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Kickback nation: How corruption works in India

Source : BUSINESS_STANDARD
Last Updated: Fri, Jun 07, 2013 21:12 hrs
An employee counts currency notes at a cash counter inside a bank in Agartala

"Is-se to peene ke paani ka bhi daam nahin nikalna" (This post will not give enough to cover the cost of water), Railway Board Member Mahesh Kumar, who is now behind bars, is heard telling Vijay Singla, the nephew of former railway minister Pawan Kumar Bansal.


Kumar is desperate to 'move up' from his 'worthless' position of Member (staff) to the plum post of Member (electrical). So desperate that he's willing to pay Rs 10 crore for it. The case is still under investigation but the Central Bureau of Investigation, or CBI, says Kumar was eyeing this post because he would get to handle projects worth thousands of crores.

In this one sentence, Kumar inadvertently exposes the core of the country's kickback economy, the unholy nexus between businessmen, politicians and bureaucrats.

The world of kickbacks is murky and difficult to unravel.

"There are wheels within wheels, layers upon layers. It's not easy to tell who's fronting for whom," says a CBI officer.

In such a scenario, the magnitude of the country's kickback economy can only be speculated, at best estimated, but is impossible to accurately calculate. In interviews with Business Standard, bureaucrats, politicians, businessmen, investigators, vigilance officials and anti-corruption activists say that as an unwritten rule, 10 to 20 per cent of the cost of most contracts is set aside as kickbacks - to be paid in cash or kind.

"To bag a Rs 1,000-crore government project, we set aside 20 per cent (or Rs 200 crore) as kickback," confesses a senior executive of a power and fertiliser company based in a southern state. "So, when we announce the project, we say it's worth Rs 1,200 crore."

The rot runs deep. In 2012, of the 1,048 cases which CBI registered, 790 - that's more than 75 per cent - involved kickbacks received by public servants. This year, till April 30, 284 cases out of 376 - that's over 77 per cent - involved kickbacks. The Central Vigilance Commission received 7,227 complaints (including 1,696 cases brought forward from the previous year) of corruption (which includes kickbacks) against government employees in 2012. In 2011, CVC received as many as 8,805 complaints against Railways employees, followed by 8,430 against bank employees and 5,026 against income tax officers.

Rajvir P Sharma, the IPS officer heading the Bangalore Metropolitan Task Force set up to probe irregularities in government purchases and contracts, says: "We are investigating scams worth Rs 1,650 crore; we've found large-scale collusion in most cases."

In the pre-liberalisation era, politicians and bureaucrats made enormous amounts of money in granting licences and permits. That source has diminished in the last 22 years, though it hasn't dried up. That's why contracts and orders have become the new Kamdhenu, the mythical cow that fulfills all wishes. Businessmen do not have a choice. One from Coimbatore, the country's engineering hub, fears that he would get blacklisted on grounds of sub-standard quality if he refuses to meet the demands.

The cases CBI is probing suggest the width of the malaise. Thus, a general manager of ONGC demanded Rs 40,000 for awarding a contract; two chief engineers and an officer of the Border Roads Organisation procured several variable messaging systems at exorbitant rates through limited tender to favour a private party, thus causing a loss of Rs 1.49 crore to the government; officers of the Department of Telecommunications, BSNL and MTNL gave undue favours to a private firm in granting licence for international long distance calls, resulting in a loss of Rs 219.62 crore, Rs 8.60 crore and Rs 15.63 crore to BSNL, MTNL and DoT, respectively; officers of the ministry of defence/army headquarters and Bharat Earth Movers favoured a private player for supplying spares for Tatra Trucks, even though he was not an original manufacturer or an authorised agent for it.

To top it, some Bharat Earth Movers executives arbitrarily changed the currency for payment from the US Dollar to Euro, thereby benefitting the player to the tune of Rs 13.27 crore. The list goes on.

To get empanelled as an advertising agency for a government department or ministry too, it appears, one has to pay one's way through. An industry insider, who has been the image consultant for leading politicians, says: "In advertising, there are kickbacks after the contract has been handed out."

He explains: "A TV commercial can, after all, be shot for Rs 5 lakh or for Rs 50 lakh. An ad campaign can be for Rs 10 crore or Rs 18 crore. An ad agency which is amenable to playing along and shrinking its creative budget to pay part of it back to its selectors stands greater chance of being roped in for future projects too."

A retired officer of the Indian army says 2 to 5 per cent of kickbacks in cash are routine in the Military Engineer Services, or MES, which is responsible for providing accessory services such as military roads, water and electricity supply, drainage, furniture et cetera.

"Kickbacks also take place in operational works, such as building shelters, gun pits and permanent defences like cement bunkers in areas like Jammu & Kashmir and the Northeast. Three times the actual cost goes into them. Such is the flow of money and the nexus with the suppliers and contractors that soldiers are pushed to work even in what is called the 'non-working season', like peak winter," says the officer.

"Corruption in defence deals is known all over," says former Chief Vigilance Commissioner N Vittal. He had on March 31, 2001 submitted a report on defence deals "where I confirmed that there were middlemen involved. But the government did not publish my report. Nobody wants to expose himself."

Activist-turned politician Arvind Kejriwal of Aam Aadmi Party has a point when he says: "Some departments might appear less corrupt than the others, but that's only because they have less opportunity for corruption.

" Others, "like irrigation, roads and public works department (or PWD, ignominiously called Plunder Without Danger), which deal in contracts of huge value and are responsible for creating huge assets, expect greater kickbacks," adds Kirit Somaiya, former Bharatiya Janata Party Member of Parliament.

"Everywhere in the country politicians fight for these prime departments."

If insiders are to be believed, then for the post of assistant engineer and junior engineer in the electricity board, bribes ranging from Rs 25 lakh to Rs 1 crore are paid.

Rules require all government purchases to be made through tenders. But the manner in which tenders are rigged is so simple that it's almost laughable.

"The minister introduces his chosen contractor to the superintending engineer," says Somaiya. "The terms and conditions of the tender are then fixed in consultation with this contractor to favour him the most. This contractor then submits three tenders - two of them from bogus companies - to make it appear like a competitive, transparent process and finally walks away with the contract."

"There is almost a standard formula for sharing the kickback at different levels," says Jayaprakash Narayan, former IAS officer who founded the Lok Satta Party and is now a member of the Andhra Pradesh Legislative Assembly. "The contractor makes 6 per cent down payment to the minister before bagging the contract. An additional 6 per cent is distributed among the superintending engineer, junior engineer and other officials after he wins the contract. Add to this another 3 per cent for project clearance, pollution control and subsidy clearance. That's 15 per cent in all."

It doesn't end there. "Every time the cost of the project escalates, an additional 6 per cent goes to the minister," Somaiya adds.

Along with cash, gold and real estate are the new modes of payment.

A particular company which struck a deal with an IAS officer staged a temple darshan for the bureaucrat's wife. When she visited the temple, the priest handed her some gold bars.

Real estate is an even safer option. "Give away the property at 20 per cent of the market rate, and who's to question you when 80 per cent of the real estate market thrives on black money," says Somaiya.

There are other ingenious ways, too, like 'ghost salary accounts'. A Chennai-based company, for example, wanted 10 engineers for a project. But it recruited 13 - the additional three being relatives of politicians and bureaucrats. They were paid premium salaries. Their job can best be described as "two punches and one lunch" - punch in your entry and exit times, have lunch and your job for the day is done.

Buying shares of a company run by the relatives or friends of a politician or bureaucrat at inflated rate is another trick.

Astro All Asia Networks, a company related to Malaysian telecom operator Maxis, invested Rs 629 crore in Sun Direct, the DTH arm of the Sun group controlled by the Maran family, which included a premium of Rs 549 crore, between February 2005 and September 2008. The premium was based on Sun Direct's valuation: between Rs 3,446.76 crore and Rs 4,039 crore.

CBI has alleged that the value was highly inflated and the true worth of the company was not more than Rs 400 crore. CBI said in its first information report that it was "not truly a commercial business decision but an arrangement to transfer funds to this company as quid pro quo".

Dayanidhi Maran was the telecom minister from 2004 to 2007. It was during his reign that Maxis bought Aircel from C Sivasankaran. In 2011, Sivasankaran claimed that he was armtwisted by Maran into selling his telecom venture. The Marans have denied any wrongdoing.

While investigating the 2G spectrum scam, CBI also unearthed a complex money trail from DB Realty to Kalaignar TV, the DMK channel. There were allegations that Telecom Minister Andimuthu Raja (2007-10), of DMK, had favoured DB Realty in granting telecom licences and the inexpensive spectrum that came with it. Once the scam broke out, the money was returned through the same circuitous route. All the dramatis personae, on their part, have called it a genuine business deal. These aren't isolated incidents. In one case, Rs -10 shares in a politician's newly-formed company were bought for Rs 8,000 per share, says Somaiya.

Favours can also be extended by contracting the minister's or bureaucrat's relatives, friends or brokers for allied services that the company needs, like cranes, cabs or vendors. "We have hired a large number of cars from a travel agent who is close to a politician. While the market rate is Rs 10 per km, we are paying him Rs 15 a km - that extra Rs 5 per kilometre is the kickback," says a senior official of a private company which does business with the government.

A robust donation to an NGO run by a politician or his relative is another way of paying for favours. Last year, while investigating the Karnataka mining scam, CBI found that JSW Steel had donated Rs 10 crore to an NGO run by the family of former state chief minister BS Yeddyurappa.

Is e-procurement the answer to kickbacks?

Many politicians and bureaucrats think so. At the Directorate General of Supplies & Disposals (DGS&D) in the heart of Delhi, Director General Satya N Mohanty is trying to change the way things work. DGS&D, the central purchase and quality assurance organisation of the government with an estimated annual business of Rs 100,000 crore, chooses the suppliers from whom government departments, public sector undertakings, autonomous bodies and quasi-public bodies across the country can buy products at rates fixed by DGS&D. There is clearly a mad scramble to be on DGS&D's supplier list. When the system was manual, the scope for rigging tenders was immense. "By reducing human interference through e-tendering, we are trying to check this," says Mohanty. "E-tendering has brought down such cases by about 90 per cent," says a former director (vigilance) with DGS&D.

But e-procurement and e-tendering is hardly foolproof. Uttar Pradesh Lokayukta Justice (retd) N K Mehrotra, who is probing several high-profile cases, including the sale of government sugar mills and allotment of farmhouses in Noida, says in most cases the tendering process was found to be unfair, even though e-tendering had been introduced. "Manipulation ensures that tenders are awarded to the minister's cronies who can divert funds at will," he says.

Chandigarh-based activist Hemant Goswami cites ways in which e-procurement and e-tendering can be manipulated. "First, advertisements inviting tenders are not placed in newspapers, national or regional. So, you limit the number of people who get to know about it." Step two: conditions like "the vendor must have an electronic or digital signature are imposed to eliminate smaller vendors. Why, even the police commissioner doesn't have an electronic signature!" says Goswami. Besides, he adds, the tender often aren't opened till the last date; the chosen ones are informed secretly about the brief period when the page will open. "Specifications for the bid are also fixed to suit a particular company." This is allegedly what happened in the multi-crore Chandigarh amusement-cum-theme park scam which CBI is now investigating.

As Narayan of Lok Satta says, "All this is not just undermining the quality of goods and fleecing the exchequer - it is eliminating integrity from the system."

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