Column The Bardhan index

Written by Bibek Debroy | Updated: Jul 18 2008, 05:30am hrs
AB Bardhan is a responsible leader of CPI and if he alleges Rs 25 crore is the going price for a MP, he should be taken seriously. Protests against the allegation havent necessarily been about the charge of horse-trading. That is perhaps accepted as fait accompli. Questions have instead been raised about why smaller parties are being singled out for the charge and the precise figure. In this era of market-based reforms, may be one should argue for transparency and open auctions. Unfortunately, not everything about Parliament is transparent. Take for instance, CTC (cost to citizen, not cost to company) of a MP. Salaries and some allowances (daily, constituency, transport, office expenditure, free electricity and telephone calls) are easier to monetize. How does one monetise rent free accommodation (in Delhi), free train and air travel (up to a threshold) and pensions Rs 3 lakh a month is probably as good a guess as any. Whats the expenditure incurred in becoming a MP Election expenditure probably averages Rs 5 crore for Lok Sabha, with no handle on what is paid to the party for a ticket. Nor is there any certainty about getting elected. This is high-risk business. In todays India, anyone with a sense would want annual risk-free returns of 10%.

Thirty-six lakh rupees a year isnt much in this kind of operation. So there was no dissenting voice when MPs salaries and allowances were hiked in 2006. Lalu Prasad Yadav then made the legitimate point that unless these were increased, MPs would become corrupt. Mahatma Gandhi had a view on this argument. He wrote in 1931, Giving high salaries for fear of spread of corruption would be, as the saying goes, killing the buffalo for its skin. In other words, it means that for preventing a man from taking a bribe occasionally, he should be paid a permanent bribe in the form of a big salary. But Gandhiji, for the political system, comes alive on 2nd October, 30th January and occasional speeches. Perhaps, we should remember that before the Parliament Act of 1911, Britain had no system of paying salaries to MPs in House of Commons. They had private incomes, were supported by rich patrons or were paid for directly by citizens of constituencies. Thats proper accountability and transparency, because sometimes constituencies refused to send representatives, reckoning that benefits were not commensurate with costs. Since MPs are certain to look at all kinds of income maximising options, can we have a better handle on their costs

We may now have forgotten about Operation Duryodhana in December 2005. Even though that sting operation was about asking parliamentary questions, sums involved were ridiculously low given the contextRs 5,000 to Rs 1.1 lakh, alternatively monthly retainer of Rs 40,000. For a trillion US dollar economy (we have just dropped below the threshold), peoples representatives should be worth more. But perhaps situations arent comparable. In Lok Sabha debates of March 1998, Arif Mohammad Khan alleged that ministers from UP had tried to purchase BSP MPs in a situation comparable to todays. But the Speaker didnt allow him to finish, so we have no figures. Nor is the March 2008 incident from Madhya Pradesh comparable, when BJP complained to Election Commission that Rs 25 lakh was offered to vote for an independent candidate in Rajya Sabha elections. All things considered, the only comparable instance we have is the JMM bribery case. The incident occurred in 1993, though the judgement came later. Four MPs were paid Rs 1.6 crore. So each MP got Rs 40 lakh for support in the no confidence motion. Lets not get into the odd interpretation given to Article 105 by the Supreme Courtthat bribe-takers could claim immunity and werent culpable.

Lets compare 1993 and 2008, assuming that similar market conditions apply (not a bad assumption considering that some of the potential buyers and sellers are the same in both instances and similar final outcomes are being sought), and lets see how the market is valuing in-demand political loyalties now. In this kind of exercises, what one needs to do is to adjust market price data for time elapsed, that is, to bring prices up do date, always assuming of course, as we have, that broad structural conditions are the same.

Interestingly, 1993-94 is base of the WPI (wholesale price index) and the index was 100 then. The index was 238.1 on June 28, 2008, so by this calculation the market price today should be 2.381 times that of 1993s Rs 40 lakh. So we get Rs 5.67 croreRs 25 crore seem excessive. What are we missing Real growtha multiple of 2.54 between 1993 and now, which jacks up Rs 5.67 crore to Rs 14.40 crore. The second is inflation, which is believed to be higher than what the WPI shows. For example, if annual inflation is perceived to have been 12% instead of 7%, we get Rs 25 crore.

The author is a noted economist