It is a very provocative idea: That the Prime Minister of India, the Congress President, and the BJP President (referred to as "the Three" hereafter) force us to be corrupt. If there is one thing that somewhat lessens the blame on the Three, it is that they did not spawn the idea of forcing us to be corrupt, they merely inherited it. How things came to this pass is hard to tell, but our existing institutions and the way they function form a near perfect supply chain for corruption. It all starts with campaign finance and political party budgets.
How does a political party in India choose its representative in an election from a particular constituency? In other words, how does a political party decide who to give "a ticket" to? The answer is simple, although somewhat obvious: the highest bidder. From a party's point of view this makes sense. To win an election, a politican needs to be able to mobilize a large number of people. Mobilizing a large number of people needs money. Therefore, the candidate with the larger budget implies higher chances of the party winning the seat.While there might be one or two exceptions to this, by and large this is what determines a party's candidates from 90% of its seats.
In addition to the candidate's campaign, a party has its own funding needs too: maintaing offices, paying accountants and staffers, advertising, recruiting drives, etc. This money too, comes from candidates in different ways. Often, a candidate is asked to pay a small but significant percentage of his campaign financing as the fee for the Party. Candidates that have a longer relationship with a party are spared at the outset - but they are called upon from time to time with demands of money by the Party Headquarters.
This process of campaign financing is the driving force of the rampant corruption in India. In this blog, I proceed to explain how it is so. However, but before I do that let us try to get a rough sense of numbers. The least amount of money needed to win a Lok Sabha election is Rs. 5 Crores ($1-1.2 million). Why 5 Crores? Read this blog to find out. However, you are probably quite bored with reading all my lengthy blogs, in which case let us just assume that it costs Rs. 5 Crores to win a Lok Sabha election. It does not seem an outlandish assumption after all and will help demonstrate the snowball effect I will talk of later. There is one other assumption we must make: that the morality of the average politician in any system is similar to (if not worse than) the average morality of the rest of the society. It is a fair assumption in a representative democracy, that the average morality or corruptibility of politicians is not better than the average corruptibility of the rest of the society.
If I am the average politican, here is how the country's institutions would make me behave. If I am rich perhaps I could afford the Rs. 5 Crores out of my own personal wealth. However, it is a large enough sum of money to create a significant dent in my personal net worth. Large enough to make me want to recover it. Therefore, here is what I am thinking: I need to recover the Rs. 5 Crores that I spent to get elected in my last term. In addition to the Rs. 5 Crores I used for the last term, I need an additional Rs. 5 Crores for my next term. Thus, I need Rs. 10 Crores. For simplicity, let us call this the Running Estimate, because we will need to repeatedly revise the Running Estimate.
The first revision come from my recognizing that Rs. 5 Crores may have been enough during my last term, but they will not be enough during my next term. Why? Inflation! So according to current inflation patterns (~7-10% per year), I would need upwards of Rs. 10 Crore to win my next term. Not the 5 Crores I had originally estimated. With this revision my Running Estimate is Rs. 15 Crores.
The second revision comes if I now change the assumption that I was a rich man to begin with. So let's say I am not so rich. If I am not rich, I am trying to raise my initial Rs. 5 Crores from individuals, private money lenders and so on. Why individuals or private moneylenders? Well, because banks or institutional investors would never finance a political campaign. What rates of interest would private moneylenders charge? For such a risky investment proposition, nothing less than 10% per month (at least 100% on an annualized basis). Therefore, an aspiring MP would need to pay Rs. 5 Crores as interest in the very first year. Let us also make the reasonable assumption that the moment an aspriing MP is elected, he is able to afford all the Rs. 5 Crores of interest and the Rs. 5 Crores of principal in the first year itself. Even then, he would need to pay at least Rs. 5 Crores as interest (for the first year). We do not need to add the Rs. 5 Crore of principal because we have alredy considered it in the previous paragraph. With this adjustment, the Running Estimate comes to Rs. 20 Crores.
Some of us may argue that although an aspiring politican needs financing, that financing may look more like equity (in return for certain permissions, licenses etc.) than debt. Well, if it looks like equity the return expectations would be much more exacting than in the case of debt. And therefore the debt assumption in my previous paragraph is the best case situation for a politican. Equity type contribution will only make the "net total value of corruption" worse than my Running Estimate.
The third revision to my Running Estimate comes from lifestyle and personal expenses. Once again to ensure that additions to our Running Estimate is conservative, let us assume that this is Rs. 1 Crore for the 5 years (Rs. 20 laksh per year). Our Running Estimate is Rs. 21 Crores now.
The fourth revision to my Running Estimate comes from contributions to the party. Now what can this number be? The congress party's average annual income has been upwards of Rs. 200 Crores since 2006-07 according to IT returns. Now since the Congress party has 206 MPs in the Lok Sabha, this would mean that the average annual expectation from each party is at least Rs. 1 Crore, or at least Rs. 5 Crores over 5 years from each MP. This takes the Running Estimate to Rs. 26 Crores.
Therefore, the most conservative estimate of how much money it takes to subsist in parliamentary politics is Rs. 26 Cores.This 26 Crores of course does not include the probability effect, or in other words the buffer that a politcian must build in, because she/ he cannot win everytime. I estimate this effect to roughly be 4x, assuming that the average Indian constituency will have at least one candidate each from the INC and BJP, and one candidate each from at least two dominant regional parties. Thus, each Lok Sabha constituency is likely to have at least 4 candidates with near equal probabilities of winning the election. Each candidate knows that his/her realistic chance of winning in any given election cycle is only 1/4th, and therefore on winning she/he must recover the losses they incurred in the past, or will incur in the future for possible electoral losses. Adopting a conservative approach to establish a lower limit once again, I make the assumption that the average politician would try to recover money for possible electoral losses relating to only one election cycle and not multiple election cycles. With this assumption, our Running Estimate gets to about Rs. 100 Crores.
The significance of this estimate of Rs. 100 Crores is significant. It tells us that to break even on election expenses, a politican needs to make Rs. 100 Crores every time she/he gets into office. Sure there could be deviations from the Rs. 100 Crores. For instance, a politican with a large mass base may not have to spend as much. Similarly, in case where there are one or no regional parties, the probability effect and therefore the amount of money required to breakeven will be smaller. On the other hand, when there are more than two strong regional parties (Maharashtra, Bihar) the money required will be much larger than the Rs. 100 Crores. Similarly, when the per capital income, or the local consumer price index of a region is much higher, the amount the Running Estimate will be much larger. In the context of these deviations, Rs. 100 Crores is a reasonable average to go by.
It is worth summarizing what is the Rs. 100 Crores of spending that we are talking of. It is the amount of money that an average Indian politican must spend to break even on her/his spending to get elected. It is not the amount that she/he can pocket. It is the systemic cost. Let us now address the question of how a Lok Sabha member mobilizes this. We must of course recognize that the money is very hard to make when an aspirant is out of office (unelected). The best way to make this money and recover prior losses, is once an aspirant is elected and becomes a member of the Lok Sabha.
It is these Rs. 100 Crores that trickle down to the police bribe, the municipal bribe - more directly and more clearly than I had previously thought. Once in office how does an MP make this money? The are several ways.
The most seemingly non-corrput way of making money as a politician is by using the knowledge that a politician is privvy to. For instance, nearly all MPs have knowledge to a city's master plan. Access to a city's masterplan means knowledge of the most lucrative reasl estate pockets before any other individuals or organizations know of it. Whether it is Mumbai, Gurgaon, Delhi, Pune, Bangalore, Chennai, Hyderabad or some other city, the largest land owners are politicans or companies in which politicans have substantial stakes or relatives of politicians. In the private sector, making investments based on such privileged information goes by a range of names each of which is classified among the most serious of corporate crimes: insider trading, brach of privilege etc. It is the reason Raja Rajaratnam of Galleon is being tried, it is the reason for among the biggest class action suits against Jeff Schilling. Yet, it is not even talked about in case of an MP.
There aren't lucrative real estate deals in every district. In which case, the MP of a lesser district must use other means. What are these? Appointments to government jobs within a district; licenses issued at the district level - liquor licenses, petrol pump licenses; Transfers of government officers at the district level to positions that can earn the largest amounts of bribes; Each such "facilitation" process involves a fee to the MP. Thus, for instance if the most lucrative position for a Traffic Police is the truck checkpoint or near a college (because truck drivers and college students are the easiest to bully into giving bribes) - the going rate for these postings is the highest. Ingenious deals are struck to pay the MP: sometimes the MP takes a cut, at other times there is an upfront payment, more often than not there is a combination of the two.
Wait a minute! Aren't government officer postings controlled by IAS officers, not politicians? Wrong. On paper they are. In reality, every time an impartial process is initiated to appoint a new employees or transfer an existing employee one of two scenarios occur. The local MP influences the IAS officer to favour her/his candidate. The mode of influence? Either money, or political influence, or both. The MP contacts his party head the CM of the state, the CM's PA calls the District Magistrate - and then the deed is done even without the DM making his money? Why does a Chief Minister entertain such a call from an MP? Because, if she/ he does not, she/he risks losing the support of the MP. This analysis assumes of course, that the MP is of the same party as the CM. In cases, where this is not true the end result is not too different although the characters involved may be of different parties.
Now, the government officer that got the job or the "lucrative" posting must resort to collecting bribes. After all she/ he got the posting after making a huge personal investment.Sometimes, the bribe must be charged because the MP will ask for a cut.
Some chains of what I discussed are well known, nothing new, and well documented. What is not, is that this system of bribes to traffic cops or licensing officers is not just greed money. Sure, there is greed money - lots of it! However, a substantial fraction of the bribe that nearly every Indian pays is the cost of a pathetic campaign and political party finance. It is the source of financing for an MP's election: surely the expensive campaign requirements need money from somewhere! It cannot come out of nowhere.
There is nothing new or insightful in this blog. Whatever I have tried to explain here is well known to most politicians and people familiar with the working of politicians let alone the Prime Minister, and the leaders of the Congress or BJP. But they do nothing about it. That is how, the PM, and the leaders of our political parties force us to pay bribes - they don't reform their party financing.
Why do they not? The answer is that changing the campaign finance system is very hard for a single individual to bring about, even if the individual is the PM or the Head of a political party? Why? That's because the people that thrive in the current corrupt system would resort to any set of measures to protect their power - including assassination; that's also because which party President would risk the financing of her/his party by resorting to a different financing system when the current system is at least getting enough people into the parliament.
The call for change I believe must come through innocuous editorials, columns, PILs, or perhaps Election Commission actions.
Am I claiming that a less murky campaign and party finance system would rid India of all corruption? No! Corruption will not disappear and certainly not overnight. However, a better campaign and party finance system, perhaps nationally funded through taxpayer money would take away one of the primary drivers of corruption in India. Over a short rather than a long period of time, the magnitude of corruption will decrease - although less intensive levels of corruption will still exist.
The alternative system needs to be designed keeping in mind a number of things. However, that is the subject of another blog. For now, I would have achieved my objective if you agree with me that the campaign and political party finance system is at the heart of the high intensity if corruption in India. If you don't agree... well, I suppose I must blame it on the muddled thoughts in my confused mind :)
