26th November, 2008

More than Two year has passed by

The reaction that followed has been of

Anger

Outrage

Sympathy

and then

the same old Amnesia

The Point is not of

whether the government’sresponse post the attackwas adequate,

Nor is it of whether the State has done enough to avoid another attack on our public places, trains, places of religious worship or even the seat and symbol of our democracy and sovereignty.

The Point is of whether we as Indians, the

common man on the street,

who takes on to the road

everyday for his work,

putting his safe return to

home in the hand of fate,

has actually understood

the severity of terror.

The Point is

whether we are

prepared to walk the

extra mile and do our

bit, by not doing

anything that ultimately

goes to benefit the

monsters of death

We need to think and give

us a system that does not

fuel terrorism.

It is an established fact

that corruption feeds

terrorism and one

need not go into any

depth to ascertain the

intricate linkages

between the two.

Corruption in Perspective: Linkages to Socio Economic Realities

Arun Kumar Jagatramka

We rightly glorify our Demographic Dividend….But forget that it may soon turn to be a

Malthusian Nightmare

If we do not channelize the energy in right direction

If we do not put our systems right and are unable to provide good governance

Corruption….

Is all pervasive…omnipresent…..

How it harms the country?• Hardens alleviating poverty and effective

development

• Increases cost of doing business

• Undermines competitiveness

• Keeps India from achieving its economic growthand employment potential

• Creates Growing income inequalities (growth limited to few elites & fails to reach majority)

India Inc.’s perception of Corruption –How it is corroding the economy and corporate environment

3%

46%51%

Impact of Corruption on Investment

Corruption will have no impact on the investments coming to India

India will attract investment but only in select industries / sectors, which may result in skewed growth

India will attract lesser investement than its peers due to corruption

93%

7%

Corruption negatively affects the capital market

Yes

No

31%

68%

1%

0 10 20 30 40 50 60 70 80

Corruption is a deterrent and a key risk to the projected 9% GDP

growth

India can achieve more than 9% GDP growth if corruption is

reduced

Corruption has no effect on GDP growth

Impact of corruption on GDP

Source : Survey on Bribery and Corruption – Impact on Economy and Business Environment by KPMG 2011

The actual figures also speak the same

Corruption has already started taking its toll on the economy…..

8%

11.8%

8.8%

3.4%

10.4%

8.7%

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11*

Slower Growth

Annual Average Rate of Growth of Industrial Output

High Borrowing Costs and worsening investor sentiment have decelerated rate of growth of industrial output

Source: Indicus Analytics

-5

0

5

10

15

20

4Q

FY

06

2Q

FY

07

4Q

FY

07

2Q

FY

08

4Q

FY

08

2Q

FY

09

4Q

FY

09

2Q

FY

10

4Q

FY

10

2Q

FY

11

% C

han

ge

Reform Stagnation

Year on Year % Change in Gross Capital Formation

Governance Deficit one of the prime causes of low investor confidence hurting investments

Source: CSO, CIRA

Corruption Slowing Growth

0

5000

10000

15000

20000

25000

30000

35000

40000

2006 - 07 2007 - 08 2008 - 09 2009 - 10 2010 - 11(upto Jan 2011)

US

$ m

illio

n

FDI being hit as well

FDI in India declined by 36% in 2010 compared to that in 2009. This decline coincides with FDI growth of 17% in non-Arab Asia.

Investors are preferring a relatively high cost economy as the ease of doing business is much less in India due to corruption, lack of transparency and governance deficit

Source: Ministry of Commerce and Industry, GoI

Corruption and Poverty are directly proportional

Results into impoverishment of millions

Above 50% of our population earns less than $2 a

year

Over a half of global poor lives in India

Reforms has been able to lift the condition of middle

class and the rich, while the poor remains where he

was – corruption has pulled down development

among the masses

India remains poor in a country of billionaires

Hardly 10% of Government’s Social Sector spending reaches the needy

• A bulk of the loot is used to hoard

food grains to increase prices

• Poor suffers further with rising

inflation

• Forces child labour to feed the family

• And malnourishment

We need a robust poverty alleviation

mechanism through proper

implementation & monitoring so

that the benefit reaches the poor

Corruption affects the poor the most

PDS is a glaring example of Corruption affecting the poor

Ration shops remain empty or closed

Items meant for PDS find their way to regular kiranastore and sold at market price

License to open and operate Ration shop is a separate scam due to huge margin and scope of corruption involved

Falls easy prey to the divisive elements

The poor isolated from “India Shining”

12th March, 1993

India has mourned innumerable times

She has picked up her dead and wounded to

move on…

Only to be targeted again

• Serial blasts• Hijacking of aircrafts• Loss of innocent lives• Attack on the

Parliament• Attack on symbols of

India’s economic prowess

• Gun battles …

Some patriotic(??) Indian takes a bribe to let the consignment of RDX through

Others “bought” & “purchased” on the way

Still others use loopholes in the antediluvian legal system to protect and shelter him

Other Indians, for political reasons, either look the other way, or actively encourage his metamorphosis

Finally… the Aam Admi suffers

The Danger constantly lurks over us as…

Indian consumerism

was less impacted by global crisis

But got affected with every bomb blast

….AND…

26th November, 2008Was the last nail in the coffin

When malls became empty, cinema halls running blank and

five star hotels & restaurants looked like graveyards

Indian Economy in 2008 suffered more due to terrorism than the global crisis

It is the small bribe that “we” pay

That lets them buy the guns that are trained on us

The Hawalaroute that we

take

To evade a few

Rupees … is used by them to finance

their operations around the

world

Be it the tea industry in Assam which inadvertently financed the fire in the north east

ORConstruction and illegal Mining Industry that is today financing the Maoists

ORDiamond Merchants, the builders and the sultans of Bollywood, who continue to be the don’s supply source

Non-compliable provisions in most revenue legislations…….

• Lead to all being defaulters - differing

only in scale

• Big evaders can afford to buy the system

out

• While genuine ones are unable to match

the payout of tax evaders to keep the

officials happy

• Leading to even the genuine ones

turning into evaders in the longer term

Entanglement in Land Registration for Industrial Use

• Any land sale by a farmer for industry (even if for full value & free

needs to be taken from Deputy District Collector (DDC) for

converting Agriculture land to Non Agriculture Land

• Ideally it should take 7 days, but generally in our country it takes

6-7 months if you follow the corrupt system

• The approval from DDC once received is valid for 6 months only

• After the DDC approval is received NOC is required from various

departments, viz:

• Gram Panchayat

• Taluka Panchayat

• Mamlatdar

• State Electrcity Board

• State Water Infrastructure

• District Industrial Commissioner

• Office of DILR/SLR

• State Pollution Control Board

An ideal case of law forcing you to be corrupt

• 5-6 months for NOC from each departments, totaling to 3-4 years

for the entire NOC process

• Each department provides NOC valid for only 6-12 months

• By the time of the last NOC, the previous NOCs become invalid

• Also DDC approval becomes invalid, as its validity was 6 months

• We are thus caught in an unending vicious loop, if we want to go

the honest way

• The laws are made in a manner that you would not get the NA

certificate if you want to follow the same as laid down on paper

and in an honest way without paying bribes

• The only way out is – grease the palm and get the NOCs quickly

and approvals immediately or forget everything

Hence, the law forces you to be corrupt

Real EstateThe REAL Story is BLACK within

• Black Money in Real Estate can vanish overnight

– Exemption of Capital Gains Tax

– Reduction in stamp duty to 1%

No Incentive for Black Money involvement

Don’t compel people to be corrupt, rather

encourage them to be participatory

Overall gains by removing Black Money

from Real Estate deals is much more than

the notional loss due to zero capital gains

tax & lower stamp dutyThe problem may be that Corrupt politicians & Officers may find ithard to park their black money

elsewhere

Taxman’s prescription for Indians:Khaarab Samay Ke Liye Acchhe Samay Mein Chori Karo

• Business Profits fluctuate as per

business cycles

• Since tax payable is directly

proportional to profits, amount of

tax payable varies too

• The Tax Department is too irrational

not to accept this – they work on

annual targets and budgets- expects

all to pay taxes growing in line with

their Budget targets irrespective of

actual profit/ lossIf profits drop in any recessionary period, tax payment would consequently be less during the period – but the tax department harasses the corporate to pay

higher tax… Hence …. Suppress now for taxing times ahead!The Survival Mantra Corporates are expected to follow

It is also a result of.....

Preconceived Mindsets like –

“Everybody evades tax”

• Which discourages the honest to pay higher tax……

• Leading to more leakage……

• Multiple division of entity…etc….

Which even forces the honest to be corrupt

KITNE KHOON MAAF, SAMBA…??

• Highest tax paying Bollywood

actress gets hounded by taxmen at

7 am in the morning

• Presence of an actor is The ‘masala’

story enjoyed by all

No one questioned why the

taxmen went there at that time?

Is Paying High taxes a crime in this country as the Tax deptt’s slogan CATCH the BIG FISH seems to suggest

We have Created Frankensteins in regulators

We do not see convictions

-guilt is proved by raids

-- media feasts on ‘breaking news’

-- the person is put in jail and released in

a few days without any trial

There is no compensation- but the loss of

reputation is irreparable

Mr Harish N Salve

Senior Advocate

Supreme Court

National Conference on

Integrity- 18th January, 2011

“Rule of law has been replaced by rule of men”

Fear of Raids much greater than Raids itself

34

The Raid Raj ( Red Raj)During the pre-independence era, the police used to raid

households at odd hours in search of freedom fighters and harass

them at the slightest pretext

In India today, we have the same story repeated …

only the backdrop has changed

Enforcement agencies bulldoze their way in organizations and

households, harass the common man taking recourse to some

impractical laws and walk out with their pockets full….

Even after 60 years of independence, we are shackled by these

redundant laws and we have no way to fight our way out of it …

35

The Raid Raj ( Red Raj)

Sadly though…

The Raid Raj

has led to the

proliferation of

the Red Raj

that has affected the

nation at large and is one

of the most burning

issues of today

The urgent need is –A relook at all our laws

• The laws are heavily drafted to try to keep the offenders at bay

• The regulations in place attempt to make the process a stringent one

• As a result making it tough for the honest to comply with

• While the dishonest finds a

way out to bend the system

• The honest finds himself

lost in the plethora of rules

& regulations

Relative Honesty

A practical and a

true statement – A

serious need for

relook at all the

regulations to

ensure that the

system allows more

citizens to be honest

India Today Conclave 2011

And Justice for All… ???

“India has become a nation of

‘gestures’, the fundamental problems

are not dealt with, only a few

gestural actions are taken to cover up

a deeper rot”.

“The nation is happy to live in lie,

deceit and dishonesty and we have

all chosen to become hypocrites”.

Mr Harish N Salve

Senior Advocate

Supreme Court

National Conference on

Integrity- 18th January,

2011

CERTAINTY OF PUNISHMENT AS AGAINST

SEVERITY OF PUNISHMENT

The Guilty should not be allowed to

roam scot free

Certainty of Punishment would deter

others from repeating the mischief

“Certainty of Punishment” is not

espoused by our judicial system.

Focus is rather on “Severity of

Punishment”

More severe the punishment, higher

the payout of bribe

• Scrap all laws which are not complied with by a

majority of the population – such laws only

breed corruption

• Laws must not be vague and open

ended…..which can be interpreted by the

enforcement agencies as per his own wish –

again a source of corruption

• Laws must be designed to Help the Honest and

to make his Life Easy – Rather than Complicating

and make him Live in a Constant Fear

• The Honest should not be forced to turn corrupt

Simplify – For Greater Compliance

We tend to forget 2 basic rules• Simplicity evokes compliance

and complexity breeds

evasion

• A more compliant tax system

is healthy for the revenue

collection of the State as

well as for the moral and

social fabric of the Nation.

We need to come out of the…..

Age old mentality of the Oppressed and the Oppressor….

Where the enforcement agencies are viewed asthe oppressor

And the common man as oppressed

The British have left but have left the legacy of Class behind

It is Collusive Corruption and not ExtortionaryCorruption that garners the maximum attention – beit in media or among civil society members

The Lokpal Bill that we eagerly await would primarilybe effective in dealing with collusive corruption

We somehow miss to speak on extortionarycorruption though it affects the ‘aam admi’

The Aam Admi is more affected and bothered withextortionary corruption, which causes harassmentfor him day in and day out, from getting a birthcertificate to a death certificate

Extortionary & Collusive Corruption

Extortionary– The common man and the poor most

hit

– Forced primarily by government

bodies and enforcement agencies

– Citizen has no choice - ends up losing

time/money /opportunities if denies

the bribe

– Less talked about and not highlighted

by media since sum involved in

individual cases is much less though

adds up to a humungous total

Collusive– Paid to public authority to

fleece the general public

– Eg. Government Contracts,

tenders, projects, etc

– Loser is the general public as

cost of public service goes up

and efficiency goes down

– All big scams that we hear

about are of this type

– Does not affect the common

man in his day to day life

While Collusive Corruption always hogs the headlines, we do not talk about Extortionary Corruption

Collusive corruption is difficult to control butextortionary corruption can be effectively controlled

Extortionary corruption is the root of all corruptionswhich abates the growth of collusive corruption

We must spend our energy to combat extortionarycorruption – free the masses from the harassment ofthe malice

Collusive corruption does exist in developed world,while extortionary corruption is absent

46

Extortionary Corruption- a few examples

The corruption that we face in our day to day life:

Paying a bribe to the sergeant for letting your goods truck ply on thestreets

The Bakshish/ visit fees demanded by inspectors of any governmentdepartment if they arrive in your office/ factory

The amount paid for any clearance from the Municipal department

The commission paid for getting a water connection

The extra money paid to get your property tax sorted out

so on and so forth…

47

WHILE COLLUSIVE CORRUPTION IS LIKE DIABETESTHAT CAN ONLY BE CONTAINED AND CANNOT BEELIMINATED;

EXTORTIONARY CORRUPTION IS A BANE TOUNDERDEVELOPED NATIONS & CEASES TO EXIST ASIT TRAVERSES A PATH OF GROWTH TODEVELOPED….

We had to shell out ‘pranami’ for telephoneconnection, gas connection or for certain consumerdurables like a scooter or even a car until few yearsback- UNKNOWN TO POST ‘91 GENERATION

Poor has to pay more bribe

Source: The BRIBEline Project under TRACE International Inc.

0

10

20

30

26 2217

114 5

2 2 1

Amount of Reported Bribes (N=90)

% bribes

Need to identify ExtortionaryCorruption and deal with it separate

to Collusive corruption

Constant erosion of moral fabric of the Nation caused by constant corrosion of Integrity

Controlling ExtrotionaryCorruption is the biggest challenge

How often have we bribed,

because it is the “system” …

The tricolour as we know it in daily life is

Red Tape Yellow JournalismBlack MoneyWith the circle of deceit

Why we avoid to speak up…

Fear of entanglement

No follow up action by the agencies

Fear of being singled out

OR

“Chalta hai” attitude

Does not concern me or my family

One man can not make a difference

• Corruption exists everywhere, though the magnitude may

differ

• No one can be 100% honest in the present system – It is only a

factor of Relative Honesty

• It is not enough to have anti-corruption strategies and

programs, but there should be time-bound action on the

ground

• There is not a single anti-corruption agency that is independent

of the government or has the complete powers to take action

• We need a statutory, effective and independent investigating

and prosecuting multidisciplinary agency, paid from the

Consolidated Fund and led by independent professionals

Way Forward

Immunity to bribe givers : probably a relief from being hounded and harassed

• Person paying the bribe is often the

victim of the system who is forced to pay

as well as remain silent for fear of

prosecution providing undue immunity to

the corrupt

• Is it not akin to rape victim being jailed

for being raped, if she cries rape

• Bribe givers be allowed to declare the

bribes paid by them without fear of

prosecution, while bribe takers be

accorded stringent punishment

Decriminalize bribe paying :Kaushik Basu, Chief Economic Adviser

• This would eliminate extortionist

corruption to a great extent

• Would also discourage enforcement

agencies from using the laws to their

benefit, to harass people - only to get

their coffers filled

• Law should be changed so that, at the

time of bribery, both parties know that

the giver has immunity and that the

taker not only has a heftier penalty but

also has to return the bribe

Annual Return of BRIBES

• All citizens be allowed to file a return of bribes paid by

them in a financial year

• Such returns be computerized for analysis

Bribe

• Corrupt Officials named in

such returns be ranked by

more than 100/200/ 500

complaints category as per

their status and investigated

only if they cross their

“immune bribery” quota

Raise a Voice –Protect the Whistleblower

• Honour and Support those that

Raise their Voice

• Avoid Short Term Gains for Long

Term Goals

• Do not Buy my way out

• Adopt a NO BRIBE stance

WENeed A Society built on the Foundation

of TRUST

We must learn to Trust. For several centuries, Indians have been brainwashed to distrust other Indians. This saps national energy. Distrust kills initiative. Distrust compels people to maneuver and manipulate. Trust and transparency stimulates entrepreneurship.

Time to move on from

“Chalta Hai” to “Ab Nahi Chalta Hai”

Unshackle the system…..Unshackle OurselvesShackle the corrupt

Corruption thrives as long as people are

ignorant or apathetic.

And only when ignorance and apathy are combated can corruption be

effectively controlled

We need to ensure that…

The Days of Corrupt Governance are Numbered

Freedom From Corruption

The 2nd Freedom Struggle has already started

To Conclude• Corruption is omnipresent in India, only its degree varies

• Corruption feeds terrorism and we are at a danger of being

targeted again and again and …………………….

• All activities of the nation, be it economic, social, political or

judicial have a corruption component embedded in them- it has

severely affected the concept of ‘Welfare State’ in India

• Corruption and poverty are directly proportional

• Social sector spending hardly reach the intended beneficiaries

• The growth of the divisive forces like Naxalism, NE fiasco as well as

‘parallel’ activities like illegal mining, black money etc owe their

origin to corruption

• The British have left India, but left behind the legacy of class

To Conclude

• To formulate simple and rational laws for greater compliance

• Certainty of Punishment as Against Severity of Punishment

• Do away with the ‘Chalta Hai’ attitude

• Stop generation of Black Money

• Trust the citizen and empower them instead of ‘raid’ raj

• Isolate & eliminate extortionary corruption

• Allow annual return of bribes & Protect the ‘whistle blower’

• Formation of a statutory, effective and independent investigating

and prosecuting multidisciplinary agency, paid from the

Consolidated Fund and led by independent professionals

Anomalies in Company’s Act• Section 179 allows a shareholder holding shares worth Rs. 50 thousand only to

demand a poll on any resolution at a general meeting instead of allowing them todemand poll only on holding certain % of share capital. By now even smallshareholders hold shares worth Rs 50 thousand enabling them to harass the Companyand its management by demanding poll on every resolution.

• Section 193(1) requires every company to maintain the minutes of proceedings ofevery general meeting and board meeting to be kept in minute books within 30 daysof the meeting and the same shall be initialed and signed by the chairman of the saidmeeting or the chairman of the succeeding meeting. In case where the minutes areconfirmed and signed by the Chairman at next meeting held after 30 days it becomespractically difficult to ensure entry of minutes within the time limit as aforesaid.

• Section 206A - Right to dividend, rights shares and bonus shares to be held inabeyance pending registration of transfer of shares but how does a company keepshares issued on rights basis in abeyance as the same has to be issued and allottedwithin a fixed time frame.

Anomalies in Company’s Act contd…

• Section 301 requires the company to maintain Register of Contracts at its Registeredoffice to be kept open for inspection at such office and the same is required to be placedbefore the meeting of BODs. However, in case the Board meeting of the company is heldat a city other than where the registered office is situated then the Company is requiredto move the register outside its registered office violating the aforesaid provisions.

• Section 300 states that interested directors will not be counted for the purpose ofquorum. In most of the closely held companies it is observed that companies havecommon directors and therefore compliance of these provisions is impractical. In orderto circumvent these provisions, the promoters tend to appoint those persons on theBoard who merely act on their instructions and does not serve any purpose. Thereforethese provisions need to be relaxed and should be made mandatory in case of listedcompanies only.

• Section 39 requires a company to send copies of Memorandum & Articles, agreementsand resolutions referred to in Section 192 to the shareholders on requisition. Over aperiod of time, this section has outlived its objects because today any shareholder canget copies of the MOA, resolutions, etc. online from the records of ROC, minimizingunnecessary printing and harassment.