Indian :Corruption, In the Name of Law!

by Mr. P. S. Reddy, CDSL  

International Anti-Corruption Day - 9 December

Industry bodies must demand rules that are in tune with economic liberalisation.

The Aam Aadmi Party (AAP) winning elections has raised eyebrows in the Indian polity, since it has challenged established national parties and won on the basis of a key election plank-  elimination of corruption in public life.

  

Elections all these years were never won on real issues. Corruption being an issue that we have lived with for decades, no national political party ever took it seriously until it was proved wrong.

Corruption is so endemic that its genetic code is written and embedded in public life, if not in the labyrinthine ways of the law. Only time will tell whether the passage of the Lokpal Bill after 45 years of its conception can cleanse the rotten system or contributes to its decay.

Archaic processes..

Besides State laws, today more than 1,250 Central laws govern us. These contain more the process of executing law than the principles. Consequently, the legal frame has not kept pace with the changing times.

And, laws that document process only complicate doing business in India.

 P. S. Reddy, CDSL

For instance, snake traps are to be laid in factory floors even now, failing which action could be taken. The trap being in the rulebook, the labour officer insists on it irrespective of the location of the factory.

Similarly, under the Bombay Shops and Establishment Act, 1948 and the extant rules, an exemption application under section 13 and 18 has to be approved by the labour minister if any premise is to be kept open 24 x 7 even for internal IT system operations, without any public service being rendered during such odd hours.

Organising a conference for a closed business group with an evening entertainment programme in a 5 star hotel requires the approval of district collector, police department, electrical inspector, and traffic police.

The laws that come into play are such obscure ones as “Licensing and Controlling places of Public Amusement and Performance for Public Amusement including Melas & Tamashas, 1960.”

Even a brand new lift in a building requires a certificate of the electrical inspector of labour department for its functioning under Bombay Lift Act, 1939, which is applicable even in National capital territory of Delhi!

Corruption Perception Index..

No wonder, the corruption perception index of 2013 puts India at 94 th position amongst 177 nations, while the ease of doing business index puts India at 134th position amongst 177 nations. The truth could be worse. To change/scrap any of these anachronistic laws or re-engineer the process, we need the support of the political system.

A further analysis of these two indices reveals that countries with lower levels of corruption are easier places to do business. There are 173 countries common to the two indices. Out of 87 countries in the first half of the corruption perception index (those ranked as least corrupt), 69 countries are also on the top of the index of ease of doing business.

Another 7 countries fall in the next bracket of 10% of the countries i.e. within the first 60%.

There are only a few countries where the relationship does not hold: the levels of corruption are considered to be low, and yet they are not easy places to do business.

But these countries are not economically significant, like Bhutan, Lesotho, Senegal, etc. Likewise, there is another fringe category: countries ranked highly in terms of ease of doing business, but with a perception of being very corrupt as well.

Here again, the countries are not economically significant, like Kazakhstan, Belarus, Azerbaijan and Kyrgyz Republic. An important country in this category (being corrupt and business-friendly) is Mexico, where its rank in ease of doing business is 53 and that of corruption is 106. Save these exceptions, low corruption levels and ease of doing business go together.

We wake up to the reality of how difficult it is to do business in India only when World Bank and IFC bring out an international comparison year on year. The Ministry of Company Affairs under the chairmanship of  Mr. M. Damodaran, former Chairman, SEBI, has constituted a committee to suggest reforms for doing business with ease in India.

The Committee has recommended a review of laws and regulations, framework for regulatory / or rule making bodies, consent mechanism for lesser offences, promoting an arbitration system for resolution of contractual disputes, and a regulation review authority.

In the preface to the report, it stated that “reforming the business environment has proved to be a Sisyphean construct that governments across the globe, including India, are rolling up the hill”, thereby acknowledging that the Governments are doing something to improve matters, but not making much headway.

Since 2009, India’s relative position in ease of doing business has remained in the range of 132 to 134, which confirms the belief that reforms are moving at a snail’s pace vis-à-vis the reform process around the world.

The ease of doing business report considers 10 parameters and most of these items fall within the jurisdiction of State governments, where reforms are most needed.

The way forward..

Industry organisations like the CII, Assocham and FICCI must identify the laws that come in the way of ease of doing business and submit revised drafts, including the rules and regulations for the Centre and the states to consider.

The terms of reference of the 20th Law Commission includes identification of laws for repeal (which are no longer needed) and identification of laws for review (which are not in harmony with the existing climate of economic liberalisation and need change).

Law Commission...

The Law Commission should spend one of its terms only reviewing economic laws with the active participation of all stakeholders. Such revision of laws should clearly demonstrate enhancement of transparency, accountability and compliance while ensuring checks and balances for timely delivery of services from all government agencies.

Business and industry associations of the country must press for passage of such laws rather than asking for tax concessions. Crusaders against corruption, such as Anna Hazare, must fight for fewer laws, and less bureaucracy and not more of both.

Information technology is another potent tool that has helped many countries to move up the ranking over the years, and it will do the same in India.

State governments are just as responsible as the Centre for improving the climate for doing business. Therefore, the Central government or an autonomous body may spur reforms through a ‘state benchmarking index’ a la doing business index, without any room for bias, political or otherwise.

(The author Mr. P. S. Reddy is MD & CEO at CDSL. The views expressed are personal.)

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