Every day, India is witness to law-enforcement agencies seizing bundles of the distinctive, pink bundles of Rs 2,000-denomination bank notes(HT Photo)
Every day, India is witness to law-enforcement agencies seizing bundles of the distinctive, pink bundles of Rs 2,000-denomination bank notes(HT Photo)

Note ban not enough: Corruption in India is like water, it finds a way

Corruption is embedded in India’s collective soul. Only widespread, systemic reform war can help, not a ‘surgical strike’.
By Samar Harlankar
UPDATED ON DEC 26, 2016 06:51 AM IST

“Every citizen can join this mahayajna against the ills of corruption, black money and fake notes... Let us ignore the temporary hardship.”

It is now 48 days since Prime Minister Narendra Modi made that appeal, as he scrapped 86% of India’s bank note--by value--in circulation. Initially, millions of Indians queuing up to withdraw their own money from bank accounts did indeed ignore the hardship of lost wages and stress of the queue. The common refrain: It’s worth it because the rich with black money will suffer. As it becomes increasingly evident that only those in the queue are suffering, as are livelihoods, the lines are as long as ever and people have died waiting for money, there is a distinct change in mood.

Over the last week, there have been attacks on banks in Uttarakhand, Haryana and Uttar Pradesh, and roads have been blocked by frustrated mobs in UP. Images of hundreds pressing against a bank entrance’s steel grill, narrowed to allow one person to enter, appear to have become the leitmotif of the era of notebandi, the colloquial term for Modi’s grand experiment. The patience displayed in the queue has given way to jokes, frustration and abuse and eroded the government’s credibility.

Government spokespersons insist there is no shortage of money. They may not be entirely wrong. Every day, India is witness to law-enforcement agencies seizing bundles of the distinctive, pink bundles of Rs 2,000-denomination bank notes. Those in queue ask the obvious question: We stand here for days to get a few thousands, how do they get lakhs and crores?

The short answer is corruption, the very thing notebandi is supposed to strike at. A vast money laundering exercise in India’s unseen financial netherworld appears to have been largely successful, as the anticipated return of almost all the money that was taken out of the banking system indicates (The government thought Rs 2.5 lakh crore or so in unaccounted money would not return). Some of those with unaccounted or “black” money did get their comeuppance, but those numbers are likely to be far smaller than anticipated.

How could this happen? It could happen because Indians are masters of subversion and because notebandi was a shot in the dark, with no precise target or preparation to overcome this culture of subversion. So, corrupt bank officers colluded easily with corrupt seekers of pink notes. Thus far, about 50 bank officials from private and public banks and the Reserve Bank of India have been found conspiring with money launderers--many more have got away. Bundles of pink notes continue to turn up in cars, homes, offices and bank lockers. Bear in mind that these instances only relate to cash. Thousands of crores of unaccounted rupees were converted to real estate, gold and luxury items, from watches to handbags.

Modi has either not understood the reach of corruption into India’s administrative system and collective soul or he did understand but was convinced by his circle of trusted bureaucrats that a series of administrative fiats — surgical strikes, to use popular government nomenclature — without adequate planing could, somehow, bring about the new normal that he seeks.

Read: Demonetisation just a ‘pseudo war’ against corruption, says Yogendra Yadav

Corruption in India is like water — it finds a way. It is marked by ingenuity, determination and perseverance, qualities that could transform India if deployed for honest means. The most ingenious method recently evident: Thousands of poor Indians with basic bank accounts persuaded — for a fee, obviously — to rent their accounts to launder old bank notes into new.

It isn’t politically correct to say this, but the majority in India is dishonest, either by circumstance, culture, upbringing or habit. I would like to believe many can be turned if circumstances change, but that may be optimistic, given the casual and widespread disregard of laws in every sphere of life, most visible in the form of the roadside havaldar who waits for a Rs-50 bribe from the streams of vehicles that run red lights. Corruption in India can only be curbed through carrots, sticks, meticulous planning and sustained effort. Incentives are important; so is stronger punishment. As former chief economic adviser Kaushik Basu has argued, it may make sense to decriminalise the giving of bribes.

Read: Note ban not a surgical strike on corruption, it’s firebombing on poor: Rahul

However, most important is administrative and political reform.

In 2007, the second Administrative Reforms Commission made 18 recommendations to enforce ethics in political and legislative functions. All 18 were rejected. Politicians have consistently closed ranks over political reform, and Modi has stayed within those ranks. Indeed, in the budget session of Parliament earlier this year, his government tweaked foreign contribution laws to allow political parties to receive foreign donations retrospectively, from 2010. As soon as this amendment passed, the Congress and BJP, held guilty by the Delhi High Court of accepting foreign donations illegally, withdrew their appeal from the Supreme Court. Yet, Modi said last week that his party had not altered even “a comma or a full stop” in the law that regulated political funding. Some honesty would be in order.

Many commentators have also pointed out how political parties need not account for donations below Rs 20,000. It is no surprise that in 2014-15 six leading political parties received 60% of their funding from “unknown” sources, and the BJP received the most such funding with Rs 977 crore over two years.

The systemic eradication of corruption also requires reconstructing an administrative system largely unchanged since colonial rule. Modi began well: Some old laws were scrapped and business requirements eased. But the bureaucracy and its rusting frame still remains India’s backbone and the tentacles of the inspector raj are as tightly wound around the economy as ever. We have also seen the right-to-information system eroded, no Lokpal--whatever its infirmities--is in evidence, and, now, the efforts to find notebandi’s laundered money portend a greater bureaucratic invasion of our lives, which Modi had once promised to reverse (remember “minimum governance”?). Without a carefully planned, wide-ranging — and honest — war of reform against politics and the bureaucracy, no isolated surgical strike can survive its overstated claims.

Views expressed are personal.

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