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11 Ways to fight Corruption

Dr Subramanian Swamy Corruption in India is a major concern because of the mind boggling amounts of money illegally appropriated in the Satyam, IPL, CWG and 2G Spectrum scams. India today has one of the most corrupt governance. The unanimous worldwide view is that corruption is no more the tolerable grease or speed money in any system, but a cancer that will cause death of a society unless cured early. Although ancient India had won the admiration of visiting monks, historians and traders as a nation of honest citizens, we have lost that reputation. Global watchdog, Transparency International Index of Corruption, shames us in Indias rankings. Our citizens illegal bank deposits in tax havens abroad are the highest for citizens of any nation as high as $1.5 trillion. Though India is a signatory to the UN Convention Against Corrupt, it is yet to ratify it. The Convention came into force on December 14, 2005 when 38 nations ratified it. Its asset recovery provision is appealing. Yet, India is yet to sign. Corruption misallocates resources from the meritorious to the unworthy, most transactions then lead to sub-optimally produced sub-standard goods and services, which would not otherwise have been sold in the open market without law enforcement retribution. The bitter truth is that our corporate worlds success stories are founded on fudged accounts and undisclosed funding through black money held by corrupt politicians and criminals. Since merit today is regarded inferior to acquisition of power, the immoral, criminal, powerful and illegitimately rich achieve social respectability because of this short-cut to wealth. Since elections lead to political power of those with illegal funds, future Governments naturally become bribe-compliant and protect the crooked. The cure for corruption is manifold but the goal cannot be achieved unless there is accountability in governance. Such accountability

requires transparent and ethical reporting of the finances of an organisation. I highlight 11 ways: 1 Black money unreported money, neither taxed nor spent openly. Thus, the rich pay minimal taxes relative to their legal dues either due to clever chartered accountants, or by tax avoidance through the agricultural sector which has zero income tax. I advocate a three-year period of zero income tax for all for the first three years of a newly elected Government. 2 Since the corrupt indulge in gross luxurious consumption and bribery, it raises the profitability of non-essential luxury industry. This essentially crowds out investment in other, more essential, industries. In India, the luxury goods sector, directly and indirectly receives 70 per cent of national investment. I advocate that the essential commodities sector receives loans from public sector banks at the international rate of four per cent interest, and be exempted for five years from paying all direct taxes. But, they must pay a flat 25 per cent of the declared profit net of dividend paid. 3 A mathematical analysis based on probability of detection, the cost to the corrupt of such detection, and probability-weighted average with the value of the gain from the corrupt act proves that even if the probability of detection is low, if the cost to the corrupt of detection is some big multiple of the gain from the corrupt act, every rational person would voluntarily choose not to bribe or accept bribe. This is because the expected value of any corrupt transaction then becomes negative. Hence, I advocate focusing on individual cases and making an example out of them to society as I have tried to do through courts with A Raja and P Chidambaram (and later with Sonia Gandhi) and confiscate all their properties postconviction, for effectively fighting corruption. 4 Cronyism and corruption have brought Budgets on verge of bankruptcy. This, too, needs fixing. Based on the ICAIs Concept Paper on Convergence with IFRS in India, I advocate

the adoption of the International Standards of Financial Reporting and Disclosure Standards for FDI flows into India. 5 Though the SEBI has made compliance for listed companies in Corporate Governance Guidelines mandatory from January 1, 2006, about one-fourth (i.e. 1,213) listed companies have not complied for the period ending March 31, 2010. Yet, there has been no action by SEBI, which can de-list these companies on the Stock Exchange. 6 One of the most scandalous frauds on the financial system of India is the derivative called the Participatory Note (PN). According to a conservative estimate, there are over Rs 3,50,000 crore worth of PNs issued abroad which are being actively traded in India, fuelling about 55 per cent of all foreign investments in Indian stock markets. The PNs have no requirement to comply with even the SEBI disclosure rules, to enable laundering. I advocate that all PNs be abolished and SEBI directed to publish names of the secret owners of these PNs. 7 In 2002, India and Mauritius extended the controversial Indo-Mauritius Double Taxation Avoidance Treaty (DTAT) laying down that no resident of Mauritius would be taxed in India on capital gains arising out of sale of securities in India. After DTAT was signed, the Government of Mauritius abolished capital gains tax in their country. Mauritius has, thus, emerged as the largest foreign investor in India since PNs have been routed through that small island nation, and the windfall earned in the stock market exempt from tax. The tax losses to India as a result of DTAT are estimated at Rs 1,00,000 crore to date. I advocate abolition of DTAT. 8 In his address to the 43rd Munich Conference on Security Policy on February 11, 2007, National Security Advisor MK Narayanan listed out ways and means of terror funding in India. He admitted: Instances of terrorist outfits manipulating stock markets to raise funds for their operations have been reported. Stock exchanges in Mumbai and Chennai have, on occasion, reported that fictitious or notional companies were engaging in stock market

operations. Some of these companies were traced to terror outfits. This is a shocking admission. I advocate death penalty for any stock broker facilitating such a sale of stocks. 9 To bring back all the black money deposited in banks abroad, I advocate that the next Union Government issue an ordinance declaring that all foreign accounts held by Indian nationals abroad are nationalised. If any such holder proves that the account was opened legally and operated with legitimate deposits and withdrawals, then it will be restored. This, under the new UN laws, is permissible as confirmed to me by Fali Nariman. The amount recovered will cover all tax abolitions I have advocated. 10 I advocate that CBI be re-constituted under a Special Act and all foreign exchange transaction offenses under PMLA be made criminal and transferred to CBI. 11 As corruption stems from greed, I advocate that the next Government adopt Integral Humanism as propounded by Deendayal Upadhyaya who said that a society is healthy only if there is a harmonisation of material pursuits and spiritual advancement. In a nutshell, that is through renaissance of Sanatan Dharma.