Minister Manmohan Singh shared a political vision for India, and that enabled the two leaders to stake so much political capital on issues such as the civilian nuclear deal that the two signed. In contrast, India does not seem to figure significantly in President's Obama's scheme of things, consequently, neither side is willing to risk precious political capital on any significant issue. Here is an excerpt from this article.

In politics timing and popular mood significantly impact policy and colour the perception. President Barak Obama is coming to India this week. But the visit by the leader of the only superpower in the world has not raised much expectation among Indians, this time. The only hope is that there would not be any new flashpoint, given the whole range of issues on which the perceptions between the two governments diverge today. But most importantly, what is missing is a mutually shared vision that looks convincing!

Let’s look at the two issues which could have transformed the dynamic between the two sides, and taken the relationship to a really new phase. For the first time, the Indian side has agreed to buy fighter aircrafts from the US, worth $11 billion. And for the first time in decades that the US had agreed to sell offensive military equipments to India. Yet, the Indian government is unable to bell the cat, unsure of the political cost.

Likewise, the US administration is keen that the India’s civil nuclear liability law meets the concerns of the private players. This would have taken the hard fought India-US nuclear deal to a culmination. But in the aftermath of the re-ignition of the controversy over the Bhopal gas leak in 1984, the Indian government is unsure whether to risk further political capital at this moment.

The contrast with the 2006, visit by George W Bush could not be starker. Bush and Manmohan Singh had staked huge political capital on the India-US nuclear deal. Bush was already becoming unpopular at home because of the direction of the war in Iraq, and there were high decibel protests in India too. Manmohan Singh risked the survival of his government to get the deal signed.

No US president had done so much to accommodate India. And No Indian prime minister had put so much faith in a single piece of Indo-US policy. To this day many Indian policy wonks wonder why and how such a thing came about. This was one rare instance when two political leaders chose to lead from the front, in the face of major opposition to the deal on both sides. But this spark of leadership was underscored by an unusual level of trust and confidence the two leaders seemed to enjoy.

Obama will address the joint session of Indian Parliament during this visit. In 2006, rising political temperature in India meant that Bush did not get the same honour. Bush spoke to a select audience under shadow of the old fort in Delhi. Most Indian’s who heard that speech felt convinced that George W Bush truly believed in India’s democracy. The shared values of democracy, tolerance and pluralism were not mere clich├ęs, but ideals that Bush and Manmohan Singh really believed in, and were convinced that the other truly shared that belief. In the context of emergence of international terrorism, the political significance of the democracy agenda had been greatly enhanced, and stood in sharp contrast.

Once that kind of relationship is established, almost all political obstacles can be overcome. Manmohan Singh and the Congress party leadership were completely vindicated when the parties that had opposed the new Indo-US camaraderie lost heavily in the 2009 general election. This is why the Indian prime minister had unusually warmly received Bush even after he had demitted office.

Obama had come to the world stage capturing the imagination of the people with his inspiring ‘Yes we can’ theme. Yet, he seems to lack the broad political vision that unites many people for a common purpose. Consequently, Obama, who won promising bipartisanship in domestic affairs, has now polarized the Americans as much as Bush or Bill Clinton. Internationally, Obama’s personal approval rating is still high, but over the past years his charisma has lost a lot of shine.

Obama’s lack of unifying vision could be on display during his maiden trip to India. To his credit, he is the first US leader to come to India so early in his term. If reelected in 2012, Obama may have an opportunity to come to India again, and perhaps he would discover his own vision by then. But this time, it is clear that in two years India and the US have drifted apart on a whole range of issues.

Obama has three key issues on his international agenda – Af-Pak, the Yuan-US dollar exchange rate, and climate change. In none of them the two sides share a common perspective. Either the US administration does not see any significant role for India, as in Af-Pak, or the Indian priorities are different as in climate change.

When Bill Clinton visited India in 2000, the reception was euphoric. A lot of Indians saw the first visit by an US president after a gap of 20 years, following the economic reforms of the 1990s, as an indication of India’s emergence on the global stage. But in the aftermath of India exploding nuclear devices in 1998, Clinton hardly had anything tangible to offer to India.

In 2006, Bush visited India amidst very polarized conditions, experiencing eulogies from one side of the political spectrum, and extreme political hostility from another. Indian democracy with its attendant debate, dissent and dirt were in full display.

Obama’s lack of broad vision for this trip has meant that he has failed to attract enthusiastic supporters, nor energized the traditional detractors of US policies. For the leader of the oldest and the second largest democracy in the world, the trip to the largest and vibrant democracy, is likely to turn in to a damp squib.
You may read the complete article on our website In Defence of Liberty.