Make way for the lobbyist

Prashun Bhaumik |

Amar Singh has done the country a great service by exposing the unholy nexus between politics and business, says Paranjoy Guha Thakurta

By Paranjoy Guha Thakurta

Love him or hate him. There’s just no way to ignore him. Thanks to Amar Singh, the infamous nexus between big business and politics is now out of the closet. No more nudge-nudge, wink-wink deals being surreptitiously struck behind closed doors. Thanks to the voluble general secretary of the Samajwadi Party, the people of the country now know a bit better how lobbies work and influence official policies. A series of letters written to the Prime Minister in the first half of July, most of which were promptly photocopied and circulated among journalists, have laid bare the working of this unholy nexus that dominates the political economy of the world’s largest democracy.

The nexus between politicians and businesspersons is facilitated by corrupt bureaucrats, especially officials belonging to the Indian Administrative Service. These bureaucrats are not merely familiar with the working of governmental systems, they are better equipped than most others to explain to politicians how loopholes in the law can be exploited to make money. Many of the officials found that this was a good way to retain influence in the corridors of power as their authority was slowly sought to be whittled away as the government retreated from the ‘commanding heights’ of the economy. Thus, the corrupt babu’s ‘intellectual inputs’ have become a crucial component of the neta-punjipati nexus that provides sustenance to India’s parallel economy.

As for corporate captains, they engage the services of ‘image managers’ and ‘public relations professionals’ to lobby with bureaucrats, ministers and members of Parliament to change a line in the fine print of policy documents that translate into huge profits running into thousands of crores of rupees. Example: a PR firm engaged by a soft drinks multinational engaged the services of a former senior bureaucrat who was able to successfully convince the ministry of finance to reduce excise duties. The former bureaucrat (who is, interestingly, now a member of the Rajya Sabha) was engaged by the multinational to serve on a committee and as part of his ‘advisory functions’ taken on junkets to exotic holiday locations, which was a relatively small price to pay for the handsome returns that accrued to the company.

During the Independence movement, Mohandas Karamchand Gandhi never concealed his intimate relationships with a number of ‘nationalist’ industrialists such as Ghanshyam Das Birla (in whose house on Tees January Marg he was assassinated), Jamnalal Bajaj and Kasturbhai Lalbhai (who even acted as a treasurer of the Congress party). Under Indira Gandhi’s leadership of the Congress, the character of the nexus changed somewhat as ruling politicians reduced their dependence on ‘donations’ from businesspersons and increasingly began deploying the ‘services’ of ‘loyal’ bureaucrats and heads of public sector undertakings.

When the licence-control raj was at its peak, quotas and permits would be given in return for handsome contributions, especially for funding election campaigns. Dhirubhai Ambani was one entrepreneur who ‘managed the environment’ rather well. After Indira Gandhi returned to power in the 1980 general elections, Dhirubhai shared a platform with the then prime minister of India at a victory rally. He had by then also become very close to the then finance minister, Pranab Mukherjee, not to mention the prime minister’s principal aide R.K. Dhawan. He realised that it was crucial to be friendly with influential politicians, especially since the Reliance group had embarked on an ambitious expansion programme.

By then, however, the business environment in India had become much more competitive. It was not enough for the political leadership to merely prop up the interests of particular business houses. It also became important put rivals down. Thus, Swan Mills became part of history. As did Kapal Mehra of Orkay. Nusli Wadia of Bombay Dyeing poured his heart out to Ram Nath Goenka, Arun Shourie and S. Gurumurthy and the Indian Express splashed these stories about the government favouring Reliance across its front-pages in 1986-87. By the early-1990s, the undivided Goenka family fell apart and was trifurcated.

Irony of ironies. Less than three years after the patriarch of the Reliance group passed away in July 2002, Dhirubhai’s sons Mukesh and Anil were locked in a filthy fratricidal fight. Amar Singh’s proximity to Anil Ambani is common knowledge. Hence, his letter to Manmohan Singh calling for the imposition of a levy on the usage of electro-magnetic spectrum by certain mobile telecommunications operators like Bharti and Vodaphone is to be expected. After all, this is precisely what Anil Ambani, head of Reliance Communications, would like. But Amar Singh could not prevent Mukesh from scuttling his younger brother’s plans to tie up with South African telecom major, MTN.

Another letter by Amar Singh urged the government to levy a tax on so-called ‘windfall profits’ earned by privately owned petroleum refineries that would, if imposed, hurt the Mukesh Ambani-led Reliance Industries Ltd the most. Interestingly, Amar Singh’s letter seeks to justify levying such a tax on the ground that it would help curb inflation and raise government revenues – both highly desirable objectives. What was also noteworthy was a recommendation made by a committee headed by B.K. Chaturvedi (former Cabinet Secretary and Petroleum Secretary) that private oil producing companies like Reliance Industries be made to pay a special tax on a part of its revenues to help the government subsidize public sector oil companies. Amar Singh had earlier openly targeted Petroleum Minister Murli Deora claiming he was favouring “one well-known private operator”.

On July 29, after the board of trustees of the Employees Provident Fund Organisation inducted HSBC, ICICI Prudential and Reliance Capital as asset managers to break the monopoly of the government-owned State Bank of India, political parties from both the left (CPI-M) and the right (BJP) alleged that Reliance Capital had been included at a ‘late stage’ to ‘favour’ its head, Anil Ambani. However, Minister for Labour and Employment Oscar Fernandes and Congress spokesperson Abhishek M. Singhvi denied the allegation, arguing that the decision had been under discussion for quite a few years.

On July 9, Amar Singh wrote to the regulator of the country’s capital markets, C.B. Bhave, chairman of the Securities and Exchange Board of India, alleging that the Mukesh Ambani-controlled Reliance Petroleum had engaged in insider trading in November 2007 because it had prior knowledge of the intention of Reliance Industries to sell over 4 per cent stake in its subsidiary, Reliance Petroleum, thereby earning ‘illegal’ profits of around Rs 1,000 crore. This letter was almost identical to a letter sent a few days earlier (June 20) by Abani Roy, Rajya Sabha MP belonging to the Revolutionary Socialist Party. Predictably, a Reliance Industries spokesperson denied the charge.

The business-politics nexus is neither new nor unique to India. In this country, thanks to glaring loopholes in the law, when money is spent on behalf of a candidate standing for election by a ‘friend’ or ‘associate’, such funds are not included within the limit that is supposed to be spent by a candidate according to the norms of the Election Commission of India.

In the United States, the political donations system is more transparent than in India but in that country too, there are loopholes. After the Watergate scandal, in 1976, a system of ‘public financing’ was introduced wherein the US federal government would spend up to $84 million (today worth over Rs 350 crore) of taxpayers money, on a candidate provided she or he undertakes not to privately raise funds. It may be noted that Barak Obama is supposed to have raised over $265 million (more than Rs 1,110 crore) on his election campaign.

Data recently obtained from the Election Commission under the Right to Information Act by a non-government organization, Parivartan, indicated that trusts floated by corporate groups officially contributed not less than Rs 104 crore to the Congress and the BJP between 2004 and 2007. The business groups include those headed by Kumaramangalam Birla, Ratan Tata, Rahul Bajaj, Venugopal Dhoot (Videocon International) and the companies include Ranbaxy Laboratories, Jubilant Entpro (controlled by the Bhartias) and Jindal Steel & Power. Missing from the list are companies in both sections of the bifurcated Reliance group.

These disclosures represent not even the tip of the iceberg. The bulk of the funds that fill the coffers of political parties is not disclosed and often comes not in the form of cash but in kind – vehicles, aircraft, accommodation, food, publicity material and so on. Neither the donors nor the recipients are usually willing to come out clean. Nor are representatives of political parties willing to change the laws of the land.

Section 13A of the Income-Tax Act, 1961, is a special provision that relates to income earned by political parties registered under Section 29A of the Representation of People Act, 1951. Under this section of the law, the income earned by political parties from properties, capital gains as well as in the form of ‘voluntary contributions’ are exempt from payment of income tax, provided the political party concerned maintains properly audited records and books of account. As per section 293A of the Election and Other Related Laws Act that was amended in 2003, the board of directors of a company can make political donations up to 5 per cent of its profits.

Despite the existence of these legal provisions, funding of India’s political parties remains a secretive business. Since it is unrealistic to expect Indian politicians to reduce their dependence on funds from industrialists for election campaigns and since more and more affluent businessmen will continue to want to become members of Parliament (preferably in the Rajya Sabha), the time has come yet again to reiterate the need for a more transparent system of political donations – the fountainhead of corruption in the country.