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The Deepening Roots of Corruption and Cronyism: February 2015


The Deepening Roots of Corruption and Cronyism: February 2015

Corruption is one of the oldest and most significant issues in India's administration and politics. In every election, politicians pledge to clean up corruption. It is widely held that the previous national government lost the elections after a series of very large scams were unearthed by government auditors. Moreover, the policymaking presumes a reasonably effective and efficient state, and in India's case these are eroded by arbitrary and perverse decision making.

The question is: what are the spaces for corruption and cronyism in the Indian system? Where do they spring from? And, most importantly - are they expanding or shrinking?

In this Thematic Briefing, the India Study Group looks at these questions. We find that the spaces for corruption in India's institutional framework are centered around some basic problems, and these problems are getting worse. The possibilities for graft, cronyism and arbitrary decision making in India are expanding  This expansion is very rapid in some institutions - such as the judiciary, intelligence services and natural resource regulation. Overall, erosion of institutions in India appears to be accelerating.


1. Sources of Corruption

Rupees handed over

The word "corruption" can encompass a range of problems, from the stereotypical "suitcases full of cash" towards broader questions of shaping policy to benefit particular interest. The public debate can often become very confusing as a result of the lack of clarity about which form of corruption is being discussed. For instance, in the well known "2G scam" under the previous government, the actual allegation was not of cash changing hands but of policies being shaped in such a manner that some companies were able to benefit at the cost of the public exchequer.

In this context, one can broadly define corruption as decision-making that favours a particular interest over the general for apparently arbitrary, irrational or self-interested reasons. Then the basic ingredients of a corrupt system include:

  • Lack of transparency: Considering that arbitrary decision making is a central part of corruption, lack of transparency is obviously central to making corruption possible.

  • Bias and conflicts of interest: Creating situations with perverse incentives, or failing to regulate conflicts of interest, also make an environment where corrupt decisions are likely to spread.

  • Closed decision making without public participation, or excluding key stakeholders: Mere transparency is often not sufficient. In order for a decision to be broadly beneficial, a process of public and participative decision making is also important. Without this, it is often impossible to disentangle particular from general interests.

  • Lack of accountability: Finally, where a decision is found to be mala fide, it must be possible to hold someone accountable for it in a swift and clear manner. Inability to do so makes other safeguards far less effective.

In light of the above four criteria, below we sketch the situation in each of India's main institutions, and examine whether recent changes expand or reduce the scope for corruption and cronyism.

2. Law Enforcement and The Judiciary

2.1. The Police

Practically every opinion poll on the issue ranks the police as one of India's most corrupt institutions. Notwithstanding the lionisation of ostensibly upright or courageous police officers, the stereotypical Indian cop is brutal, extortionist and ineffective. The accuracy of this stereotype may be questioned, but not the reality of widespread corruption among the police.

Though police come within the ambit of State governments in India's federal structure, there is surprisingly little variation in the structure of the police across States. Practically all States (with the exception of a handful in the Northeast) utilise tweaked versions of colonial police statutes. Corruption in the police flows from three basic features of these statutes:

  • First, there is no system of accountability - the police are answerable only to the State government. If a member of the public has been harassed or tortured by the police, there is literally no authority for them to approach (other than the overburdened and frequently non-functional Human Rights Commissions).
  • Second, the police enjoy widespread powers of detention and considerable discretion in making inquiries. In practice this discretion is wider than what the law permits, and continues despite repeated court judgments and statutory amendments that have sought to restrict these powers. The main reason for this is, again, the lack of accountability. When the police violate the law, the only option for securing punishment is to approach the High Court or the Supreme Court in a writ petition. This is far beyond the reach of most Indians. On top of this basic problem, section 197 of the Criminal Procedure Code then requires that no government official can be prosecuted without the sanction of the State government.
  • Third, the flip side of this is that the police themselves enjoy relatively little power against those who would seek to harass them. As with bureaucrats (see below), police officials can and are frequently transferred as a form of punishment. Lower level police constables and junior ranks live and work in abysmal conditions, without adequate housing, equipment or defined working hours. All of this encourages the police themselves to develop the culture of an organised crime syndicate rather than that of a state institution.

These problems, except to some extent the last, apply as much to "higher" police establishments - such as the Central Bureau of Investigation - as they do to State police forces.

Some examples illustrate the importance of accountability as the basic problem. In December 2013, the Aam Aadmi Party took power in the city of Delhi for a brief but famous period of 49 days. During this period, widespread anecdotal reports indicate that petty police extortion declined (see here, for instance). The AAP was not in power long enough to make any significant institutional changes (and resigned as a result of its failure to institute its major initiative in this direction, the Lokpal). However, the very fact that the AAP government ran a campaign asking citizens to record extortion on cell phones and submit the recording to the Anti Corruption Bureau was enough to have this impact. Institutionalised accountability mechanisms hence would have a more significant impact.

Unfortunately, no move in this direction is apparent at either the State or the Central levels as yet, except possibly in Delhi, where at the time of writing the Aam Aadmi Party is expected to win the elections. In 1980, the National Police Comission, appointed by the Janata Party government, submitted a report that called for multiple reforms in the colonial police architecture. These were never implemented. In 2006, the Supreme Court directed all State governments to implement certain institutional reforms (in Prakash Singh vs. Union of India, dated 22.09.2006). These included limiting the power of State governments to transfer police officials; providing boards to respond to complaints from police officials and from the public; and separating investigation functions from "law and order" (or maintaining the peace). While the order sought to cover both protection of the police from harassment and increased accountability of the police, the media debate heavily focused on the former. Till date most State governments have failed to comply with the order fully.

The National Democratic Alliance appears no different in this respect from its predecessors. Bharatiya Janata Party president Amit Shah was recently discharged from a case where he was accused of helping to engineer a "fake encounter" (i.e. targeted killing by the police) during his tenure as Home Minister of Gujarat. In a trial marred by numerous irregularities, including the mysterious death of a judge, the Central Bureau of Investigation reportedly did not appoint a special prosecutor and argued for barely 15 minutes against his discharge. This has led to allegations that it had deliberately diluted the case. Subsequently, on February 4th, Central Home Secretary Anil Goswami was removed after he reportedly attempted to stop the CBI from arresting a former Congress Minister associated with the Trinamool Congress. While some hailed this decision as a step towards independence for the CBI, given the approach of the same goverment to Amit Shah's case, this appears to be the result of the political importance of this case to the BJP.

2.2. The Judiciary

A similar lack of accountability affects the judiciary, both at the lower and the higher levels. The lower judiciary is under the administrative control of the State High Courts, which (along with the Supreme Court) are even more insulated from accountability than the police. This is the result of two additional institutional systems.

The first is India's contempt of court laws, under which "scandalising the court" and "lowering the dignity" of the judiciary are criminal offences. This jurisdiction has been repeatedly invoked by higher courts to protect judges from criticism or revelations of corruption. For instance, in 2007 the Bombay High Court sentenced four journalists to imprisonment after they revealed that the sons of the former Chief Justice of the Supreme Court had financially benefited from a series of orders passed by him that sealed commercial establishments in Delhi. On January 30th of this year, the Supreme Court upheld an order of the Kerala High Court sentencing a political leader to four weeks' imprisonment for calling High Court judges idiots.

The second is the fact that judges of the higher courts were, until January 1st, appointed by a "collegium" consisting solely of Supreme Court judges - a process that was entirely held behind closed doors. This was the result of a 1993 Supreme Court judgment (Supreme Court Advocates on Record Association vs. Union of India) that essentially excluded the executive from the appointment process entirely.

In the monsoon session of Parliament last year, the NDA government passed legislation for creating a new National Judicial Appointments Commission (NJAC), which is intended to replace the collegium system. Rather than making the procedure more transparent, accountable and rigorous, this is only likely to shift arbitrary power from the Supreme Court to the government. One key provision of the new Commission makes it fundamentally flawed: a judge cannot be appointed to a post if any two members of the Commission object. Since the Commission includes the Law Minister along with two appointed members (whose own appointment is entirely at the discretion of the government), this means that judges that displease the government are unlikely to secure promotions. The consequences can be imagined.

3. Commissions and Accountability Institutions

Historically, the Indian state's chief mechanism for instituting accountability of state institutions has been to create a variety of commissions and autonomous bodies that are intended to hear complaints and decide on them. The Constitution provides for commissions for Scheduled Castes and Scheduled Tribes. Statutory provisions and executive orders have since led to the setting up of Vigilance Commissions, Human Rights Commissions, Information Commissions (for the right to information), commissions for women, minorities and children, and so on. The recent focus on creating anti-corruption ombudsmen (the State and Central Lokpals) is another instance of the same phenomenon (more details on the Lokpal are in the section below on the bureaucracy).

In practice these institutions suffer from three significant flaws. With a few exceptions (such as the Information Commissions), their orders are recommendatory and not binding on the government. Second, they rarely have any independent machinery of their own, making them completely dependent on official cooperation. Finally, their members are themselves typically appointed by the government, leading to them becoming sinecures for retired bureaucrats and judges. The performance of these commissions has hence left a great deal to be desired. Even the Information Commissions - which are provided with a higher degree of statutory independence and enforcement powers than most other commissions - have faced serious problems of staffing, vacancies and resulting massive case backlogs. All in all, the failure of these bodies to function has contributed greatly to the spread and entrenchment of corruption and arbitrary decision making in the Indian state.

The tenure of the NDA government has seen these trends continue, along with one new and significant change. The government now appears to simply be refusing to appoint heads to most crucial commissions, effectively rendering them nonfunctional. Some examples include:

Since commissions are the only avenue of accountability available in India, such a systematic failure to appoint members reduces even the limited space for accountability available in the current system.

4. Regulation Over Land and Natural Resources

The two largest scams in India's recent history both involved natural resources: spectrum (for telecom) and coal. Moreover, it is clear that India's natural resource sectors offer the best prospects for those interested in quick profits. This is the reason that 60% of India's billionaires get their wealth from resource-based "rent thick" sectors.

In an earlier Thematic Briefing, we had discussed the current state of resource regulation in India, and the manner in which this encourages arbitrariness and corruption. Some salient features of India's current natural resource regulatory regime, in this context, include:

  • Decision-making around resources is guaranteed to be arbitrary, as there is no independent source of information for the regulatory process - all information, excepting a few minor aspects, are supplied by project proponents and/or those seeking access to the resource. There can be no rational decision making without some form of objective assessment.
  • Transparency is extremely poor, with information being provided to the public only in the most perfunctory manner. Moreover, such information is very rarely provided in any usable form to those who most require it - communities affected by resource use.
  • Spaces for democratic participation in the regulatory process are either sabotaged to the point of meaninglessness (as in the case of public hearings under the Environment Impact Assessment Notification) or ignored entirely (as in the case of taking the consent of village assemblies - gram sabhas - under the Forest Rights Act).

Given these realities, it is not surprising that natural resource governance is regarded as one of the most corrupt parts of administration in India.

As also outlined in the earlier Thematic Briefing, after coming to power in 2014 the NDA government has instituted a number of "reforms" in natural resource regulation that are likely to sharply increase cronyism and corruption in the regulatory process. In particular, the new government has:

5. The Banking System

Big Bankers

India's public sector banking system continues to sink under the weight of increasing bad loans. The apparent lack of due diligence in granting many of these loans has led to widespread discussion about better governance of these banks, which are the backbone of India's economy (most of these arguments appear to have missed the strong link between bad loans and poor natural resource regulation, however). At a recent meeting of public sector bankers, Finance Minister Arun Jaitley and Prime Minister Narendra Modi made noises to the effect of 'respecting' the autonomy of banks. This is expected to address the widespread charges of cronyism and corruption in the provision of credit.

However, the only governance change that appears to have taken place recently has headed in the opposite direction. On December 31st, the Finance Ministry split the post of chairperson and managing director in public sector banks. This significance of this seemingly minor move is more apparent when one considers that it was just one of the recommendations of the "Committee to Review Governance of the Boards of Banks" (the PJ Nayak committee). The committee wanted this step to be the last in a three step process of bank reform, under which appointments would be done by boards rather than directly by the government. Despite the fact that the committee specifically warned of the risks of "piecemeal" changes, neither of the prior steps has been taken by the government till date, and neither appears to be under consideration. As a result, the new system is only likely to result in more sinecures for favoured individuals, while introducing dual centres of power and thereby confusing bank governance even further.

Meanwhile, it appears that business as usual is continuing - there is still official pressure to ensure provision of credit to favoured companies, even when their proposals appear economically or financially unviable. The best known recent examples are the Memorandum of Understanding between the Adani group and the State Bank of India for a coal mine in Australia - preceded by a photograph showing the Chairperson of SBI, Gautam Adani and Prime Minister Narendra Modi at a breakfeast meeting - and the government's direction to banks to provide further credit to the essentially bankrupt Spicejet airline.

6. Higher Administration

India's Central administrative services function under a centralised model that is intended to simultaneously grant them operational autonomy and, ostensibly, provide some measure of accountability to the elected government. The former is guaranteed through an elaborate system of recruitment procedures, protections against arbitrary penalties, and regular promotions. In practice, aside from the very rare criminal prosecution, the only penalty that Indian Administrative Service officers have to fear are denial of promotion and - in the case of more junior officers - sudden transfer to remote locations. The second point (accountability) is supposed to be ensured by providing Ministers with the power to request transfers and to record their dissatisfaction with officials (thereby hindering their chances of promotion).

Neither of these principles works very effectively in practice, as both are entirely closed and opaque systems.  Political leaders and civil servants negotiate their respective spheres of influence behind closed doors There is practically no public scrutiny. While corruption and graft among lower level officials has received considerable attention and some administrative action, there has been little action regarding the higher officials. The result is that the oft-cited "nexus" between bureaucrats, businesspeople and political leaders remains largely out of the scope of public scrutiny or effective accountability.

Following the anti corruption protests of 2011, in 2013 higher officials were brought under the new Lokpal (ombudsman) created by the United Progressive Alliance government. But this institution offers any public servant being inquired against an opportunity to be heard even before the inquiry has been begun.  This opportunity is then offered three more times, at three subsequent stages, before any trial even commences. Officials being inquired against have the power to examine all the evidence in the complaint against them even before the inquiry, leave alone a trial, begins. Moreover, the Lokpal is essentially appointed by the government, lacks insititutional independence and has insufficient resources and staff to mount inquiries of its own. Further, as noted above, the new government has not appointed any members to the Lokpal as yet. In sum, it is highly unlikely that the Lokpal will be capable of investigating higher officials in any systematic or effective way.

The Right to Information Act brought some welcome transparency in this process, but the failure to appoint information commissioners and the new government's effective decapitation of the Act (through the abiding vacancy in the Central Information Commission) have reduced its effectiveness.

Further, the new government has also reduced the accountability of officials to Ministers at the Central level. All appointments to Central Ministries are now done through the office of the Prime Minister, which does not even consult the Minister concerned.  Along with obvious consequences for accoountability, this centralisation of appointments has resulted in major delays. Since the NDA came to power in May 2014, no new ambassadors have been appointed, despite 15 vacancies. Between May and December 2014, the Appointments Committee of the Cabinet could not finalise any appointments, resulting in the Central Board of Direct Taxes and the Central Board of Customs and Excise functioning at less than half strength. The Special Protection Group was left without a Director after the government failed to appoint a replacement. Arbitrary decisions also appear to be occurring frequently. The Prime Minister's private secretary, Nripendra Misra, was appointed despite being a former chairman of the Telecom Regulatory Authority of India (and therefore barred by the original TRAI Act from further government service) - the very first legislative act of the new government was to pass an ordinance to make this possible. More recently, the director general of the Defence Research and Development Organisation was suddenly removed, despite the fact that his extension had been confirmed in November. All of this strengthens the impression that centralisation has increased arbitrariness, delays and lack of accountability, all of which in turn contribute to cronyism and corruption.

Finally, the pattern of appointments in the new government appears to indicate that - cronyism aside - loyalty to Hindutva ideology and the BJP has become a key benchmark for appointment to important regulatory authorities. It is important to distinguish this pattern from the "normal" practice of governments appointing those close to the ruling party (itself a practice that often leads to cronyism). In the present case, loyalty appears to be such an important benchmark that essential professional qualifications are disregarded. In an earlier Thematic Briefing, we had discussed several of the appointments being made by the new government; this pattern was apparent in most. Key examples include the new head of the Indian Council of Historical Research, who has never published a paper in a peer reviewed historical journal; the appointment of a geologist to head the Indian Space Research Organisation; the appointment of a businessman as the head of a university in Hyderabad; and so on. In January 2015, nine new members were appointed to the Central Board of Film Certification (the Censor Board), of which four are BJP members and one is an activist of the Rashtriya Swayamsevak Sangh; the new chair had made a film eulogising Narendra Modi just prior to the May 2014 elections. Conflicts of interest are more likely in such a regime of appointments, as is institutional dysfunctionality as a result of incompetent leadership.

7. Conclusions

In light of the above, it appears that the roots of corrupt and arbitrary administrative action in India are being deepened at present. This makes it difficult to accept arguments about the potential for radical transformation of India's economic or administrative systems through the current "reforms" programme, since these reforms do not address several key problems. The consequences of these processes will be more visible in the years to come.