Corruption: Spectrum of solutions

The underlying principle of the Supreme Court's landmark verdict to annul 2G licences should extend to all scarce natural resources.

The Supreme Court decision in two writ petitions filed by Loksatta and several eminent citizens, and Dr Subramanian Swamy, cancelling 122 licenses of 2G spectrum, gives a tremendous boost to the fight against collusive corruption.

In October 2010, Loksatta launched a campaign to cancel licences. A letter was sent to the Prime Minister urging cancellation on the following grounds:

The corporates which colluded with bribe-takers and caused a colossal loss to the Exchequer shouldn't benefit from corruption. A contract tainted by corruption, ineligibility of licensees and arbitrariness, and has caused injury to public property is void, because the consideration or purpose of agreements is unlawful as per Sections 23 and 24 of the Indian Contract Act, 1872.

The Parliament and Government have sovereign powers to undo the wrong. When legitimate private assets could be nationalised as a matter of public policy, it would be perfectly legitimate and necessary to revoke licenses secured in a corrupt and arbitrary manner, causing loss to the Exchequer.

THE GRAVY TRAIN

In her article ‘Spectrums of Taint' (Business Line, November 16, 2010), the author quoted Loksatta extensively, arguing in support of cancellation of licences. In December 2010, we urged several prominent citizens to join in filing a writ petition in the Supreme Court to cancel the licenses. Mr J .M. Lyngdoh, Mr T. S. Krishnamurthy, Mr N. Gopalaswami — all former CECs, Mr P. Shankar, former CVC, Mr Julio Rebeiro, former IPS officer, and Admiral R. H. Tahiliani, Mentor, Transparency International India joined the effort, and Prashant Bhushan, senior advocate, took up the case on our behalf.

The verdict of February 2 has profound implications for the future, encompassing a whole range of issues involving allotment of land, mining leases and dispensation of other state patronage at national and state levels. There are those who argue that cancellation of licences might send a wrong message to foreign investors and MNCs. This isn't true.

Even if there are short-term complexities, in the long term, fair competition, transparency, and rule of law will promote investment and growth. Many investors do business in India with great difficulty, and try their best to distance themselves from ubiquitous corruption by creating several buffers — consultants, Indian partners and professionals who deal with corrupt bureaucrats and politicians. If this verdict leads to a healthy, fair, competitive business environment and transparent decision-making, everybody gains.

COMPETITIVE BIDDING

Which is a better policy — auction or first-come-first served? Ideally, auction of scarce natural resources should be the norm. If tariffs are likely to go up on account of exuberant market sentiment and overbidding and over-pricing, then the bidding could be for revenue sharing or some other appropriate model, not for licence fee. Non-competitive processes are highly prone to collusive corruption, as the 2G case has amply demonstrated. The arbitrariness, change of rules at will, entry of players who have nothing to do with the telecom sector, sale of spectrum for windfall profits days after allotment without any value addition, and other facts and circumstances that have come to light in the 2G spectrum case clearly demonstrate the corrupt behaviour of decision-makers and corporates.

In respect of allotment of precious lands, and mining leases, competitive bidding must be the norm. For this, the mining law needs to be amended. Supreme Court verdict should be made applicable to allocation of all scarce natural resources; Gali Janardhana Reddy and the like, and many land sharks in the guise of industry should be subjected to the standards set by Supreme Court in this landmark case.

TAX MEASURES

What other steps should we take to curb collusive corruption and to protect public revenues? Three specific steps are needed now. First, a law should be enacted by Parliament making all contracts involving corruption, or a loss to the Exchequer, void and unenforceable. This will remove all incentives for corporates to bribe any public official to get a favour. A company that loses the bribe amount as well as the business or benefit or favour received through corruption is unlikely to resort to bribery. Only then can we demand corporate integrity and create a level playing field.

Second, a windfall profit tax should be imposed on all those who secured a license or mining lease or other natural resource, and made huge profit without value addition. This will ensure that excess profits made out of a vital public resource are retained with the Exchequer, and aren't appropriated by private interests. Mere private monopoly of public assets shouldn't be a source of unusual profits, even if there is no corruption in the transfer of asset. Such a windfall profit tax was imposed in the UK in 1997, in respect of North Sea Oil, and the monopolies in electricity, telecom, airports, gas, water, and railway sectors.

Third, a law similar to the False Claims Act in the US should be enacted in India. This law allows imposition of a civil penalty five times the loss sustained by the Exchequer in any public procurement or transfer of natural resource.

If a product is overpriced relative to the best customer of the company, or the asset is underpriced while transferring from State to a Corporate, or there is compromise in quality or environmental damage, or the Exchequer has lost money through fraud, bribery or wrongdoing, then any citizen can file a claim, and a court after hearing is empowered to impose five times the loss as penalty. The citizen gets a share of the penalty as incentive. Under the False Claims Act in the US, more than $24 billion has been recovered from corporates during the past 23 years, in 10,650 cases.

We need to move beyond the politics of the 2G case and corruption scandals. Systematic, far-sighted, practical steps are needed to curb collusive corruption. The Supreme Court verdict is an important first step to cleanse our system.

(The author, Dr.Jayaprakash Narayan, is the founder of Lok Satta movement, and former member of Second Administrative Reforms Commission.)

Courtesy: Business Line