White collar corruption


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IN India, corruption has often been described as the bastion of the politician or the policeman but rarely has anyone ever accused the corporate world or the business world of it. Perhaps it is due to ignorance or possibly the fact that not many have understood the deviousness of white-collar crime.

The legacy of India’s corporate corruption rests in the archaic tax regimes that Nehruvian socialism encouraged. The tax rates were abysmally high and there was no way that corporate India could have grown at the pace it finally did without tax evasion. Add to it the licence raj that was prevalent for a large part of India’s post-independence history and you have a lethal concoction which has done more damage to the Indian polity than any other kind of corruption.

The tax regime that existed ensured that tax evasion was all pervasive: rigid excise structures and concurrent corruption in the regulatory bodies ensured a home run for all those who practised this form of corruption. Industries such as tobacco benefited and continue to benefit from these tax evasions. It is no surprise that every year prior to the presentation of the Union budget, we see the maximum hoarding of cigarettes by traders in collusion with tobacco companies and their executives. The tack is very simple – all price increase margins are pocketed by the traders and the company executives with the excise department just a hapless witness. But to blame only the tobacco industry would be unfair. We need to dig deeper and analyse the antecedents of this corruption.

Every society has at its heart a certain commitment to philanthropy. This is buffeted by the corporate world as it were or industry, but in an India where all industrial development post-independence was at the behest of government, be it in the form of licences, or in the form of taxes, or for that matter in the grant of loans, we encouraged a system which would in turn thrive on a kind of corruption that is only existent in triad-controlled Chinese provinces in mainland China. The excesses of a well-oiled system ensured that corporate India was as sleazy or as corruption-riddled as the rest of the pillars that support any developing society.

To that extent, we also saw the mushrooming of the breed of corporate liaison agents whose only business was to influence policy-making in their favour. Which is why when people accuse India’s wealthiest company of dubious beginnings, one cannot but admire it for its tenacity and inventiveness at beating a system which was then totally controlled by the Birlas and the Tatas.

Corporate corruption takes on many forms and most insiders would be privy to the kind of corruption models that you can run without any obstruction. But to blame all of this on the corporate would also be a tad unfair. The Government of India made it nearly impossible for corporate India to remain clean. Regulations with regard to salaries existed till the 1990s, which meant that company directors could get only Rs 15,000 per month pre-tax as their salary. The fact that it was benchmarked to the President of India’s salary at that time made the whole matter even more ridiculous. It was policies such as these that fuelled corruption in the corporate world. It would only be fair to also apportion blame on some corporates who, despite all the licences in their favour, practised another form of corruption, saddling the Indian consumer with products of a very inferior quality. If anything, these corporates deserve greater ignominy than anyone else.



Corporate corruption in India can easily be classified into two parts: corruption by PSUs (public sector units) and that by the private sector. The analysis in many parts will be common, but suffice to say that it is the PSUs which even today practise it with aplomb. Every PSU gives way when it comes to accountability. While institutions such as the Unit Trust of India have come in for heavy criticism because of the parameters they have used to disburse loans, the picture is no different in most PSUs which remain the fountainhead of all white collar corruption.

No amount of vigilance activities or the fulminations of the CVC have been able to curb their wanton expenditure. From private visits in some steel plant’s planes to quota disbursals, especially in the Coal Indias of the world, we have seen it all. It is the PSU that still supports the errant ways of bureaucrats and ministers in its supervising ministries which is why corruption cannot be snuffed out – it travels right to the top. India is the only country which sees battles within the Prime Minister’s Office to appoint chairmen of nationalized banks or functionaries to some important financial institutions.

Corruption at the PSU is manifested in several ways; it ranges from the empanelment of suppliers to the selection of employees. In fact, some of the biggest scams are in the area of recruitment for these PSUs. The tack that most PSUs employ is to create artificial employment, which in the ultimate analysis is harmful to shareholder interest. However, since the largest (if not the only) shareholder in almost all these PSUs is the government, accountability is the least important of issues! The other facet of corporate corruption is what I call the ‘constituency nurturing’ syndrome. A careful observation will show that many ministers make it a point to extract all they can in the form of cash or kind in order to benefit their constituency. Now if this isn’t corruption, then what is?

Would this happen if things were transparent? It is galling that despite severe strictures, even from the Supreme Court in many instances, we see flagrant violations in appointments to these high-powered posts. We have put in place a system which breeds corruption at all levels: whether it is the lowly excise inspector to the Chairman of the Customs Board (who was recently arrested), corruption has permeated every aspect of Indian existence and it is not getting any better!



When you have a finance minister who does not bat an eyelid whenever there is a stock market scandal or a regulator in the form of SEBI who is completely toothless and akin to the police in Hindi films (arrives much after the crime has been committed) how can you ever rid the system of corruption? Every financial scandal has had effective corruption techniques at the heart of it – whether it was Haridas Mundhra and what he did to LIC, or Harshad Mehta, or for that matter Ketan Parekh. Take one look at all these scandals and you will see a common thread running through in terms of the kind of corruption they spawned. But yet the tragedy of the matter is they all get away scot-free: no one is punished. To say they have been arrested is mere tokenism.



The chairman of a leading blue-chip company was arrested in the mid-nineties for FERA violation but what happened post that? Nothing. The case has surely been hushed up and the present incumbent goes about his chores without any worries. The truth of the matter is that the present chairman had been rumoured to move every mountain to ensure he stayed out of jail. I have personally heard the bragging of a rotund U.P. politician who told me how he kept him out of jail by getting the then prime minister Deve Gowda to intervene. If this is what our value-systems are going to be based upon, then why be scared of branding corporate India reasonably corrupt?

And what is corruption? I know of a company where the ‘owner’ (even though he has a minority share) lives in a house which is deemed as a company guest house; the mineral water in the house is bought on company money; the weddings of his sons have been held at shareholder expense. Then there are overseas flats rented out ostensibly for company work but similarly misused. This is the charade that corporate India plays.

What is annoying is that such people continue to beat the system even though there is far more benevolence in the system today than ever before. We now have a rationalised tax structure; we encourage transparency; rigid salary restrictions have gone. But the truth of the matter is we have become so used to being corrupt that we do not know of life other than that! And this is what will cripple India, now and in the future.

The values that corporate India must live by and for are absent. When you ask people in Delhi as to whether they have apartments overseas, most will brag and say yes. However, buying property is illegal for an Indian in his personal name and it is unlikely that any one of these people would have secured the necessary approvals. But then, so blatant is their approach to corruption that at times you begin to wonder whether corruption is in reality what drives India?



Today’s corporate India is facing a piquant situation. On the one hand our corporates want to be listed on international bourses and on the other they want to practice the art form that they have made corruption into. This paradox in itself is what will damage them beyond repair. There was a time when brown paper envelopes were the order of the day, but to continue to allow their existence even today is worrying. What more do our corporate denizens seek in terms of tax rationalization before they can even think of becoming honest citizens? What more must the government do before the corporate world seriously thinks of changing its hues and colours?

The solution to my mind is that greater transparency needs to be forced upon Indian corporates. We need to make listing norms and public issue rules as stringent as GAAP in the United States; we need to have greater transparency in terms of how the companies are being run. Today, corporate governance in India is a joke. Many companies tout that they follow the Cadbury Committee recommendations on corporate governance but scratch the surface and you will see the edifice of a long-standing malaise: an unwillingness on the part of corporate India to change for the better.

The guidelines laid down by the Cadbury Committee among other measures underscore shareholder accountability and transparency. In fact, this is why one of the prime recommendations is to have, as far as possible, a non-executive board of directors in professionally managed companies and a non-family board where the companies are run by non-family members. But if you take a look at the various company boards in India you will observe that there is scant respect for even this basic recommendation. Among the other recommendations are special sub-committees of directors looking after company compensation; a slew of disclosures as well as better shareholder reporting: but none of this is being followed either with sincerity or with vigour in India today. The companies that do can be counted on the fingers of just one hand – so low is our adherence to international corporate ethics!



We also need to create examples through punishment. See what the United States did to the junk bond trader Mike Milken? We need to punish corporate delinquents more severely: they are as criminal-minded if not more than the petty thief, for the simple reason they do it despite being educated and being given the right opportunities in life. Our punishment systems and judicial processes must be more effective, because till that happens corruption will be as common place in India as, perhaps, pollution!

The other facet of corporate corruption is the forms in which it rears its ugly head. Take the time and money some of our corporates spend on researching their products. India has the largest spurious beverage market, with more Scotch consumed in Mumbai than is produced all over the world. There are more trademark infringements in India than there have been in the history of the world. Is not intellectual dishonesty also a form of corporate corruption? I would certainly think so. These aspects of corporate corruption therefore straddle many domains: on the one extreme you have basic tax evasion, on the other a capacity to tweak the very processes of licensing and approvals. It is this brazen willingness to beat the system that worries me most about corporate India.



Electoral funding is another area where corporates have played an unseemly role. There have been instances of corporates going out of their way to fund parties in a manner that is completely derogatory. A few who do it openly are the ones worthy of our admiration. Companies like Bajaj Auto and the House of Tatas have for years proposed a mechanism of funding elections by corporates, but no one seems to take heed of the suggestion.

The Indian corporate is today at an interesting crossroads. The paradox that the corporates must address is how to embrace the values of transparency and accountability when their basic value-systems are mired in corruption of some kind or the other. What examples of honesty and consumer confidence can be set when their own house is built on the foundation-stone of distrust and a desire to beat the system.

Corporate India, one had imagined, would be a bastion that could have served as a lighthouse to those who wanted to see an untarnished face of India at work. Sadly enough, today’s corporate India is a lighthouse washed up on the beaches of corruption and dishonesty. The sands of time have inflicted so much pain that corruption has, indeed, become a way of life for many corporates in India. This is yet another bastion that has fallen. It does not seem to be willing to rise again.