Corporate crime has begun to risk democracy itself. Rajya Sabha MP and former FICCI president Rajeev Chandrasekhar tells Shoma Chaudhury that the Indian legal system needs to be overhauled to tackle corporate crime
Rajeev Chandrasekhar, 46, first began writing to the prime minister in 2007 warning him about the impending 2G scam. As a former telecom entrepreneur and a member of the Parliamentary Standing Committee on Information Technology, he was uniquely placed to know what was going on but the PMO did nothing. In a season of bewildering corruption, Niira Radia and A Raja are just symptoms of a staggering new phenomenon in India — corporate crime at an enormous scale. Crimes such as the 2G spectrum scam, two times the size of India’s health budget, and the unfolding LIC scam shed no blood but bleed millions. How can we get our money back? How can we hold the powerful to account? How do we read the new landscape? Chandrasekhar has some urgent solutions: a new legal system for corporate crime; mandatory disclosure of transactions that involve a private-public partnership, national resources or tax-payers’ money. Excerpts:
Rajeev, you wrote repeatedly to the prime minister from 2007 onwards forewarning him about the impending 2G scam; then later suggesting ways to rectify it. How did the PM respond?
It was a standard response from the PMO. He replied like he usually does. Thank you for your letter. We will look into it.
But you were on the Standing Committee on Information Technology, which included telecom. Did you all never meet? Were there no alarm signals going out from the others?
We did meet. But the Standing Committees are a part of the whole problem. They spend extraordinary amounts of time on issues like the land use of post offices and the quality of BSNL services but not on the fundamental question of oversight of the executive. Take the review of spectrum allocation for example. There is nothing in the system at present that can oversee the working of an independent regulator like TRAI. The only body that can do that is Parliament. And Parliament does it through Standing Committees. But if you look at the percentage of time these committees spend in doing that job, it will be a minuscule fraction. We don’t understand our priorities. We spend hours on completely irrelevant issues.
But why is that? Is it because these committees don’t have experts? Should they have civil society members?
We just need to be willing to put in hard work because it is hard work. It may be controversial for me to say this but the problem is when the Standing Committees meet to decide on the issues they will examine over the next 12 months, it all becomes about planning their trips, travel expenses and sightseeing — euphemistically called learning experiences. This is unfortunate because Parliament is the only body that can ask questions to the regulator. You and I, as individual citizens, have no locus or authority to challenge a regulator’s policy decision. The only way we can do it is to ask questions either directly in Parliament or indirectly through Standing Committees. So this oversight of Parliament on the Executive needs closer examination because the 2G scam has proved that corporates are capturing public policy.
Again, is there a problem with the composition of these committees? How do we fix things?
One of the ways to make sure this doesn’t become a cosy meeting place and functions as an effective arm of Parliament is to ensure that the transcripts of committee meetings are available to the public — both video and text. I have gone to the extent of saying these meetings should be open to the public. In the UK, for example, when the Chairman of the Reserve Bank deposes to Parliament, people can sit in the gallery and listen. In the US too, depositions like in the Texas Oil Spill are public. I had written to all parties proposing this. Only the Left supported it. Two national parties opposed it saying if you televise Standing Committee meetings, there will be too much grand standing and they will become partisan. But, at the very least, we need to make the transcripts public so people can scrutinise and understand the functioning of the committees.
Getting back to 2G, as a telecom entrepreneur, you sensed the murkiness way back. Can you talk about your own experience?
I entered telecom in 1991 with considerable idealism. It was Rajesh Pilot who bought me back from the US. There was this drive to do a lot of new things for India. You enter with that kind of thought then you run slap-bang into real India, which was Sukh Ram and the WLN scam. My company went bankrupt in 2001 and I saw first-hand how banks could be told by the government to either aid or cut off funding at the behest of a politician or corporate rival. It was obvious that public policy and institutions could be captured to benefit some and destroy others.
For all the hoopla around entrepreneurship, my own experience has been that you can be clever and hardworking but in India it takes very little to destroy someone’s business and make another’s bloom. I sold off in 2005 because, as I said on record, I’d been in telecom for 10 years and the only remaining challenge was lobbying for free spectrum. I was neither interested nor good at that.
In 2006, I got an opportunity of getting into politics. I didn’t have grand hopes of fixing the system but one of my main motivations was my desire to reverse the dysfunctionality and scams in the telecom sector. That explains my extraordinary letter-writing on the subject. So when this scam was developing, I wrote to all party leaders in 2007 asking them to support a discussion on this in Parliament. It wasn’t a fully cooked scam yet. I tried explaining it to whoever was interested. A few people in politics and media understood. But if you ask me why it’s taken so long for everyone to react to this, I’d say most of us didn’t get it.
Economic scams of today aren’t straightforward. It’s not about one person bribing another to get a pot of gold. It’s about fixing a contract and the underlying fine print of that and the value that accrues to you from that. It’s not boxes of cash anymore. It’s about contracts and deals.
We’ll come back to this larger issue of white-collar crime. For now, Raja’s been sacked. But how do we get the money back? How do we fix corporate culpability? And can it be fixed?
There are two basic minimum things people have to do when they take an oath of ministership. First, they have to make good the losses to the exchequer. If Raja or Niira Radia want to sign a cheque, they can do it, but the losses must be made up. Second, the CAG has confirmed a crime has been committed, so the perpetrators have to be punished. This is not an academic moral issue. It is about rule of law and sufficient checks and balances against creating a culture of kleptocracy. We have to make sure this kind of a scam does not happen every few years; or that every new minister, bureaucrat and businessman doesn’t create opportunities to make a killing.
For a layperson, the obvious option seems to be to cancel the licences and re-auction them. Is there any hitch with this?
Yes, that is the way. You have to think like a layperson. I don’t think it should be allowed to enter the sophisticated realm of legality. We should keep it simple. Take back the licences or get back the money. Actually there are three types of companies involved in this now. One is the existing operators like Airtel, Vodafone, Idea, Tatas and Reliance Comm who got extra spectrum. Then there are the new companies like Unitech and Swan who got spectrum and sold it off. Third are the companies who got spectrum but are sitting on it and not rolling out services. These three have to be tackled separately. The first guys have to be told you got the additional spectrum illegally not the licences, so you pay a fine of Rs. 3,000 crore each and keep the spectrum or surrender it.
With the second group, there are two problems. Those who sold off their spectrum should be asked to pay a retrospective windfall capital gains tax. The government should claim a 95 percent tax on it. As for the guys who bought these licences from the original buyers, they have to be told that either their licences will be taken back or they should pay massive penalties in the range of Rs.3,000-Rs. 5,000 crore each.
The third guys who’ve taken spectrum but are doing nothing with it should be told to forfeit the money they paid and the spectrum should be taken back. Through all this, there is one basic theme: we believe you have done wrong and we will make the penalty painful, not just a small rap on the back. What’s disturbing is that Kapil Sibal (who has taken over from A Raja) is already pushing this into an arcane realm of legalese. I can tell you his arguments for this right now. He is thinking if we cancel licences, both investors and consumers will be upset. Neither of these concerns is valid. To say investors will be upset is to say that a criminal will be upset for being put behind bars for a crime.
The fact is nothing is going to happen to investors if we take a strong stand on this. They will continue to invest. The simple stand should be if you do anything against the laws of India, you have to pay for it. The government can’t give an assurance that we shield you from being conned. In China, these companies would have been kicked out. Tax payers can’t be held responsible for the bad investment decisions of companies.
Absolutely! Protecting “investment climate” has become a ploy for dishing out favourable treatment to corporates that might be detrimental to India. I was appalled with Ratan Tata’s offer to clean up the Bhopal gas tragedy site, contingent on Dow Chemicals being let off its liability for Union Carbide in India. Dow has paid for UC liabilities in the US; why not in India? There was a flurry of letters in government worrying that holding Dow responsible would jeopardise their promised investments. That’s just one example.
Rolling out the red carpet is fine but rolling over and playing dead is not. India is a nation with a critical mass where companies want to invest money. You have to deal with corporations from a point of strength. We still haven’t learned how to attract investment with national interest in mind.
When UPA 2 was formed, I remember a quote from Shekhar Gupta where he said that “one of the big differences between UPA 1 and UPA 2 will be that CII and FICCI won’t dictate policy making.” I thought this is really heartening — here is a journalist who is pro-establishment who is saying this. But it has not worked out that way. Basically the problem is that too many businessmen are sitting around the government telling them what is good for the public. That ends up sacrificing public interest for business. Of course, business and entrepreneurship is good for India and the government should help the business community. But primarily, government policy should be about citizens’ interest. It can’t be the other way around.
You’re a businessman yourself. How do we break the damaging conflict of interest arising out of CEOs sitting on committees and legislating or advising policy decision on areas they will be doing business in — be it agri, pharma, aviation…
I agree with you. If Vijay Mallya is put on a civil aviation committee, it’s wrong and distasteful. But the number of businessmen in Parliament trying to influence policy is still limited. What is really criminal and absolutely unacceptable though is influence like Niira Radia’s and what goes on behind the scenes as the tapes have shown. You have a CII director general (Tarun Das) asking for five acres of land in exchange for…
But are just fines enough? Bernie Madoff is serving 150 years in jail. Satyam’s Ramalinga Raju was arrested. Given the sheer scale of this scam, is there a case for not just arresting Raja but all those who illegally got the spectrum?
We might instinctively want to put the crooks in jail. But the problem is we must also have some semblance of the rule of law and due process. What we don’t want to do is go witch-hunting and just arrest all those who have done wrong because of the absence of a system for proceeding against white-collar crimes. There is a real need now to overhaul and create a separate legislation for white-collar crimes.
The Indian Criminal Procedure Code (CrPc) is only geared to look at individuals who commit petty or violent crimes. In today’s world, the much bigger crimes are those that are sophisticated and have silent victims. You and I and other tax payers never feel there has been a real crime against us — these are victimless crimes in that sense. Victims of white-collar crimes need a special dispensation. Our criminal code and public prosecution system is inadequate to prosecute this. The proof is Raju and how he is running around despite being charged under the CrPc.
The second urgent need is to introduce legislation that will reform the business chambers and lobbies. They are operating in an area where there are absolutely no laws. FICCI can give cock-and-bull stories to the government and get policies enacted based on such reports — and all of this is free from the provisions of law.
‘The government is asking us to celebrate 9 percent growth rate — an economic model whose inside story is about robber barons and crony capitalism’
Give me an example of how others have cracked down on white-collar crime. How did it work with Madoff for instance?
After the FBI swung into action, a special public prosecutor was appointed to try him in court. He was convicted in just a year’s time and given 150 years in jail. The criminal is behind bars, some money has been recovered and redistributed to those who were affected and an effort is on to trace the rest of the money. So there is a cure. They can run but they can’t hide. But we have to have a legal framework and trained people to tackle this.
For lay readers, can you outline what exactly is a white-collar crime? And why has it proliferated so much?
White-collar crime is a case of a corporate scamming another corporate or, in India’s case, scamming the tax payer and the exchequer. A large percentage of such crimes is against the tax payer and is always done with the active collusion of someone within the government. So the criminals are aided by a system that is supposed to look after the victim. Because the victims are amorphous and not immediate, it all gets very diffused and confusing. Unfortunately, as I said earlier, the legal statute used to prosecute such crimes is the same as what is used against pickpockets, criminals and murderers. So a sub-inspector dealing with someone carrying a weapon is also expected to deal with someone like a Raju!
Publications like ours and civil society activists have been warning that the euphoria about the growth story in India is misplaced. Do you agree? Even Raghuram Rajan, (former economist with IMF and currently economic adviser to the PM) wrote recently that there has been a “privatisation through stealth” and most Indian billionaires have been created out of their proximity to political power. Does this worry you?
I’ll give you a small empirical fact about our growth. We’ve been talking about 9 percent growth. But the three main components of this are mining, real estate and construction which are growing at higher than average. Agriculture is 1 percent. Manufacturing is 3 percent. So the average is high only because of these three sections. There is not a man in India who believes that these sectors are not heavily politicised. And it’s these sectors that have thrown up the most number of billionaires. So the government is asking us to celebrate an economic model whose inside story is about robber barons and crony capitalism. If you are endorsing this percent growth rate, then you are basically endorsing crony capitalism.
It’s really heartening to have someone from the corporate community talking of this.
Shoma, believe me, I have been writing and speaking about this. We all want growth but we should define the kind of growth we want. Bureaucrats don’t give a damn — they will say 9 percent growth and hype it all up. But the truth is this growth is distorting our wealth creation and creating a small club of billionaires while 480 million of our people still live in sub-Saharan conditions. If you only enjoy spreadsheets and numbers, you can keep plotting graphs and marvel at how it’s going up. But the graphs hide a lot of things. That’s what Rajan says. If you allow this kind of wealth creation, you are, in effect, putting democracy at risk. It’s going to be a democracy not of the people, by the people, but of, for and by money.
Let’s get back to the spectrum issue. There was a talk about bailouts, about the sector being unviable. Can you explain that?
Raja has inadvertently done a couple of good things. Before he got into dishing out licences, the sector had only four operators. They were running a cartel, fixing prices of SMSes and calls. For example, the cost of an SMS for an operator is 5 paise, but every operator was charging Re. 1. With millions of SMSes a day, you can imagine the money involved.
On one occasion, all the operators had increased their prices for a certain service on the same day. I wrote to TRAI saying isn’t that cartel behaviour? The regulator Vipin Sharma wrote back saying it’s cooperative pricing and not a cartel. He had figured out a new English word for it! I challenged him. Because of these letters, overnight operators reduced SMS charges from Re.1 to 20 paise. So that was the margin they were making all along! And the regulator was doing nothing. By issuing all these licences, Raja altered the cosy economics of the four operators. He altered it in favour of the consumer for the first time.
Is it at all possible that neither the PM or finance minister were unaware of what was going on? They are all men of finance. Why was there no alarm?
It is impossible for them not to have known. There was so much correspondence. There was a letter from the finance ministry to the DoT. Competition Secretary Vinod Dhall also wrote to the DoT saying the spectrum should be auctioned. There was media discussion. There were two Parliamentary discussions between 2008 and 2010 on it. To say they didn’t know is a serious stretch of imagination.
Let’s look at the excuses being offered. Raja said he was only doing what others had done and what the regulator recommended. Let’s assume for a minute this was true. The independent regulator had recommended an action that caused immense loss. Why should the regulator not be taken to task for this? The second question is why could the government not overrule the regulator in the face of such obvious loss? It’s never been gospel truth; it’s been overruled on many occasions before.
The basic question is why did the new licences not get sold at the market rate? Raja said that if he would have increased the rates, the new players wouldn’t have been able to compete because existing players had got spectrum at cheaper rates. This argument falls flat because if Vodafone can pay $12 billion for Hutchinson and still price their calls at 60 paise per minute, that means there is a lot of margin to play around with.
Do you think there should be a JPC?
The answer is simple. In a mature democracy, the investigation would be done by the CBI. But we are in a situation where there is no credibility left in any institution to handle such crimes. Only Parliament can get to the truth. If political scores are settled in the process, so be it. At least we should get a realistic assessment of what went wrong.
Niira Radia can pick up the phone and call just about anybody. What is the legitimate space for lobbying? How do we read this bewildering phenomenon?
There are two things that characterise today’s government. It has unprecedented money to spend — this year’s budget was Rs. 10 lakh crore! Second, it has unprecedented discretion in the award of contracts and deals. Technically, the old Licence Raj has gone, but largesse remains. Such unprecedented powers have created a vibrant environment for lobbyists to thrive. One act of effective lobbying can mean profits of thousands of crores. Because the stakes are so high, the payback to the system is high too. That explains their reach.
‘Rolling out the red carpet is fine but rolling over and playing dead is not. You have to deal with corporations from a point of strength’
What are the immediate course corrections?
There has to be a deterrent against robber barons and oligarchic capitalism. Policymaking has to become more transparent. If you read the manifesto of the Tories in the UK, they have promised unprecedented transparency. We also have to push for heightened transparency where tax- payers’ money is involved.
Is bringing corporations under the ambit of RTI part of that process?
Yes, wherever there is a contract or memorandum between corporates and the government, which involves a private-public partnership, a use of national resources or tax-payers’ money, it should be under the purview of RTI and the CAG should be able to audit it. The problem is that with two million such transactions every year, even the CAG led by a good man like Vinod Rai and his four-member team cannot possibly audit all that. So we need to push for mandatory legal disclosures.
With the RTI, you need to ask a question to get an answer. But they should be disclosing without being asked. More disclosures from government, a better legal framework for prosecuting white-collar crime and heavy penalties will hopefully be a good deterrent.
But big business is always pushing for less government.
You cannot expect people who are in the business of wealth creation to regulate themselves. The government cannot abrogate its responsibility to make and enforce rules. Business does play an important role but it shouldn’t be laissez faire. The way to make corporates more honest is not to plead with them to be honest. It is really for society to lay down rules and define what is acceptable corporate behaviour. I was FICCI president for a year and I kept saying we can’t be lobbyists. We need to have stakes in modern India, democracy and equitable growth. The vision to have morally responsible corporates has to be driven by society articulating it to them. We have to tell corporates that irresponsible, greedy behaviour is unacceptable.