Alam Srinivas is a business journalist with nearly three decades behind him, working for The Times of India, India Today, Outlook, Financial Express and Business Today. He is the author of “Cricket Czars: Two Men who Changed the Gentleman’s Game”
Corruption, especially, in politics and governance comes in different hues. For example, some politicians make money for themselves, others for party funds. There are those, who only earn it for the party. Then they are the rare and rarified ones, those who are against corruption, but wield power and control everything through a system of patronage. In the past 70 years, the readers will recognise leaders who fit the various bills, though they may sometime seem like the proverbial round pegs in square holes.
Although the patronage kind is similar in many ways to the benefaction of the kings and emperors, the new institutions have distinct flavours. Apart from being modern and strategic, the aims are to retain, perpetrate and expand the zones of power.
Although all kinds of corruption is black, the CMYK (Cyan, Magenta, Yellow and Key or Black) compositions are different. In that sense, there are as many contours of corruption as they are corrupt people.
There is another interesting facet about political corruption. This is true of every country, and not just India. Each time a leader arose, and came to power on the plank of anti-corruption, he or she never eliminated it. Such leaders merely, and deliberately, changed the rules of the corrupt game. They only ensured that the old system collapsed, and a new one was born, one that they controlled and managed. This is especially true of patronage.
Most critics and reformers wonder why corruption in India hasn’t come down. The same is asked in developed nations like the US, Britain, Italy and Japan. The reason is that corruption is like a chameleon, which is attached to the biggest supercomputer – the mind of a newly-corrupt person. The latter can manage it, twist it, and massage it. Corruption itself can undergo changes depending on the situation. It’s a politico-ecosystem that’s a changing constantly.
This is the reason why the scandals in the US are far larger than in India. In the latter, the figures were exaggerated in recent times by a new term, notional loss or purely theoretical loss, which had little connection to the actual loss and little relation to the present value of a future loss (10 years from now) that’s much lower because of inflation and other reasons. The developed countries merely ensure that petty corruption, like the payments to the public authorities by the households, are restricted, even eliminated.
As we all know, corruption has existed since the emergence of human beings and civilizations. The foundation of modern political corruption in India was laid down by Robert Clive. He also laid down the groundwork for the British Raj. He came to India, when he was 18, as a clerk in the East India Company. When he left, in 1767, he had amassed a wealth of Pounds 400,000. He was the master of the ‘Loot & Scoot’ scams, as he stole from the princes and kings.
Looting was common in wars, before and after Clive. His achievement was to institutionalize it; everyone got a share, which depended on the rank and military hierarchy. He introduced a system so that everyone involved could make money. Does this remind you of how money is shared from the top to bottom in the Indian political and bureaucratic system? For over 250 years, Indians have assiduously followed Clive’s model of corruption. In 2004, we got a hint of Clive’s wealth, when his descendants sold some of his looted items. There was a 17th century jewelled jade flask which sold for Pounds 2.9 million. According to media reports, “a flywhisk of blended agate and studded with rubies fetched Pounds 901,000; a unique dagger adorned with jewelled floral sprays was sold for Pounds 733,000. After active bidding, a ‘hookah’ with blue enamel and sapphires brought Pounds 94,000 and a pale green nephrite jade bowl went to a bidder for Pounds 53,000.”
After Clive returned to England, he gave a speech in the House of Commons in 1772. In it, he beautifully explained the patronage system. He said that it was a common practice for every inferior to approach a superior with presents. Every Englishman, whatever his status, was inundated with them. Parents sent their sons to India with examples of how so-and-so and so-and-so had amassed a fortune in the East. Youngsters, who left England at the age of 16, had a specific timeframe to make specific sums and return.
“At its height, the house of Fateh Chand Jagat Sheth acted as the (Bengal) nawab’s treasury and considering the geographic extent of the Nawab of Murshidabad’s influence, operated much like a central bank. It loaned money to zamindars, collected interest, dealt in bullion, had seignior age rights and minted coins for both the state as well as foreign traders, financed trade, exchanged money, controlled exchange rates, collected and retained two-thirds of the revenue from the Bengal-Bihar-Orissa province on behalf of the nawab, made remittances to the emperor, etc…. Because of the monopoly he enjoyed and the political influence he wielded, Fateh Chand was among the most illustrious, powerful and influential of the Jagat Sheths.”
However, once Mahatma Gandhi came back from South Africa, the interlinkages between political and business corruption strengthened. Over the years, a large section of the Indian businessmen supported the independence movement, largely due to the enlarged and enigmatic role of the Mahatma. The barons financed the various movements, and openly sided with the Congress’ economic policies. Although they were scared of the rise of Communism or Communist ideals, they had faith in Gandhi.
Parsis and Marwaris
The rise of the Indian wealthy was rooted in several factors such as crony-capitalism, speculation, illegal trade, and luck linked with pluck. The Parsis, who built Mumbai, made their fortunes in the illegal opium trade to China. Experts claim that this was because of the community’s “adaptability, willingness to travel the seas, and friendship with the British”. However, Amar Farooqui, the author of Opium City: The Making of Early Victorian Bombay, denies this.
According to him, “The Parsis succeeded because they operated from Bombay, where the East India Company had less control. In Calcutta, where it was omnipresent, Indian businessmen like Dwarkanath Tagore made investments in opium, but failed.” There was another advantage of operating from Bombay. The British controlled the opium trade, and ruled with an iron hand in the eastern part of India. They couldn’t do the same in the west, which allowed businessmen to simultaneously pursue illicit exports. In the early 1800s, the Parsis entered the textile business. This was fortuitous, and driven by business pressures. Suddenly, it became difficult for the Parsis to repatriate their profits from China. The system of British bills of exchange broke down. So, they were forced to invest their money in another business. As Farooqui put it, “The move into manufacturing wasn’t a natural progression….” As luck would have it, “The American Civil War of the 1860s saw demand for cotton zoom and those in the business made fortunes.”
The Marwaris, who were based in the east, were speculators. Their forte was commodities, bullion and metals. As they became traders, especially the masters of supply logistics, they understood the benefits of cornering markets, to make legal and largely illegal profits. Their skills were best witnessed in eras of shortages, like the two World Wars. Families like those of Dalmia, Jhunjhunwala and Birla controlled trading in silver, jute, linseed, opium and grain. They understood commodities, and money market. As a media article said, “Ramakrishna Dalmia and his maternal uncle Motilal Jhunjhunwala… formed a syndicate in early 1918 (World War I) that cornered silver worth well over a crore, which they stocked in Calcutta and Bombay. This bullion they supplied to the Government, whose silver rupee coin reserves had depleted to below 11% of its outstanding paper note issuance as against 58% at the outbreak of the war.” The Marwaris were experts in stock market speculation and manipulation, and they used similar cornering tactics.
The speculative mania pervaded their operations, even when they became established entrepreneurs. As writer Harish Damodaran has argued, “The third element (of the Marwari mindset) was the extent to which (Ramakrishna) Dalmia’s business operations remained grounded in the bazaar. The ‘speculative’ phase did not end with putting up factories. Rather, the proclivity for playing the market – including diverting public issue proceeds from one company to finance the activities of others, or booking fictitious losses on share transactions between group entities – only rose with time.”
As we have witnessed politics was inextricably intertwined with business in this evolutionary era of modern corruption. Nothing exemplifies this better than the operations of the House of Jagat Sheth (Banker to the World). It reached its peak in the 18th century.
During the decades prior to 1947, the lines between business and politics blurred. No one dubbed it as corruption as it was aimed to gain Independence. But it sowed the seeds of post-Independence corruption and crony capitalism. These events led to the maturity of corruption. Even today, the planks of the today’s black economy date back to this period. It became normal for business and politics to talk to each other, sometime in a manner of give-and-take. It was okay for politicians and businessmen to cozy up to each other.
A look at the myriad of historical and economic literature on the subject merely hints at contradictory conclusions. “As far as the relationship with Congress is concerned, one view point is that the Congress was deeply influenced by Capitalists serving their interests and decisively influencing decisions of Congress…. The other view is that the Congress was not at all influenced by Capitalists because the programme of economic nationalism was beneficial to everyone.”
The next strategic shift in Indian corruption came in the late 1960s. According to a study, “In 1968, Prime Minister Indira Gandhi banned corporate donations for political parties. The ostensible reason for the ban was to prevent large business groups from exercising undue influence on politics. However, there has also been speculation that she may have introduced this measure partly because she feared that corporate interests would fund right-wing opposition parties. A particular target was the free market-oriented Swatantra Party….”
Most experts glossed over the fact that Indira’s decision changed the rules of political corruption, especially in her own party. The Congress’ purse strings were in the hands of the ‘Syndicate’, which was close to the business class. Without access to the money, Indira would actually remain a ‘Goongi Gudiya’, as she was dubbed by the Congress’ moneybags and power center. Once, the legit money was gone, the only option was to collect it illegitimately.
Such a move enabled Indira to form her own business caucus; she encouraged new entrepreneurs with her policies and doles, who happily gave her the funding required to win the elections. As Nikhil Chakravarty wrote in Mainstream:
“During Indira Gandhi’s time Dhirubhai Ambani was known to be close to her establishment, and this was a long-standing affair. Even during her days of exile from power after her defeat in the 1977 general elections, Dhirubhai remained close to her in India, as was Swaraj Paul abroad. It is no secret that Ambani went out of his way to help Indira in her 1979-80 election campaign…. So when she returned to power in 1980, Dhirubhai Ambani was known to be conspicuous in Indira’s circle, and Pranab Mukherjee and (RK) Dhawan were known to be his friends in the establishment….”
Indira’s decisions to nationalise banks and insurance firms were aimed to inculcate transparency. They converted the cash-rich institutions into centers of political patronage. After the license and bureaucratic raj, the economic reforms of 1991 were aimed to achieve the same objectives. Instead, they led to the politico-business capture of the country’s natural resources. As more sectors, especially those that dealt with scarce resources, were opened for privatisation, new waves of corruption ensued.
It culminated in the 2G, coal, and oil and gas scams. It led to a complete decline of a political party, although one cannot say it with certainty. It allowed a leader to come to power on an anti-corruption plank. Narendra Modi claimed that his policies such as demonetisation and GST (Goods and Services Tax) will root out corruption in several areas. As he said would be the case with new laws on benami transactions and real estate.
Don’t be surprised if corruption continues. However, rest assured that the rules of the corruption game will change dramatically.
Demonetisation has ensured two things. One that the political parties and their funders, which depended on cash to finance their election campaigns lost out, at least in the short run. This will inevitably give rise to a new set of corruptors – who will depend less on cash, and more on assets, or in different cash denominations.
The latter is clear with the introduction of the Rs 2,000 note. If corruption was the reason for the withdrawal of Rs 1,000, why introduce one with a higher denomination that makes it easier to store higher amounts of cash in lesser space? The former will imply that it will become more difficult to trace the black money. Assets are difficult to trace, and require sophisticated investigation skills. More important, they are technically difficult to prove in a court of law.
As we said earlier, the rules of the game will change, and it will allow new corrupt players to emerge.