Fix the design defect at the core of India’s corporate laws

Crony deals are sealed in boardrooms but governments have to seek the people’s mandate

October 24, 2013 in Columns
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Our national life these days feels the equivalent of a herd of wild horses let loose in a public square: everyone rearing and kicking and bucking at will in different directions. The attacks are random: the sense of injury equally so. A game theorist would be hard put to find a pattern. The aggressor and the wounded have become indistinguishable.

Take the still-unfurling coal scam. It is astonishing how everyone feels the most aggrieved party. The public feels it’s been cheated out of its skull. Corporates feel they are being witch-hunted. The government feels the CAG and courts have overstepped the line. Every minister feels the other has overreached. And bureaucrats are paralysed with fear.

It’s not just the coal scam. Take the Niira Radia tapes. The 2G scam. Or innumerable mining ones. Take the stalled POSCO project, Niyamgiri, Koodankulam, or any infrastructure project, power plant, mining allocation or big dam. In different strokes, the story is the same. There is a colossal and pervasive sense of the contingent: ad hoc actions; ad hoc consequences.

There are many reasons why things are feeling so radioactively bad. First, the horse whisperer — the leader, the one who should take the reins, enforce order, bring flying hooves and mane to line — is missing. PM Manmohan Singh’s leadership is a study in absentia.

But there are other reasons too. The media has been too shrill in its analysis and indictments, often overstating its case. The Opposition has been cynically opportunistic, going for the jugular, but conveniently forgetting it’s often been party to exactly that which it condemns. And the courts have donned every costume they could find: played executive, legislature, investigator and judiciary, all at the same time. They have doled out blanket solutions and ordered many arrests. But at the heart of this chaos lie the two central players: the UPA and corporates.

Today, there are three alarm calls dominating national discourse: corruption, corporate sentiment and policy paralysis. The three are deeply and causally related.

Return for a moment to the coal scam. The contours of this are well known. Under the UPA, dozens of coal blocks were arbitrarily allocated to private players, with no obvious parameters. Screening committees, with many departmental secretaries and inter-party representatives, sat on these decisions but failed to check against vested interests. The PM personally was the coal minister; but he failed to act. Even after the mines were allocated, the government did no due diligence on whether the captive mines were being utilised or not. And the corporates? Not one complained. Even the best just learnt to bend the system and enjoy the spoils.

The over-heated anguish now, therefore, seems exceedingly hypocritical. But it has serious economic consequences and must be addressed. To do this by mere capitulation, to go back to “wooing” investor confidence in the old ways, however, would be disastrous.

The fact is, the surround sound of the past few years has obfuscated many things. There are four issues at stake here: one, actual incidences of corruption, in the classic sense. Two, the problem of the process itself: of opaque decision-making. Three, the fact that even within an imperfect process, there can be both bona fide and mala fide contenders who get projects and how is one to distinguish between the two. And lastly, the prerogative of the government to make policy decisions, even faulty ones, without it suo moto being deemed corruption.

There can be no one-size-fits-all remedy to rectify this. If India is to combat corruption and restore investor confidence, it needs to discover the wonders of the “speaking order”. The right to decision-making cannot be wrested away from the government, but it must explain in writing the rationale of why it takes one route more than another: why allocation rather than auction; why this applicant and not another.

These speaking orders would give volition back to decision-makers, create cohesiveness and protect them from the vagaries of hindsight.

Finally, the design defect at the core of India’s corporate policies needs to be addressed. Successive governments have tried to seduce investors from a position of panic rather than self-confidence. This has created a piquant situation: crony deals are sealed in boardrooms, but governments have to seek their mandate from the people. When these projects hit the ground, they face massive resistance. Understandably, governments go back on their words. Investor confidence is shaken.

To reconcile these worlds, governments must identify a few inviolable principles on which corporate investments in India should be predicated. The ones I would pick are — environmentally conscious, ecologically sustainable development that is aligned to social justice and mindful of inter-generational security. That’s an investment one can stand by; good for business, good for people.

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