Speed of judicial processes, executive’s limited degrees of freedom over it and time-lag in data access are some reasons why.
Every citizen has a view on corruption and a story to tell about it. Corruption, and crime in general, are defined with respect to a piece of legislation. In the Indian case, this primarily, though not exclusively, means the Prevention of Corruption Act (PCA), 1988. PCA defines ‘criminal misconduct’ by a public servant. In other words, there is no legislation that covers private sector corruption, within the private sector, and in government-to-citizen (G2C) or government-to-business (G2B) transactions. In G2C or G2B transactions, if a public servant’s criminal misconduct manifests itself as the acceptance of a bribe, there is a flip side in the form of another party to the transaction. A bribe-taker must necessarily have a bribe-giver. On the PCA, there are indeed problems with the way it stands. While it fails to satisfactorily punish mala fide decisions by public servants, it also fails to adequately protect bona fide decision-makers, who often take ex ante decisions without necessarily
knowing the ex post consequences of those decisions. A bill to amend PCA had been pending in Parliament for a long time and has just been passed.
How many corrupt public servants have been punished? Has that perceptibly improved since May 2014? That’s a legitimate question, but a trifle misguided because it misunderstands the nature of the Modi government.
Modi government is a Union-level government. It does not nullify the existence of state governments, or the existence of legislature and judiciary. Any process of investigation, prosecution and conviction, corruption or otherwise, has to go through the judicial process and cannot be delinked from it. The speed of the judicial process is a broader issue and the executive alone has limited degrees of freedom over it. This is worth remembering when one seeks to gauge the impact of anti-corruption legislation that will be enumerated later. That apart, there is a time-lag in obtaining data on PCA cases through the National Crime Records Bureau (NCRB). The last data are still for 2016. This hardly enables one to establish a trend, not to forget the points about state governments and the judiciary. Has the Modi government increased the probability of successful prosecution under PCA? No matter how legitimate this question might seem, it is impossible to logically answer it. Ditto for the impact of the Modi government, when corruption is interpreted in the usual sense of delivery of public services. For several years, CMS has undertaken surveys on corruption in India. Eleven such public services are covered — the public distribution system, electricity supply, health/hospitals, school education, water supply, MGNREGS, banking services, police, judiciary, housing/land records and transport. Indeed, asked for instances of corruption a citizen herself/himself faces, most will mention one or the other of these. How many of these are delivered by the Union government?
Having said this, it is a bit odd that those who often complain about lack of anti-corruption initiatives on part of the Union government are not aware of CPGRAMS (Centralized Public Grievance Redress and Monitoring System), a portal under the Department of administrative Reforms and Public Grievances (DARPG). Per se, this is not directly about corruption, but about redressal of citizen grievances. However, it is worth taking a look at an analysis of grievances directed against twenty ministries/departments. Consider for example, Petroleum and Natural Gas. Twenty-nine per cent of grievances were about malpractices and corruption in supply of LPG cylinders. The analysis resulted in a unified online portal for tracking, booking and delivery of refilled LPG cylinders and this was introduced in 2015. After this digitisation response, grievances about malpractices and corruption declined from 29 per cent to 13 per cent in 2016-17. For the Ministry of Housing and Urban Affairs, 26 per cent of grievances were about malpractices and corruption in awarding contracts. In 2016, this led to the introduction of an e-measurement book, using which, contractors/engineers could fill the book up real-time, along with geotagging. With this digitisation response, grievances under the malpractices and corruption head declined to 23 per cent. For the Department of Defence (part of Ministry of Defence), 38 per cent of grievances were about corruption or inaction by defence officials and after digitisation, this declined to 20 per cent. For the Department of Justice, 15 per cent of grievances were about alleged corruption in executing judgements and bribes asked for processing of cases. With digitisation and the e-courts project, this declined to 13 per cent.
Corruption has many dimensions and it is no one’s case that all forms of corruption can be addressed through use of information technology (IT). However, reduction in the human interface and increased use of IT are important instruments in increasing transparency, reducing discretion and targeting corruption.
Some examples will illustrate the point. Direct benefit transfer (DBT) was introduced to improve delivery of public welfare services. As of now, it covers 433 schemes across fifty-six ministries. The number of beneficiaries has increased sharply since 2014-15. There were 123.9 crore beneficiaries in 2017-18—52.92 crore for PDS, 25.86 crore for PAHAL, 11.43 crore for MGNREGS and so on. Since DBT is credited directly into bank accounts and is linked with Aadhaar, it addresses the corruption problem in two ways. First, it eliminates fake beneficiaries. Second, it eliminates middlemen. If one accepts the argument that transparency is an important tool in reducing corruption, one should mention the National Agriculture Market (NAM) too. The objectives are more efficient price discovery and dis-intermediation in regulated markets. However, NAM also brings about greater transparency in licencing, commissions, market fees and auctions. Somewhat along similar lines, the GeM (Government e-Marketplace) has moved all government procurement to an online platform and in the process, Directorate General of Supplies and Disposals (DGS&D), with antecedents that go back to 1860, was wound up in 2017. GeM is gradually gaining traction. As of today, 330,123 products and 2,933 services are on offer on the GeM portal. From 1 January 2016, interviews, allegedly linked to corruption, have been abolished for all non-gazetted posts in Union government. DIPP (Department of Industrial Policy and Promotion) has pushed a series of reforms to move clearances online, for all three stages of an enterprise’s existence—entry, functioning and exit.10 While some of this, even if pushed by DIPP, is in the domain of state governments, there are some reforms that pertain to the Union government. Trading across borders is a case in point. In addition, where the Union government is the relevant government, there is a simplified compliance regime, based on self-certification, especially for MSME and start-up enterprises. A Shram Suvidha Portal has provided a unique labour identification number (LIN) to establishments, allowing for self-certification and common returns and a transparent labour inspection scheme. Coal mines were e-auctioned with no allegations of corruption.
In every citizen’s perception of corruption, there is a big picture and there is a small picture. For most citizens, perceptions about big picture corruption are typically formed through information gleaned from various sources, not necessarily through direct experience. In contrast, perceptions about small picture corruption result from direct and personal experience, of the G2B or G2C variety. Unfortunately, these small picture corruption perceptions are often about the working of state, and more typically, municipal governments. Given the caveat that this is about the Modi government’s agenda, we have just documented both G2B and G2C initiatives.
In the big picture corruption perception story, the demonetisation of 8 November 2016 figures prominently. In this connection, it is best to quote bits from the Finance Ministry press release issued on 30 August 2017.
The Government of India decided to cancel the legal tender status of Rs 1000 and Rs 500 denomination currency notes on 8 November 2016 with several objectives: (i) flushing out black money, (ii) eliminate Fake Indian Currency Notes (FICN), (iii) to strike at the root of financing of terrorism and Left-wing extremism, (iv) to convert non-formal economy into a formal economy to expand tax base and employment and (v) to give a big boost to digitalisation of payments to make India a less-cash economy. The Reserve Bank of India (RBI) has reported in their annual accounts that Specified Bank Notes (SBNs) of estimated value of Rs 15.28 lakh crore have been deposited back as on 30.6.2017. …A significant portion of SBNs deposited could possibly be representing unexplained/black money. Accordingly, ‘Operation Clean Money’ was launched on 31 January 2017. Scrutiny of about 18 lakh accounts, prima facie, did not appear to be in line with their tax profile…. Advance data analytics tools were deployed which further identified 5.56 lakh new cases and about 1 lakh of those cases in which either partial or no response was received in the earlier phase. Besides, about 200 high risk clusters of persons were identified for appropriate action. …As a result of demonetisation drive, there is a substantial increase in the number of income tax returns (ITRs) filed. …Transactions of more than 3 lakh registered companies are under the radar of suspicion while one lakh companies were struck off the list. The government has already identified more than 37,000 shell companies which were engaged in hiding black money and hawala transactions. Around 163 companies which were listed on the exchange platforms were suspended from trading, pending submission of proof documents. The Income-tax Directorates of Investigation have identified more than 400 benami transactions up to 23 May 2017 and the market value of properties under attachment is more than Rs 600 crore…. The impressive revenue collection under GST is also partially attributable to demonetisation drive.
Several qualifications are now in order. First, use of cash or informal transactions aren’t necessarily ‘black’. Black connotes an element of illegality, either because the activity that led to the generation of income was per se illegal (drugs, arms smuggling, human trafficking), or despite the income generation activity being legal, the income became black because relevant taxes weren’t paid on it. Second, extensive use of cash and informality in transactions are both inefficient and as economies develop, there is less use of cash and greater formality. However, these transitions occur incrementally, not overnight. Third, the demonetisation of 8 November 2016 was only one instrument in addressing the black problem and needs to be considered in conjunction with various other instruments that were used. More specifically, demonetisation addressed the stock of black wealth in the form of cash. It was not meant to address stock of black wealth not held in the form of cash or creation of new black income.
Therefore, in that broader battery of measures, consider the following.The Ministry of Corporate Affairs cancelled the registration of almost 2.10 lakh defaulting companies and identified more than 1 lakh directors for disqualification. On the direct tax side, there has been an increase in the number of income tax returns filed. ‘During FY 2017-18, 6.84 crore income tax returns (ITRs) were filed with the Income Tax Department as compared to 5.43 crore ITRs filed during FY 2016-17, showing a growth of 26 per cent. There has been a sustained increase in the number of ITRs filed in the last four financial years. As compared to 3.79 crore ITRs filed in FY 2013-14, the number of ITRs filed during FY 2017-18 (6.84 crore) has increased by 80.5 per cent. During FY 2017-18, the number of new ITR filers has also increased to 99.49 lakh (as on 30 March 2018) as compared to 85.51 lakh new ITR filers added during FY 2016-17, which translates into a growth of 16.3 per cent. The increase in total returns filed and new returns filed during FY 2017-18 is a result of sustained efforts made by the Income Tax Department in following up with potential non-filers through email, SMS, statutory notices, outreach programmes, etc. as well as through structural changes made in law and the government’s emphasis on widening of tax net.’ On the indirect tax side, GST is still work in progress, but an increasing number of indirect taxpayers are registering under GST. Submission of returns, direct or indirect, does not imply that taxes are being paid, or that right taxes are being paid.
But submission of returns is certainly an indication that anti-evasion initiatives are increasingly becoming a credible deterrent.
While on taxes, since people often complain about the tax-related Inspector Raj, it is important to flag the e-assessment procedure introduced by CBDT for scrutiny cases. Refunds and appeals have been streamlined, with refunds (above a threshold) deposited directly into bank accounts. Next in that broader battery of measures, one should mention the joint declaration, signed in November 2016, on the automatic exchange of information (AEOI) between India and Switzerland. ‘As a result, it will now be possible for India to receive from September 2019 onwards, the financial information of accounts held by Indian residents in Switzerland for 2018 and subsequent years, on an automatic basis.’ To counter evasion, newer versions of double tax avoidance agreements have been signed with countries like Mauritius, Cyprus and Singapore. The Prevention of Money Laundering Act (PMLA) was amended in February 2018. While several sections were amended, what is relevant for present purposes is a rather innocuous sounding amendment in Section 2(1)(u) on ‘proceeds of crime’. When PMLA was first enacted in 2002, a property was subject to action (meaning confiscation) if it was directly the result of some criminal activity. An amendment in 2015 ensured that property of equivalent value held within the country could also be confiscated, even if it did not have anything to do directly with the criminal activity. The 2018 amendment extended the definition to property of equivalent value held outside the country too. Ipso facto, such property, held outside the country, can also be confiscated. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act was passed in 2015. For Indian residents who have foreign income and conceal it, this piece of legislation replaced the Income Tax Act and has more serious penal provisions, including criminal liability. A Fugitive Economic Offenders (FEO) Bill is pending.
If a person is declared a FEO, the FEO Bill allows confiscation of the property of the accused.
Lest one form the impression that this is only about black money stashed abroad, there is the Benami Transactions (Prohibition) Amendment Act of 2016, which amended the Benami Property Act of 1988 and tightened its enforcement. Property isn’t necessarily real estate, though it is often interpreted in that way. Several years ago, NIPFP undertook a study on black money in the real estate sector. The Preface to this stated, ‘The study on black money in real estate sector presented below was entrusted to the institute by the Ministry of Urban Development in the context of the widely held perception that real estate has been a prime generator of black money while investment in housing has fallen far short of the country’s requirements.’ Hence, one should mention the Real Estate Regulation and Development (RERA) Act of 2016. As a caveat, this is not meant to address the problem of corruption. Its focus is greater transparency, accountability and financial discipline in the real estate sector and almost automatically, ensures a greater degree of formalisation. As a prerequisite to its working, RERA requires a regulator and this is usually (barring union territories), a state government subject. The timeline for announcing regulators, appellate authorities and rules has varied across states.
Taken in conjunction, several measures have been taken to introduce transparency, curb discretion and reduce illegality. However, all illegality is not corruption. As was stated at the beginning, the present legislation on corruption, the Prevention of Corruption Act, is only about corruption by public servants. Perhaps it may be amended later, but that’s the way the law stands today. Therefore, perceptions about corruption may not always be in sync with legality. To the extent measures are taken against illegality and generation of black income, those measures also adversely affect public servants who resort to such illegality or generation. The Modi government’s initiatives have been listed. But since corruption is a crime, there is no getting away from the criminal justice system and that is an exogenous variable.
This essay was excerpted with permission from the book Making of New India: Transformation Under Modi Government, edited by Bibek Debroy, Anirban Ganguly, and Kishore Desai.
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