This edition of the column is going to talk about a particularly problematic area of law and regulatory policy governing doing business in India.Unless there is a drastic change in political will and capacity to handle this problem, no government, regardless of which political party is in office, and no judicial system, regardless of how judges are chosen and appointed, would be able to pull India out of a fast expanding morass.

The problem is around corruption.Not the existence of it – that, is not only a subject beaten to death. The problem is around our societal perception of how should be battled. And even more about the systems we build around battling corruption and the warped incentive system we have built in the process. We are on course to ensuring that the “honest and competent” find it totally unremunerative and uninteresting to join and man our governmental and regulatory systems. The market for human resources outside the is starved of this resource and will price this talent to a level that governments and regulators cannot afford.

As a consequence, the regulatory system would remain largely filled with people who may be either “honest and incompetent” or “dishonest and incompetent”. Since this would largely involve being incompetent, it is the folks who are “dishonest and competent” who will thrive. In short, a completely warped, scary and counterproductive incentive system is being guaranteed by a flawed approach to tackling corruption. Here’s how this plays out.

First, the assumption in Indian society is that every governmental or regulatory decision that is “questionable” on merits involves corruption.  Let’s define a “questionable” decision as one in which two or more potentially conflicting views are possible and that one or more of the views could potentially make life easy for doing business. A professional decision that casts a lesser burden on doing business is at the threshold assumed to have been motivated by corruption.  Therefore, the incentive is always to take the “safe” decision – one where no one is able to point a finger at the decision-maker for having “favoured” business.

Second, if the junior most officer who has to process a decision takes a “safe” view and his senior is competent to know that the long-term cost of the decision to the business ecosystem is heavy and changes it, he would be the one suspected of corruption – for he would be overruling a “safe” decision and would be taking a “questionable decision”, which is most prone to assumption of corruption.   The decision would therefore have to be referred to an outsider – say a “law officer” outside the government agency such as the Advocate General, the Solicitor General or the Attorney General. Now, the “questionable” nature of the decision is a cancer that has come to infect even the law officers’ offices. If the view were to support making life easier for a private party, corruption can be alleged there too. Even the senior most law officers of India have had to stand trial in recent times.

Third, the anti-corruption laws have become so warped that they expose honest and competent officers to the worst possible treatment.  Two features stand out – one: gratification need not even be proved and can just be assumed; and two: before throwing a public servant to the wolves prosecuting for corruption, no prior sanction of a sane voice in the system would be required. These features are contributions of the judiciary, with a disproportionate unfairness against corruption.

Fourth, even where a safe view on a questionable decision is set aside by a court, the decision on whether the court’s decision should be appealed is inherently another questionable one.  The safe view would be to prefer an appeal and let the judges decide – the incentive is in favour of not taking a bold professional decision but instead pushing the ball into the judges’ court to let them carry the burden. Thus, the executive arm of the State keeps finding ways to bring the unelected courts into decision-making and that lays the ground for judicial activism.

Finally, the net effect: every questionable decision is invariably determined in a bipolar manner. It is taken either by the junior most officer at the lowest end of the food chain on the executive side, or, by the senior most officer on the judicial side – mostly a bench of the Supreme Court. The entire decision-making apparatus in between the two is becoming irrelevant, and developing skill sets that idle minds are prone to develop. Create diabolical grounds and create complexities that necessitate referring the matter to outside lawyers and to judges, but pretty much lose the capacity to decide.

If the junior most officer who has to process the file has indeed had the courage to take a view that does not hurt the private party in question although he could have taken a view that would hurt the private party more, then of course, his seniors would only be endorsing someone else’s view. Therefore, such decisions do come through and the system survives. However, even that would fast become a rarity since the junior and the senior could be jointly picked up for conspiracy for not taking a safe view.

Who is the person that everyone is so afraid of? Easy: the junior most officer in the anti-corruption enforcement apparatus whose word on merits would matter the most in a probe into suspected corruption. That gentleman or lady, therefore, runs the country.

How do the corrupt handle this? Easy if you are dishonest and competent, you can game the system. Point a few cases of others to nasty anti-corruption proceedings, build a name, and if competent, package and present decisions in terms that show how harsh they are on private business.  That sets the tone of the discourse in any case and only those who can play the game with them can successfully do business.

Writing this takes moral courage.  A discussion questioning the quality of the incentive system to combat corruption is easily assailed with: “so, your stand is to promote corruption?”  In that ecosystem lies the story of why India can never improve her ranking in the “Ease of Doing Business” surveys of the World Bank.

(The author is a partner of JSA, Advocates & Solicitors. The views expressed herein are his own.)

(This piece was published in the June 15, 2015 edition of Business Standard)

Twitter: @SomasekharS

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