Friends with Benefits: India’s Crony Capitalism and Conflict of Interest Regulations

In May 2014, when Narendra Modi’s National Democratic Alliance (NDA) ran and won against the incumbent United Progressive Alliance (UPA) Government on a platform of anticorruption and growth, very few were surprised. UPA’s second term was paralyzed by a string of mega-corruption scandals, including the 2G scam and Coal–Gate, pointing to entrenched crony capitalism and raising public fury. A country that had had enough with lackluster economic performance and widespread corruption kicked into survival mode and set aside its deep misgivings about a man with a troubling past. India was desperate for an efficient administrator and an uncorrupted leader—and Modi promised both.

After Modi became Prime Minister, many Indian businessmen grumbled that they had lost access to the Government—a fact hailed by the Indian media as evidence that he was finally cleaning house and cracking down on crony capitalism. However, more recent reports suggest that the Cronyism of Many has simply been replaced by the Cronyism of One. The Indian media is rife with reports hinting at a troublingly close relationship between the Prime Minister and a Gujarat-based industrialist who is one of the latest entrants to the Indian billionaire’s club (See reports here, here, here and here).

To be clear, such allegations do not necessarily imply that the PM himself is corrupt. Nonetheless, in this context even the appearance of corruption can be damaging. High officeholders in a country like India, where endemic corruption and crony capitalism have historically prevented the nation from achieving its full potential, ought to be held to much higher standards of probity.

The PM may be flirting within the permissible boundaries of business-government collaboration and may even get away with it using personal charisma, strong economic performance, and the lack of clarity in laws governing such relations. However, in the interest of keeping the high offices of the country beyond reproach, it is time to have a relook at the laws governing business-government relations in India. A good place to start will be the Conflict of Interest (COI) provisions for India’s Executive and Legislative branches. Unfortunately, the current COI regime for Indian public office holders is weak and ineffectual:

  • Vague definition: The term “conflict of interest” does not have a clear definition in the rules and procedures governing the Indian Parliament. Precedents from previous court cases suggest that “reasonable public perception of fairness” should be the deciding factor. Articles 102(1) and 191(1) of the Indian Constitution only provide for disqualification of Members of Parliament or State Legislatures for simultaneously holding an “office of profit,” a term which is not defined and has been open to multiple interpretations and legal disputes.
  • Weak or absent regulations: While there are separate codes of conduct for Ministers and for members of the Rajya Sabha (Upper House) that broadly require them to declare their assets and liabilities, sever all business connections, and refrain from accepting gifts, there are no penalties outlined for breach of such codes. While the Lok Sabha (House of the People) Members of Parliament (MPs) are required to declare their interests and, and the Lok Sabha has a regulation on acceptable gifts, there is no formal code of conduct for MPs, nor does there appear to be a code of conduct for the office of Prime Minister himself.
  • Feeble enforcement: COI has been wielded as a convenient stick by incumbent governments to exclude members of the opposition from important posts, or to strike back-door deals with the opposition (see here and here for COI allegations during the UPA regime). Yet genuine enforcement of COI rules remains weak. Many examples could be used to illustrate this sad fact; one of the most glaring is the fact that an MP of the ruling government who owns a tobacco factory continues to serve as a member of the parliamentary committee setting the rules for tobacco sale–even after this MP made statements denying he link between tobacco and cancer.
  • Neglect of systemic issues: Even a tighter definition of COI and dogged pursuit of direct financial conflicts would fail to capture the complexity of interconnected and insidious relationships that characterizes Indian polity. Arising from (among other things) the immutable loyalties of family-friendship ties (see here for a related report on India’s External Affairs Minister) and the inevitable pressures of election financing, these relationships are long-term investments. The returns could be intermittent – seemingly harmless and stubbornly untraceable: a favor for a friend here or an acquaintance there. Or they could be end-of-the-term blockbuster dividends – suspicious, improper, and unethical but not illegal – such as favorable media (see here and here) and election funding, another black box of Indian politics.

There is clearly, then, a need for more demanding standards of conduct and vigorous enforcement. What should a stricter COI regime look like?

Drawing upon international examples and the authors who have discussed this issue in Indian context, the key elements of a basic COI framework for public service in India could include:

  • Appropriate definition of COI: Countries like South Korea, Hong Kong, and Canada that have established robust COI frameworks have broadly similar, workable definitions for COI. For example, as per Canada’s COI act, “a public office holder is in a conflict of interest when he or she exercises an official power, duty or function that provides an opportunity to further his or her private interests or those of his or her relatives or friends or to improperly further another person’s private interests.” While this definition is still broad, a host of publications by OECD countries elaborate such definitions and even list all possible situations involving COIs. India, with its plethora of what its Central Bank Governor calls patronage networks, may find application of some of these situations untenable. Hence, it may help to kick-start a broad based consultation for a COI framework most suitable for India, all the while remembering that it may be too late to pick and choose; India will be expected to integrate international standards as an aspiring political and economic global power.
  • Institutional mechanism: In most countries, COI frameworks work through the national anticorruption body, implying the perceived link between COI and corruption. However, countries like Canada and the UK have either an independent ethics commission or the National Audit Office (NAO) overseeing these issues. Given the low legitimacy currently enjoyed by anticorruption institutions in India, a more suitable institution would be the Comptroller and Auditor General of India (CAG), which has functions similar to UK’s NAO. CAG’s constitutional status, relative independence from the Government, institutional capacity for monitoring and tracking public spending, and high public legitimacy makes it the most suitable institution for housing COI activities.
  • Awareness generation and activism: Countries with robust COI regimes place emphasis on awareness generation and training programs for members of the executive and civil servants on COI-related issues. Equally important is the role of civil society watchdogs in tracking and sustaining pressure through data gathering, reporting and advocacy on COI issues. While it is evident that it is not ignorance of COI but its casual disregard that drives most instances of COI in India, it is possible that frequent reminders through training and a heightened spotlight on one’s actions can act as a deterrent if coupled with strong enforcement.
  • Addressing systemic issues: The above steps will be merely cosmetic if India fails to address the four big elephants in its closet: informal kinship ties, patronage networks, media cross-ownership, and election funding. Addressing these mammoth issues require tremendous political will, personal integrity, skillfulness, popular legitimacy, and bi-partisan support. Prime Minister Modi is known to have the first three, acquired the fourth in 2014 election, and is capable of achieving the fifth.

Instances of conflict of interests are but symptoms of deeper systemic issues plaguing the political system. If the PM is serious about addressing corruption and ushering in good governance, he will have to notice the symptoms and treat the root causes. This is where maintaining his own personal legitimacy through transparency in disclosing his own interests and that of his team and rising above suspicion becomes important. After all, the pot can’t afford to call the kettle black!

6 thoughts on “Friends with Benefits: India’s Crony Capitalism and Conflict of Interest Regulations

  1. Thank you, Nayana, for such an interesting and thoughtful post. I especially like your points about adopting a more expansive definition of COI and about housing enforcement responsibility for this new definition in the CAG. However, I noticed that you haven’t discussed the role of the judiciary much in your analysis. I know a few years ago Former Chief Justice V.N. Khare commented that corruption was “rampant” in the lower courts in India. Do you think reforming the judiciary is a necessary ingredient in successfully combating conflicts of interest? Or do we just think than any COI prosecution would be so high profile that even judges who take bribes in normal cases will be forced to act honestly because of attention from the media and general public?

    Relatedly, I know the Indian Supreme Court recently struck down a law seeking to limit the Court’s independent appointment authority. Unsurprisingly, that decision has generated a lot of controversy. However, I could see this being a positive development from an anti-corruption perspective — at least if we think India’s highest court isn’t corrupt. Do you have any thoughts about the relationship between that decision and effective anti-corruption enforcement?

    • Judiciary is indeed an important element in successfully combating high profile corruption cases as we saw in the arrest of India’s former telecom minister in the 2G spectrum scam. However, the judiciary has limited in the type of CoI cases I covered above as a large part of them are below the radar, improper and unethical but not exactly illegal.

      However CoI issues within judiciary is itself a matter of concern. While there have been several cases of judges recusing from a bench citing CoI (happened in NJAC) too, there is scant spotlight on lower levels of judiciary and therefore higher instances of corruption.

      Thus, assuming that the highest offices of Judiciary in India is generally considered above reproach (lots of caveats) and citizens attribute it to its ability to withstand political influence, NJAC could have eroded the credibility of judicial appointments. Given the political situation, it would have made judgements on CoIs even more difficult than it is now.

      I would thus say that NJAC ruling has no direct impact on the CoI situation in Indian politics. But after turning down an executive initiative to make it more transparent, the Supreme Court of the country should find a way to make itself and its lower branches more accountable to citizens without diluting its autonomy.

  2. Your post is packed with so many thought-provoking ideas. I completely agree with strengthening COI definitions and calling on Prime Minister Modi to show transparency in his and his circle’s connections before being able to fully tackle corruption and COI in India. I would be interested in knowing more about what awareness generation programs could look like, both for the national and state legislators. I agree that “frequent reminders” would increase the pressure and salience of addressing COI. Do you think the reminders would best come from civil society, from internal training for the legislators, or from some other source? Are specific case studies needed, or perhaps politicization of a particularly egregious case?

    A second interesting question might be whether, beyond the Prime Minister, the need to address COI or the approach to addressing COI might be different in the Parliament’s Lok Sabha and Rajya Sabha (which, if I understand correctly, are popularly elected and elected by state legislatures, respectively). Is the risk of cronyism more direct or more widespread between electors and elected or between several elected leaders?

    Like Courtney, I also suspect that COI is major, under-addressed issue in the judiciary. I wonder if there are resources available that would outline best practices towards reducing COI within different institutions. From the NAO’s website, it looks like they only look at “public spending for Parliament.” I wonder if it makes more sense to aggregate enforcement and oversight of COI in one agency or to break oversight between the branches of government. My initial thought is that there would need to be some differentiation, just from the separate channels of influence where COI might make a difference, but I’m not sure what the relative merits would be of having multiple separate offices in a single agency instead of having multiple separate bodies with oversight power. Perhaps the oversees themselves would be less subject to COI if their powers were limited to one task, though the power to enforce or reveal COI might be greater with an aggregated enforcement power.

  3. Thank you for a very interesting post. I would be interested to know more about the issue of media cross-ownership in India and what specific obstacles it poses to COI reform in India. In particular, it seems that media cross-ownership, if it is a cause or consequence of corruption, might stand in the way of the awareness generation and activism proposals you put forward as a potential piece in strengthening COI law. If traditional media stands in the way of awareness generation and activism, is social media robust enough in India to fulfill the role traditional media might have played in promoting awareness and activism related to COI issues? If so, perhaps media cross-ownership may not be as big an obstacle to reform as the other three “elephants” mentioned.

  4. Your point about the potential for India’s eventual COI definition having to harmonize with international standards isn’t one I had considered. From the research you’ve done, do you have a sense of what the predominant expectation is? Is Canada typical, or are most definitions more narrow?

    Kaitlin’s question about what awareness generation would look like is also something I’d love to hear more about.

    I think you’re right to highlight the need for systemic changes to really make anticorruption reforms effective (something Courtney alludes to, as well), but that doesn’t make your main point here any less true: a proper legislative framework is an important step, so that once those other changes you mention need to occur do finally happen, behavior that should be punishable as unlawful is actually unlawful.

  5. Thanks for a great post! In addition to wing curious about awareness and media cross-ownership, as has been raised in the previous comments, I’d be curious to know more about how Prime Minister Modi will be able to address the other systematic issues. On its face, the point that the Prime Minister must maintain personal legitimacy through transparency sounds easier said than done in the context of large structural roadblocks, particularly those such as informal kinship ties. Other than efforts to be transparent regarding these himself, what steps do you think would be most effective for the Prime Minister to take in addressing the roadblocks of informal kinship ties and patronage networks? Awareness programs might be able to do some work here but I think any difficulties with awareness programs in general will be compounded in areas requiring cultural change, because a change in understanding of informal ties and patronage as structural barriers to anti corruption might be necessary even before successfully targeting awareness of those issues generally.

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