Why fears of a foreign hand are real

Pranab Mukherjee is likely to be India’s next President. It seemed to be touch and go until the tide turned in his favour. It has been suggested that the corporates swung it for him not because he is one of the most seasoned Indian politicians but because they wanted him out of the Ministry of Finance. He has acted tough on retrospective taxation and GAAR – the measures in his recent budget to tackle black income generation. But it would not be surprising if the real pressure was from foreign shores. Indian corporates are sensitive to what their foreign counterparts think. So is our political leadership. Britain and Netherlands exerted strong influence on the Vodafone case. How much of our politics is being determined by such pressures?

Pressure on polity

Several recent events testify that pressure is certainly being exerted on the polity: Hillary Clinton’s visit to India to influence the government’s policies on trade with Iran and on FDI in retail, the S&P downgrade of India, the Aircel Maxis deal. There are also less visible cases of foreign pressure as in defence purchases (the British were upset at our rejection of the Eurofighter), energy sector investments (oil, gas and nuclear), opening of markets and so on.

The Bofors scam has had a continuing impact on politics since 1987. Sten Lindstrom, the former head of the Swedish police who led the investigations into the Bofors-India howitzer deal, recently underlined that there was conclusive evidence that Ottavio Quattarocchi, a close friend of the Nehru-Gandhi family, was one of the recipients of kickbacks. His role in swinging the Bofors deal at the last minute was known. It is not in doubt that payoffs were made or that the Bofors guns are good. The only unsettled issue is who got the money.

That Mr. Quattrochi had powerful friends was confirmed when he was allowed to escape the country during the Congress rule. The case was apparently deliberately spoilt by the investigative agencies, including the CBI and, therefore, lost in the courts — in Malaysia, Britain and Argentina. The red corner notice against him “could not be executed” since our police agencies could not “find” him even though journalists could interview him.

Evidence points to a high level cover up. M.S. Solanki, then the External Affairs Minister, sacrificed his Cabinet berth rather than reveal what he wrote in the paper he passed on to the Swiss counterpart at a meeting. At that point of time, the Swiss bank accounts were being investigated by the Indian agencies to trace the Bofors payoff trail. Could such a sacrifice of a political career be for an ordinary leader?

Who took the money even if not Rajiv Gandhi and why did the investigative agencies spoil the case? Investigations are essential to clear the air about these questions. A former Minister in the Prime Minister’s Office mentioned to this author in an interview on the black economy that when he went with the Bofors file to the then Prime Minister, he was told to close the file as it could cause a threat to his life. No wonder, none of the non-Congress Prime Ministers changed the course of investigations to bring them on track and none of the Congress Prime Ministers has wanted the truth to come out.

Kickbacks are common globally. Sweden is one of the least corrupt countries in the world but its corporations have bribed to get contracts as the Bofors case shows. U.S.-based multinational corporations have resorted to bribes in spite of their being illegal under that country’s law. Recently, Walmart admitted to having bribed its way through in Mexico. When the top management learnt of it, rather than exposing corruption, the internal probe was closed. The same Walmart has been trying to enter India. Ms Clinton’s agenda included “persuading” India to open its doors to foreign retail. The only Chief Minister she visited was Mamata Banerjee, the important UPA partner opposing FDI in retail. It is reminiscent of Henry Kissinger and the Secretaries of Energy and Defence flying to India to lobby for Enron in the mid-1990s. Enron admitted to spending $60 million in India, to “educate” policymakers.

It is not just a few MNCs that indulge in corruption or use their governments to apply pressure on policies. MNC banks are known to help Indians take their capital out of India. UBS bank, the largest Swiss bank, was fined $750 million by the U.S. for helping its citizens to keep secret bank accounts. The same UBS bank was allowed entry into India in spite of its known role; was it a reward for helping some powerful people?

Executives of Siemens, a supposedly honest MNC and an important player in India, were indicted in the U.S. in December 2011 for bribery in Argentina. Investigations revealed that the company also made illegal payments to the tune of $1.4 billion from 2001 to 2007 in Bangladesh, China, Russia, Venezuela and other countries. These were often routed via consultants. The company paid fines and fees of $1.6 billion to the U.S. and German governments for the bribes it paid across the globe.

Siemens started bribing soon after the end of World War II to get contracts under the Marshall Plan which were mostly going to the Americans. Since its prosecution, Siemens claims to have appointed Compliance Officers to check bribery. But, with the prevalence of a high degree of illegality internationally, can one company be honest while others are not? How would it win contracts when those in charge expect to be bribed? Since non-transparent processes are set up, at every step, decisions need to be influenced, as seen in the Bofors case or the 2G spectrum allocation.

The Vodafone case is significant. MNCs (Indian and foreign) have used tax havens and tax planning to avoid paying taxes in India. They create a web of holdings to hide the identity of the real owners of a company or who it is being transferred to. In 1985, in the Mcdowell case, the Supreme Court bench observed, “Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods”. This judgment was overturned in 2003 in Union of India vs Azadi Bachao Andolan on the use of the Mauritius route to avoid paying tax in India. Vodafone took advantage of this judgment to successfully argue against having to pay capital gains tax in India on transfer of a company in a tax haven which owned the Indian assets. Mr. Mukherjee was trying to recover lost ground.

Dominant interests

Indian policies have been subject to foreign pressures since the days of the Cold War in the 1950s. But until the mid-1980s, the decisions were accepted as being in the “long-term national interest.” There were accusations in the procurement of the Jaguar aircraft also but these did not create the furore that the Bofors scam did. Since the late 1980s, as in the case of Bofors or the new economic policies in 1991 or the Indo-U.S. nuclear deal, sectional or individual interests have become dominant. These have played havoc with national politics. Pressures and counter pressures are mounted through political parties and their leaders and big business.

The lesson is that foreign pressures tend to damage processes that national politics cannot undo. The public is left bewildered by the goings on, as in the present case of selection of the presidential candidate.

(The writer is Chairperson, Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University. Email: arunkumar1000@hotmail.com)

This article has been corrected for a typographical error

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