PM needs to correct systems that breed black money

EAS Sarma

EAS Sarma

The decision to demonetise higher denomination currency notes is an important measure to flush out black money. Such a step will yield better results if the BJP government simultaneously addresses and corrects the systems that breed black money. Instead of addressing the symptoms alone, it will be more effective to address the root causes of the disease of corruption.

During a recent visit to Japan, Prime Minister Narendra Modi had announced that the Central government would take further action not only to curb black money generation but also step up the campaign against corruption. It was a welcome statement. In that connection, I suggest the following approaches to enhance the credibility of the Modi government.

  1. In the guise of inviting investors, most state governments have been giving away public lands, precious scarce minerals and other public resources of great value to private companies at highly subsidised rates, allowing those companies to profiteer at the cost of the public exchequer, thereby creating scope for generation of black money. Modi should A�take the lead in building a national consensus on putting a stop to this regressive approach. A�As far as possible, the governments which are merely public trustees of such resources, should conserve those resources and refrain from doling out natural resources at rates less than their market value, as rightly directed by the apex court in the 2G Spectrum case.A�
  1. The Companies Act permits companies to make political contributions up to 7.5 percent of their profits, whereas the threshold for contributing funds for societal needs (corporate social responsibility) is only 2% of the profits. This is not only a warped provision intended to promote crony capitalism but also a retrograde provision that has resulted in the governments granting quid pro quos to the donor companies, violating the law of the land. If the Union government can abolish political contributions altogether and replace the same with State funding, the Central government will be getting at the root of electoral corruption and cleanse the system once and for all. Simultaneously, the government should help the Election Commission of India (ECI) in curbing lavish election spending.
  1. In this context, though the Foreign Contributions Regulation Act (FCRA) prohibits political parties and politicians from accepting donations from foreign companies, many political parties including BJP have blatantly violated the FCRA. I filed a writ A�[WP(C) 131/2013] beforeA�the Delhi High Court which directed the Union government, in its Order datedA�28-3-2014, to proceed against all political parties violating the FCRA and prosecute the errant foreign companies. Accepting donations from foreign companies compromise the national interest and it is distressing to see that both the major politicalA�parties, Congress and BJP, accepting such funds. The central government has not only dragged its feet in implementing the court order but has gone one step backwards by introducing an amendment to the FCRA retrospectively through the backdoor of the latest Finance Bill and got it enacted by the Parliament. In other words, the Central government has no qualms in seeking donations from foreign companies to the detriment of the national interest and has gone to the extreme extent of getting the FCRAA�amended to accommodate such a highly objectionable provision.A� Unless Prime Minister Modi gets this regressive amendment revoked, the people at large may not have confidence in the steps being taken by the government to campaign against corruption.
  1. Black money is stashed away by both political leaders and other public functionaries in the form of benami land and other real estate property in different states. The Central government needs a specialised investigating agency to trace those properties and force the culprits to face the law of the land. Demonetising higher currency notes alone may not suffice.
  1. As far as black money stashed away in offshore (foreign) accounts is concerned, I have alerted the investigation agencies about several state chief ministers and others having such accounts. But they have not responded till date.A�Inaction on the part of the Modi government in this matter has already eroded public confidence in the earnestness with which the BJP government has conducted itself in fighting corruption in high places. This public perception needs to be corrected immediately, not through sloganeering, but through tangible action.
  1. One way to curb corruption in government is by enforcing the sanctity of sovereign contracts in letter and spirit. I find that contracts are routinely allowed to be violated by way of political patronage, as it has happened in the case of the Production Sharing Contracts (PSCs) of the Ministry of Petroleum & Natural Gas. Strict contract management is one of theA�ingredients of good governance
  1. One source of corruption that has become rampant these days is the political patronage involved in PSU banks dispensing credit to corporates without exercising due diligence. One glaring example of this was the manner in which State Bank of India had flippantly signed an MOU in Prime Minister Modia��s presence in Australia to grant a billion dollar loan to the Adani group. Under public pressure, SBI had to withdraw from that MOU but it is public knowledge how these PSUs banks have misused the so-called “Capital Debt Restructuring ” scheme and other versions of that scheme to expose public funds to the risk of becoming NPAs. There are conflict-of-interest situations between RBI and the PSU banks and the Finance Ministry and the PSU banks which need to be removed and PSU bank reformsA�undertaken urgently.

(The author, former Secretary to Government of India, has sent the contents of this article in a personalised letter to Prime Minister Narendra Modi and officials concerned.)

1 Response

  1. hemen parekh says:

    C(l)auses of Corruption ?

    Mumbai Mirror ( 21 Nov 2016 ) , carries a news report , titled :
    ” State to drop cost escalation clause from govt contracts ”
    Parts of this report read :

    The state will soon remove cost escalation as a clause from all government contracts to curb corruption and prevent wastage of taxpayers’ money.

    Contractors are notorious for submitting a lower cost estimate for an infrastructure project and later demanding additional funds to complete the work. They misuse the clause and bribe government officials to get the extra payments cleared, activists allege.

    Chief secretary Swadheen Kshatriya told Mirror the proposal to strike off the cost escalation provision would be discussed at a meeting this week.

    “ We will be taking two decisions. One is to do away with the cost escalation clause and second is to have fixed fees for architects in projects and not let them correlate percentage wise,” he said. “ The escalation clause is the root cause of many problems.”

    Some officials are concerned that if the provision is dropped, it may lead to higher initial quotes from contractors.

    But Kshatriya said: “Let them be higher at one point, but later there should not be a problem. There has to be a concept of total cost.

    Nearly four decades of experience has shown that escalated prices do not give an idea of how much a project will eventually cost. The final quote must give the government a fair idea about the cost.”

    Currently, the architect’s fee also goes up if a contractor revises the project budget. The Devendra Fadnavis government wants to delink the two and fix the architect’s charges.

    “We are looking to get this cleared soon. The ideas have been discussed in coordination committee of senior secretaries,” Kshatriya said.

    Additional chief secretary (finance) DK Jain said the plan was being formalised.

    Former IPS officer YP Singh, who has unearthed many scams, welcomed the step.

    “The Bandra-Worli Sea Link is a classic case of cost escalation. It was estimated to cost Rs 400 crore, but the MSRDC ended up paying Rs 1,600 crore, including interest. The public is also charged a toll,” he said.

    “To finalise an agreement at a certain amount and disburse another amount to the contractor is against the tendering principles.”

    The costs of many of the state’s dams also ballooned in what is now known as the irrigation scam.

    “The cost escalation policy is a major driver of corruption. Every single contractor delays projects and then jacks up prices, making a farce of the entire the tender process,” Preeti Sharma, national spokesperson of the Aam Admi Party.

    Activist Anjali Damania also welcomed the government’s decision, but said it may not be enough as contractors and corrupt bureaucrats would eventually come up with a workaround.

    “A third-party audit by a reputable company or an institute should be mandatory [ for every government contract ],” she said.
    Dear Shri Devendra Fadnavisji ,

    Although my following suggestion ( email ) was sent to Chief Ministers of all the States , you are the only one to have acted upon it !

    While congratulating you – and your team of Secretaries – on this excellent initiative , I request you to also amend the other ” Clauses ” ( other than escalation clause ) , listed in my email – especially those pertaining to ( willful ? ) delays on part of the concerned officers of the government in granting various permissions / clearances / NOCs ..etc

    Sunday, 6 July 2014

    The Invisible Corruption


    Because it is cleverly camouflaged in the ” Terms of Contract ” that companies sign with Central Government / State Governments / Municipal Corporations / umpteen Government Agencies

    This invisible corruption is rampant in Infrastructure Projects that get spread over months / years

    And every possible trick / excuse ( officially called ” Reasons ” ) is used to ensure that these Projects get delayed as much as possible !

    Examine carefully and you will find that the more a Project gets delayed , the more that Contractor stands to gain ! Anyone believing otherwise , has got to be naive !

    HOW ?

    These contracts contain ” Cost Escalation Clauses ” which decide the extra / additional amounts payable to the Contractor , over and above the ( so called ) ” Fixed Price ” quoted at the time of tendering

    Under these clauses , the Contractor is eligible to claim / demand extra payments , whenever ,


    # costs of certain ” Inputs ” go up above a certain agreed level , eg :

    * Prices of Raw Materials

    * Prices of Water / Gas / Electricity

    * Cost of Labor

    * Foreign Exchange Rate

    * Consumer Price Index

    * Interest Rate

    If any of these go up above certain agreed levels , the quoted price to go up by X / Y / Z amount , as per the Formula which determines the % age contribution of these elements , in the quoted price


    * Environment Clearance for the Project

    * Land acquisition and Handover to Contractor

    * Hundreds of permissions from dozens of Govt Depts/Muni Corporations

    * Issue of Import Licenses

    * Release of Foreign Exchange

    * Issue of NOC from umpteen departments

    * Issue of Compliance Certificates from various departments

    * Approval of Designs / Design Change Requests ( from Govt as well )

    If any of these are NOT issued / given by certain ” Dates ” ( very easily managed ! ) , then the quoted price to go up by X / Y / Z amount

    Invariably , these clauses are heavily tilted in favor of the Contractor

    And equally invariably , colluding Government officers / bureaucrats / politicians , responsible for drafting / approving these ” Clauses ” , leave them vague !

    This is apart from framing the Tender Specifications in such a manner that only a certain preferred bidder will qualify !

    If you doubt what I have said , then just file a RTI application , asking for a copy of,

    * Original Tender Document

    * Final Contract

    * Number of Price Revision Requests received / granted

    for any project of your choice !

    If Shri Narendra Modi is keen to reduce corruption , he should start by instituting


    which clearly spells out what price / time revisions can be granted and when

    At the same time , internally , there must be a provision for DEMOTION / PENALTY for those officers who fail to give permissions / approvals / NOC etc, by specified dates ( milestones for the project )
    01 Dec 2016 / blogs

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