Good corruption vs bad corruption

Prosecute AirAsia/Tata if evidence is good enough, but did we need the 5/20 rule or control to be in Indian hands?

corruption, Manmohan Singh, AirAsia, Tata Trusts, Indian joint venture, india, FIPB, Tata Group
In the pre-1991 era, for instance, the government had ridiculous capacity restrictions that forced all Indian industrial plants—such as for acrylic fibre or paraxylene—to remain sub-optimal in size. (IE)

In even the pre-reform days, sensible people made a distinction between ‘good’ and ‘bad’ corruption. Speed money was obviously a bad thing but if that was the only way to get a completely ossified government system to work, it was best to turn a blind eye to it. Taking a bribe to clear a polluting industrial plant or siphoning off funds for building a flyover or a dam or stealing rations for the poor, on the other hand, were clear examples of ‘bad’ corruption. Even those who were willing to turn a blind eye to speed money, of course, did so in the belief that this was a temporary fix, that the government would eventually overhaul stupid laws and cut through red-tape to ensure that such practices didn’t need to be resorted to; to the extent the corruption resulted in a project getting cleared, it was a necessary evil.

In the pre-1991 era, for instance, the government had ridiculous capacity restrictions that forced all Indian industrial plants—such as for acrylic fibre or paraxylene—to remain sub-optimal in size. That is when several entrepreneurs lobbied with government—some may even have paid hefty bribes—to remove the restriction or to give them an exemption under some rule or the other; finally, in 1991, Manmohan Singh made such lobbying/bribing unnecessary by delicensing most industrial sectors.

The question to ask any time ‘evidence’ is found of people violating the plethora of Indian rules—the FIR just filed by the CBI against AirAsia’s chief Tony Fernandes, among others, is a good example of this—is why, 27 years after India began its reforms journey, there are so many stupid rules that still exist. Prosecuting Fernandes, and several others including R Venkataramanan of Tata Trusts, is easy if the evidence is incontrovertible, but what are the rules they violated or sought to subvert?

One rule was the 5/20 one that stipulated no airline would be allowed to fly overseas—these are the more lucrative routes and fuel also costs a lot less overseas—till they had been in business for five years and till they had 20 aircraft. This rule, it is obvious, protected legacy airlines like Air India and Jet Airways from competition from new airlines, so was the crime to strike it off the statute—this is what Venkataramanan’s email to an AirAsia executive says then civil aviation minister Ajit Singh had promised to do—or was it to put it there in the first place?

Or take the case of the FIPB rule that AirAsia is supposed to have violated while setting up an Indian joint venture (JV) with the Tata Group. According to the law, while a foreign airline can own up to 49% of the JV, the CBI has alleged that AirAsia (India) was “indirectly controlled and operated” by AirAsia “violating the then various norms of then FIPB”. Again, while CBI prosecutes various AirAsia and AirAsia (India) officials, the government has to ask why it persists with such rules.

Does it really hurt India’s interests or security to have a foreign airline control more than 51% of the Indian venture? Indeed, the rule looks even more ridiculous when juxtaposed against the other rule that allows non-airline investors to buy 100% in a local airline in India—that is, while AirAsia can only own 49% of AirAsia (India), a grocery chain in Malaysia can buy 100%! Even India’s bureaucrats and politicians, seasoned as they are in all manner of gobbledegook, would be hard pressed to explain the rationale for this policy.

There are several instances of outdated/protectionist policies like this that have, over the years, been abolished. But the message that comes out of the CBI FIR is that the government is not corrupt as long as it does not change anything, never mind that this is detrimental to the national interest. In 1999, to cite one example, the Atal Bihari Vajpayee government reversed the Congress government’s policy on telecom because, while well-intentioned, it simply wasn’t working—the result was a boom in telecom services across the country.

While the government went through a process of consultation to do this, it is very likely that some telecom firms would have tried to lobby the government, some may even have paid off some people to ensure the law was changed. It is not anyone’s case that those caught giving a bribe should be let off, but the government’s job is to pro-actively look for laws that are redundant or which are hurting industry and remove them. If the Tata Group had to resort to indulging in what they have been accused of, it makes it clear there is something truly rotten in the system.

Or take the billions of dollars invested in e-commerce, something the current government is very proud of. Almost all of this, however, is against the law which bans FDI in the business-to-consumer (B2C) space. It is, then, entirely possible that a detailed investigation will find ‘evidence’—like the Venkataraman mail referring to a purported conversation with Ajit Singh—of officials/ministers assuring investors that their investments would not run into trouble; indeed, the fact that the government has done nothing despite this being repeatedly pointed out is also tantamount to collusion.

In such a case, should the emphasis be on finding the guilty officials or should it be on changing the law that prevents FDI in multi-brand retail—the ban on B2C ecommerce is a direct offshoot of that? Since the CBI is supposed to be an independent agency, the Narendra Modi government can’t be telling it what to investigate, but it would help if the government actively sought to remove laws that hinder investment.

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