There seems to be enough prima facie evidence of murky business dealings in the IPL, murky enough for some of them to have broken at least some provisions of the law. The investigation into these business dealings and subsequent prosecution of those found guilty of breaking the law will be an acid test for both the law enforcement system and indeed for the credibility of Indian capitalism. This will be a much sterner test than the Satyam scandal, where the main protagonist made things relatively easy by confessing to fraud. In the IPL case, everyone is claiming innocence.
Is the entire problem one of inadequate rules and regulations? Perhaps. But even the best laid rules and regulations can be circumvented by a clever person or two. The success of a capitalist system doesn?t depend on the complete absence of any scandal or wrongdoing?bad eggs can always manipulate an environment of free enterprise. Instead, the success of a capitalist system depends on the ability of the system to consistently and periodically weed out the bad eggs and punish them. That is the only way the system as a whole can maintain credibility when a scandal is exposed. That is also the only way in which potential offenders will be deterred from breaking the law.
The effectiveness of a system in weeding out and punishing the bad eggs?the punishment part, in particular, inevitably falls upon the state apparatus that must carry out law enforcement?depends not just on the quality of law enforcement agencies but also on how seriously the broader political/public opinion context views white collar crimes. In India, we must ask serious questions about both the larger context and the law enforcement agencies, which, of course, function within that broader context of political/public opinion.
To get a proper perspective on white-collar crimes in India today, and our seeming inability to get a firm grip on countering it, one must go back to the history of the socialist licence-permit raj. For a large part of the first 40 years after Independence, anyone who set up or ran a business enterprise in India would have likely fallen into the category of a white-collar criminal. This wasn?t always because industrialists had to pay bribes (always illegal) for getting licences and permits, although that was a major reason.
You could have been a wrongdoer even without paying a bribe. The completely bizarre and anti-business nature of regulations ensured that. Consider the ones that, for example, limited the production capacity of a business to unreasonably low levels, or strictly controlled foreign exchange dealings. That meant that even to take a sensible business decision on scaling up, or inviting legitimate money from abroad, violated some ridiculous rule. And let?s not forget the punitive tax regime?with top tax rates unreasonably high at more than 90%, tax evasion seemed only reasonable.
Unfortunately, this kind of misguided state intervention blurred the lines for private enterprise between what is legitimate and what is not. And we are still living with the legacy, 20 years after liberalisation began.
That same historical context has also ended up defining the character of the very agencies that are supposed to investigate and prosecute white-collar crimes. Most, if not all, of the agencies involved in tracking down economic offences have little expertise in investigation and prosecution.
Instead, they are rather good with tactics that border on, or actually are, harassment. The most infamous of these tactics are the ubiquitous raids that were indiscriminately deployed after the IPL revelations. More often than not, these are a shot in the dark. Worse, they hardly carry an element of surprise, which is why raided parties often hide away key documents?note the various news stories about crucial documents that were found missing in the IPL raids. Yet, the raids serve a purpose. They are used as an easy populist tool to mollify outraged public opinion that wants action. And importantly, they are used as tactics to extort concessions (mostly monetary) from the raided party.
None of this, of course, is at all useful in actually gathering sufficient evidence to successfully prosecute offenders in court, which is why after a period in the limelight the investigation trail will simply go off the burner?that is the way the apparatus is designed to work.
This kind of system may have worked, even if perversely, in the India of the 1980s. But a liberalised, emerging India of the 21st century needs better. Why? Two reasons. One, if capitalism is to work efficiently in India, there needs to be a transparent level playing field for everyone. Some firms cannot be allowed to get an unfair advantage over others by subverting rules and good corporate practices. This reduces competition and efficiency, deters investment and harms the economy. Second, and this is linked to the first, there are an increasing numbers of businesses in India that are indeed run with adherence to global best practices. Not being able to weed out and punish the bad eggs is an implicit penalty on all the good firms. Indian capitalism can ill-afford that at this stage.
dhiraj.nayyar@expressindia.com