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Business Commentary/Mahesh Nair

Of businessmen, favours, and political patronage

I once asked an Indian industrialist how he funds politicians during elections. "I don't," was his initial answer, much as expected. But after some prodding and promises not to reveal his identity he confessed, "If I have one rupee to give, I will give 40 paise to the BJP, 30 to the Congress, 10 to the United Front, and 20 to the local party where my plant is situated."

But why he does fund politicians?

"Because it is expected of us. Businessmen are supposed to have money. Moreover, we have to keep these politicians in good humour to win favours."

You don't have to be an industrialist to know that. Even if you have dhaba or a roadside shop, you have to contribute to the Great Indian Elections. In rural India, rich farmers pay up. In urban India businessmen pay up. If tax collection was left to party workers, revenue would shoot up many more times than what the recently conducted Voluntary Disclosure Income Scheme reaped.

Of course this is old hat. Political funding to win favours by the business class is a global trend. In Japan governments falls at regular intervals when "granting favours" comes to light. But even though in most countries political funding is legal, granting favours is not.

In India, political funding is legal but very few do it over the table. Most of them follow the above businessman's example and play a safe game, putting their eggs in all baskets. Also, like a New Delhi-based businessman quips, "If my sympathies are with a political party, I would not like to declare it publicly and antagonise others."

"How do I explain to my shareholders why I have made these donations? Can I tell them that the reason I have paid more to party A and not B is because I expect party A to dole out some favours when it comes to power?" asks another businessman.

The practice therefore is to make below-the-table payment to political parties. Or to make it and later categorise it as "Other Expenditure" in the balance sheet for shareholder's assent.

Granting favours on the basis of these donations is conventional wisdom in India. This is more so when the industry involved is a licensed one, like sugar, tobacco, liquor or paper. In Maharashtra, for instance, the 100-odd sugar barons who run between them a Rs 20 billion industry get sops like subsidised electricity and guaranteed pricing. In return, these barons contribute to the party kitty and even tell their 1 million employees whom to vote for!

In Andhra Pradesh tobacco farmers pay about Rs 5 per kilo of every yield to the parties. The Congress, Telegu Desam Party and the Communist Party of India are beneficiaries of this largesse and make no bones when it comes to pampering the papoose.

In Madhya Pradesh, the tendu (leaves that make bidis) lobby, which enjoys a whopping 1,000 per cent profit margin, is a healthy contributor to party funds. In Arunachal Pradesh, where only 'domiciled residents' are given business permits, India's biggest timber and plywood brands come to the aid of local parties. The deal: timber permits are issued only to those residents who strike a deal with these timber firms.

The list is long. Builders lobby in the metropolitan cities, ports lobby, transport contractors, hosiery manufactures in Punjab, firecracker firms in Sivakasi, carpet manufacturers in Uttar Pradesh.... If you are a businessman here, you fund elections to buy political patronage.

Should this change? Ideally and morally it should. Why should you need to "buy favours" when you are doing a legal business? Why should the powers-that-be and not the marketplace decide whose goods or services should be available? Why isn't there a transparent and fair system of allocating licenses?

Will it change? Will business ever have not to buy political favours? It seems unlikely. If developed economies like Japan and the USA have not been able to wipe out the problem, it seems unlikely that India will be able to do it.

But what can be done is to reduce the "need" to buy political patronage.

The first thing to do is remove controls like licenses. If you need to have a license to run a sugar mill and the business offers good profits (because only a few players operate), then surely you will bribe your way to get the license. But if instead of a license, all that you need is a environmental certificate which is given after a professional appraisal of your business plan, why should you have to pay the local neta?

Why should there be 33 clearances to put up a small power plant, including one from the civil aviation ministry to certify that your chimney does not obstruct air-traffic! Thirty-three obstacles mean a minimum of thirty-three mouths to bribe. The scrapping of the Foreign Investment Promotion Board, suggested by Industry Ministry Murasoli Maran and Finance Minister P Chidambaram, should be a welcome step too.

Secondly, to reduce the menace of political patronage, let decision-making be transparent. If there is a piece of land to be developed or a transportation contract to be awarded, invite bids, make them public and award the contract to the ones that serves your interest most. And make your reasons public too.

Thirdly, bring in electoral reforms. Let the state start funding elections. Let it levy a heavy penalty tax on its MPs every time there is a mid-term poll. Let every party and candidate give an audited statement of their expenses. If they fail to, disqualify them.

It wouldn't be a bad beginning, would it?

Mahesh Nair