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The Price of Political Scandals in India

When business and politics collide, photo: Dinesh Cyanam/flickr

2010 was a year of scandals for India, from the corruption surrounding the Commonwealth Games and the Adarsh Housing Society, to the bribes-for-loan scam affecting the Indian banking industry.  These scandals involved billions of rupees, most of which was public money. One of the biggest scandals uncovered last year, however, was the 2G (second generation) telecom spectrum scam in which the former Telecommunications Minister A Raja is suspected of having sold 2G spectrum phone licenses to telecom companies for a fraction of their value. This is reported to have cost the government $37 billion in lost revenue, equivalent to 14 percent of India’s GDP.

Thousands of scandals take place in India every day, ranging from small to huge, from the local all the way up to the national level.  Such behavior is accepted as a normal part of life, so it mostly goes unreported in the media as it is nothing ‘new’.  Some schemes are just too big to be ignored, however. Scandals that have previously found their way into the national – and international − media because of their magnitude include:

•    Fodder Scam : involved the fabrication of “vast herds of fictitious livestock” for which fodder, medicines and animal husbandry equipment was supposedly procured.

•    Bofors Scandal : the then-Prime Minister Rajiv Gandhi and several others were accused of receiving kickbacks from Sweden’s Bofors AB for winning a bid to supply India with 155 mm field howitzers.

•    Bombay Stock Exchange Manipulation and Fraud :  exploiting several loopholes in the banking system, stockbroker Harshad Mehta and his associates siphoned funds from inter-bank transactions. They bought shares at a premium across many segments, triggering a rise in the Sensex, Mumbai’s Stock Exchange.

•    Cash-for-votes scandal : the United Progressive Alliance allegedly bribed Indian MPs with cash or currency-notes to the tune of millions of Rupees in order to survive its very first vote of confidence on 22 July 2008.

•    Madhu Koda: During his tenure as Chief Minister of Jharkahand, Madhu Koda was charged with laundering over Rs.40 billion ($880 million) through his assets. These included hotels and three companies in Mumbai, property in Kolkata, and a coal mine in Liberia.

Political scandals are not unique to India, but what is distinctive is that India’s political leaders are hardly ever held accountable for their actions. In the rare cases brought before the courts, the punishment almost never equals the crime. After a couple of days in jail, they are usually released – and free to resume their position as a respectable government minister. One example is the case of Shibu Soren, convicted of murder in 2006 and bribery in 2008, and then sworn in as Chief Minister of Jharkhand in 2009 (although he has since resigned).

Under pressure from the publicity generated by the latest reported scams, the central government has revived the 40-year-old proposal of setting up a national ombudsman, called the Lokpal, to probe political corruption. The Lokpal bill, however, is still in draft status, and will most likely not be a panacea to cure the ills of corruption plaguing India. A recent article in the Times of India is even more pessimistic about this development and calls it a legal veneer so that crooked politicians will continue to enjoy almost as much impunity as before.

These scandals and scams directly affect citizens: they block development, undermine social progress, hinder good governance and erode the rule of law. Domestic and foreign investment is hampered by the lack of trust in politicians, and healthy competition in business transactions gets distorted. What is most unfortunate is that these scandals are so institutionalized that the public cannot do anything about it, apart from react in disbelief as yet another one comes to light. As India aspires to become one of the world’s leading economic powers, its political leaders need to strengthen good governance in the country.

One of the biggest weaknesses that India faces is that there is too much political interference in the business sphere.  The Indian economy is far from being governed purely by market forces; it is controlled by politicians. As a result, everyone − from industrialists to farmers − pours money into the political process for their own personal gain.  The best way to control scandals and scams would be to keep politics away from industry, and to make sure that electoral competition is not unduly influenced by business interests.