us take the Manjunath murder. Behind the tragedy and crime
lie profiteering, dangerous fusion of crime with business
in some sectors, political patronage in creating commercial
opportunities, and the perverse role of the state. The proximate
cause of Manjunath's death may be the bullets fired by a
gangster-businessman who wanted to eliminate an incorruptible
official who would not tolerate adulteration of diesel with
kerosene. But the real causes are more complex. First, for
decades, oil dealerships have been awarded in most cases
for a price, or as patronage. The state had monopoly, and
ministers and their cronies converted their opportunity
into profit. Second, once the dealer paid hefty bribes,
he expected decent returns. But given administered pricing
distorting markets and competition, the margins were inadequate
to meet the hidden costs including the haftas paid to many
inspectors - vigilence, weights and measures, civil supplies
in our anxiety to help the poor, wrong policy choices are
made. Instead of providing direct subsidies through coupons
or other means, price subsidies are offered on kerosene.
In fact, kerosene consumption is not growing as fast as
that of petrol or HSD. From 1984 to 2004, petrol consumption
increased from 2.1 million tones (mt) to 8.3 mt (300%);
and HSD consumption from 13.7 mt to 39.7 mt (200%); kerosene
consumption increased more modestly, from 6 mt to 9.4 mt
(57%). Clearly, the fuel and lighting needs of the poor
are met by other fuels. And yet, vast subsidies are given
in the name of the poor.
as oil dealerships are obtained through patronage and bribery,
and as margins in honest business are slim, dealers indulge
in short-delivery and adulteration with subsidized kerosene.
5-10% short delivery by tampering the meters in connivance
with the legal metrology officials was very common a decade
ago. Lok Satta volunteers successfully stopped short delivery
in 1998 by a simple technique of demanding filling of a
calibrated can of known volume, instead of the fuel tank
of the vehicle. This exposed short delivery, and within
a fortnight the meters were set right in all the 1500 petrol
stations in Andhra Pradesh, and random checks by volunteers
made it sustainable. Eventually, oil companies acted with
vigour and substantially reduced short delivery all over
the country. But given the other compulsions of huge bribes
for dealership and regular 'rents' paid to state officials,
the demand for illegal profits was undiminished. This profiteering
is made possible by adulteration of diesel with subsidized
kerosene. Short delivery can be stopped by citizen assertion,
but adulteration can only be suspected by using a hydrometer
to measure density, and can be proved by chemical examination.
The citizens are not empowered to measure density, and results
of chemical analysis constitute evidence only when the samples
are taken by competent authorities in the prescribed manner,
and tests are conducted in authorized laboratories. Therefore
proving adulteration demands great integrity and perseverance,
not to speak of efficiency and fairness in the whole process,
on the part of officials.
this whole causal chain led to a system of rent seeking
everywhere. Public money was wasted on subsidies which never
reached the poor; dealers who purchased their licenses through
huge bribes fully exploited the arbitrage opportunities,
and an organized system of rent-seeking was established.
In this vicious cycle of corruption, most players were helpless
to resist the system, as the price paid for resistance far
exceeds the benefit. Manjunath payed the ultimate price.
money-for-questions scandal is a more straight forward case
of arbitrage. But the nature of our politics and the demands
made by the political system are at the root of the problem.
In our electoral system, the marginal vote that a candidate
obtains is the difference between victory and defeat. Candidates
therefore spend vast amounts, mostly illegitimately to buy
the vote, bribe officials and hire muscle men to browbeat
the voters. Large, illegitimate expenditure does not guarantee
victory, but modest, legitimate expenditure almost certainly
guarantees defeat! Trapped in this vicious cycle, candidates
overspend, and once elected, need multiple returns on investment
to sustain the system. Given the control over levers of
state, politics is seen as an arbitrage opportunity. Money
is made mostly by transfers, contracts and interference
in crime investigation. MP LADS and other such direct access
to state resources are rent-seeking opportunities. In general,
influence peddling in decision making in government is financially
very rewarding for legislators. The more desperate legislators
seek money for questions.
any system, there are always a few black sheep. But the
political crisis in India is much deeper, and cannot be
resolved merely by fiery denouncements and a few expulsions.
Parliament and parties should wake up, and transform current
politics as business and arbitrage by reforming our electoral
system and eliminating the distorted incentives. We need
to herald a new political culture, and make honesty compatible
with politics and power.