Sweeping Away Sleaze On The Subcontinent

A slew of scandals could produce more accountability--which may lure global investors

In 1992 at an investment conference in Chicago, speaker K.L. Chugh, chairman of Indian Tobacco Co., was hailed by the crowd as an Indian hero and ITC as a much-admired Indian corporation. A U.S. magazine even named Chugh its International Manager of the Year in 1994. But on Oct. 31, his admirers were shocked: In a dramatic midnight swoop, investigators arrested Chugh and sent him to Calcutta's colonial-era Presidency Jail. He is awaiting trial, accused of siphoning off at least $100 million of ITC funds and stashing them in Swiss bank accounts over the last 10 years. Eleven others at ITC have also been charged.

The scandal is just one of the many stories of sleaze and bribery unearthed daily in a frenzy of exposes involving India's power elite, reaching all the way up to former Prime Minister P.V. Narasimha Rao. India, like South Korea and Italy, has finally joined the ranks of countries fed up with corruption in business and politics. As the economy has opened up, India's growing middle class is becoming more politically vocal and demanding a housecleaning. An emboldened Indian Supreme Court and government investigative agencies freed by decentralization are cracking down. So far this year, they have indicted more than two dozen senior politicians and bureaucrats, half of whom have resigned. Business is the next target.

IN A PICKLE. Rao, 73, is the biggest fish hooked so far, accused in three major cases. Free on bail, he has publicly declared his innocence and soon will stand trial. He is accused of forging bank account documents in tax haven Saint Kitts in the 1980s; conspiring to pay bribes to parliamentarians so they would vote his way; and cheating pickle baron Lakhubhai Pathak of Britain out of $100,000 in exchange for favors never realized.

But even if convicted, he may get off with only a fine. "The stability of the new government depends on Rao not being jailed," says Charan Das Wadhwa of New Delhi's Centre for Policy Research.

Other politicians are being scrutinized. Former Communications Minister Sukh Ram was caught with more than $1 million in cash in his home, allegedly from bribes from telecom equipment makers. He denies the charges and is awaiting trial. Another top official, former Petroleum and Natural Gas Minister Satish Sharma, was fined $143,000 in early November after he diverted to his household staff government-owned gas stations intended as startup businesses for disaster victims. He is also charged with awarding oil contracts in exchange for bribes, which he denies.

Foreign investors view the scandals as a positive sign. The publicity may compel Indian corporations to greater transparency--a necessity as India begins to compete globally and its companies try to attract outside sources of capital. Currently, business gifts to politicians need not be disclosed. "This is an opportunity for India to show the world how it manages its problems, not in the usual, politically motivated way, but in a more transparent, judicially endorsed manner," says Sunny Oberoi, managing director for India for mutual fund group Capital International.

"WAY OF LIFE." There are already some positive effects. Activists are preparing a draft for a Right to Information Act, which would give citizens access to documents from the government and the private sector. An opposition leader even suggested changing India's parliamentary system of government to a presidential system in which a leader would choose a cabinet of technocrats, not politicians, and where companies would disclose their gifts to political parties. It would also require politicians to disclose assets. Such changes are not completely out of the question.

There are still those who try to downplay the scandals. They claim that India's once overly strict foreign exchange controls forced corporations to find ways around them. The business climate did result in dishonest practices, says Shiv Vishwanathan, senior fellow at the Centre for the Study of Developing Societies in New Delhi. Breaking the rules "became a way of life" with Corporate India, he says, and it continued after liberalization in 1991. For instance, over-invoicing of goods--the billing of $20,000 for a $10,000 item and pocketing the difference--is still common.

But India has a bad track record for convictions. Harshad Mehta, a former Bombay stockbroker accused in India's biggest financial scandal, a $1.5 billion securities scam in 1992 involving Indian and foreign banks, has escaped conviction. There are still 30 cases pending against him. He is now a minor cult figure, teaching packed classes of Bombay stockbrokers how to deal spiritually with stress. If the Indian government wants to hold the confidence of its people and its investors, it must clearly demonstrate it can punish the guilty.

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