Liberalisation improves Public Morality

Many critics say economic liberalisation has led to an increase in kickbacks. Haven’t there been scandals relating to power and telecom after liberalisation? Dosen’t this shows that corruption has worsened?

In fact, kickbacks have disappeared in deli censed areas. They continue, alas, in areas with only half-baked liberalisation. Telecom and power are still areas marked by ministerial discretion, with scope for favours and bribes. But the very fact that the long queues outside Udyog Bhavan have disappeared with the delicensing of most industries and imports shows how economic liberalisation can improve political morality.

Needless to say, the political class is unhappy with this, and seeks way of continuing with case-by-case clearances. We need the strongest possible public pressure to end ministerial discretion, and move to liberal, rule-based society where the best man wins, not the best-connected.

Supplementary lesson comes from the Jain hawala case. This reveals that, in the old days of public sector monopoly, kickbacks were routine in deals relating to power, railways, and coal. So nobody should thin kickbacks have suddenly stared after Mr Narasimha Rao came to power. Nor should they think it was only the licence permit system for the private sector which spawned kickbacks. The Jain diaries show that hanky-panky was massive in the commanding heights of the economy, controlled by the public sector.

The diaries relate to the period between 1988 and 1991, which witnessed three prime ministers (Rajiv Gandhi, VP Singh and Chandra Shekhar) supported at one juncture or another by every party in the political spectrum. All have been found with their hands in the till.

The diaries reveal the complicity of several public sector managers belonging to top outfits like the railways, National Thermal Power Corporation, Neyveli lignite Corporation, and Delhi Electric Supply Undertaking. During interrogation, the Jains have spoken of the role of an Italian friend of the Gandhi family in helping direct the Dulhasti hydel project (Rs 1,300 crore) to Cegelac of France, and Uri hydel project (Rs 800 crore) to Scanska of Sweden. The Kawas power project, in connection with which Mr Arif Mohammed Khan has been charged was originally supposed to cost Rs 374 crore. But there was a dispute with the foreign contractors, the project was recast, and the final cost turned out to be a whopping Rs 1,551 crore. This represented and escalation of 314 per cent, a tiny fraction of the cost inflation Enron was accused of.

Take a look at the cost escalation of some public sector power projects in recent times—113 per cent for Neyeveli Phase II ; 106 per cent for Sikka; 109 per cent for Bokaro; 98 percent for Tuticorin. The naïve might think this was due simply to inefficiency. The Jains will laugh at the notion.

The diaries revel just the tip of the corruption iceberg. We can, plausibly, assuming similar levels of corruption in the public sectors. That means the loot in the public sector must run into thousand s of crores of rupees. The Jain diaries show that crooked public sector deals have long escaped public attention because they have cleverly been masked by the political class.

The sinners of old have not turned into saints after the half-baked liberalisation that has occurred so far. Corruption continues in sectors requiring clearances.

But clearly corruption has become more transparent. Justified or not mist Indians get more worked up about private profit than public sector loot. Whether in Parliament, the press or public interest litigation, you will find the most exhaustive analysis of private and foreign-owned projects in infrastructure, and very little analysis of public sector projects.

The hawala case shows us that this one-side ness is unwarranted Still, it has a silver lining-the shift from public liberalisation has taken us from masked hanky-panky to a more visible variety. Improved visibility is a clear gain: public outrage can more easily be generated; the political class can more easily be obliged to reduce Ministerial discretion.

What I find most encouraging is that the left is shouting loudest for independent regulatory agencies and competitive bidding. In the old days, the left swore by controls and case-by-case scrutiny into suitcase-by –suitcase outcomes. So, in telecom and power, it demands market-based devices like competitive bidding, supervised by independent agencies that can stand up to predatory politicians.

This is a classic liberal position, which, (horror of horror), the World Bank would applaud. The Indian left would never have arrived at this position on economic grounds alone, but has been led to it in its search for political morality. That underlines the real appeal of full-blooded liberalisation—it creates not just a more prosperous society but a more moral one.

What do you think?