The revelation of the multicrore fraud by the Indian corporate giant, ITC by way of excise evasion and FERA violation, has put in sharp relief the hollowness of the recent rhetorics by the big bourgeoisie, viz. Swadeshi, economic nationalism etc. The company’s $100 million foreign exchange and Rs.799 crore excise-evasion fraud and the other recent findings from the raids at Shaw Wallace & Company (Rs.150 crores siphoned off by its NRI owner) and leading export house, Ganapati Exports (over Rs.85 crores of over-invoicing) focus light on the ingenuous and multifarious tricks of corporate fraud, many of which have been standardised as ‘prudent’ business practices.
Less than a year back, when the multinational BAT Industries, the principal non-institutional shareholder in ITC (with about 32% stakes), had first forced the then chairman KL Chugh to resign and then opposed Chugh’s man, YC Deveshwar for the post, in an attempt to gain total control over the company, the former chairman draped the tricolour and the whole bourgeoisie and the media lauded it as the heroic defiance of a ‘nationalist’ corporate against a ‘neo-colonial’ British multinational’s threats to takeover ITC. However, those who harboured these illusions have received their worst shock with the unfolding of India’s biggest EXIM fraud. Probably, greater and many more such frauds still lie unexposed. Now BAT is back in its takeover game with the takeover war getting dirtier and dirtier bringing all the corporate muck before the public glare. While the government seems to be readily obliging the multinational in its covert game, sending signals to foreign capital regarding ‘the level playingfield’ of a different order, the ITC top brass who tumbled down like nine pins, and their fraternity across the corporate world, have come to realise that Swadeshi can hardly come to their rescue when they have so many skeletons up their corporate boards.
But the ITC affair serves to highlight certain general characteristics of the big bourgeoisie. For one thing, it has established that corporate boards are dens of thieves. Unwilling to fight what now they describe as archaic FERA rules and regulations unsuited to the modern world of business, these corporate houses preferred to park funds outside the country illegally to carry on what they claim ‘normal’ business practices. Despite their clamour for liberalisation, in reality, they have one-sided preference for only certain liberalisation measures and start squealing, invoking Swadeshi invariably, the moment MNCs mount an assault for takeover, but they are little amenable to any strict framework of corporate accountability to the shareholders.
The claim on ITC due to excise fraud, along with a Rs.74 crore penalty, for just a four-year period, is the biggest excise claim ever served on a company. Excise evasion is not new to the corporate world and various corporate laws have been given the go by time and again. According to the Directorate-General of Anti-Evasion, the amount of excise evasion detected rose from Rs.562 crore to Rs.1,236 crore in the liberalisation period 1991-92 to 1995-96. This in spite of the fact that during this period excise and custom barriers have been reduced and the hold of the ‘suffocative’ rules loosened. But our bourgeoisie which loses no chance to adorn the ‘nationalist’ cloak whenever it comes to foreign takeover bid or opening up of new sectors for FDI, has been consistently devising new methods for evasions. As in the case of ITC, where the company, deliberately for years, maintained a pricing strategy that kept higher effective prices than the maximum retail prices marked on their cigarette packets. Even in the case of exporters who were allowed to import without having to apply for foreign exchange under the liberalised regime, willful violations took place like over-invoicing export bills to pick up the tax concessions on exports. About 605 such cases have been detected by the authorities in the last four years, a period when under the new tax set-offs, EXIM violations should have come down.
The ITC episode also puts a question mark on the role of financial institutions (FIs). In this particular case FIs had put their weight behind Chugh when it came to oppose BAT’s move to raise their holdings to 51% — a seemingly patriotic gesture of supporting domestic crooks for the cause of warding off ‘imperialism’. As a rule most of the nominees of these FIs and the supposedly watchdog bodies like SEBI and CLB sitting in the boards of these companies have remained passive and have hardly taken interest in checking the massive bungling going on in corporate houses, even though collectively they command majority stakes, 35.5% as in the case of ITC. While many FIs complain being under-staffed organisations and having lack of resources for research and investigation, the government too has deliberately pruned their powers — they cannot impose penalties on erring companies which can only be done by courts.
With majority stakes, FIs can effectively prevail over the management to impose strict business discipline. Instead, as was revealed in the case of MS Shoes, another irregularity taking place with alarming regularity has been to make FIs give loans against insufficient collaterals. It is estimated that such unsecured loans in the excess of Rs.4,000 crore lie unrecovered. With forex-starved coffers and also pressures from MNCs and specially after India’s surrender at the WTO ministerial meet, it cannot be ruled out that in the future political pressures will be exerted to bring around the FIs to ease the way for raising the stakes of foreign shareholding companies even over 51% or pave way for FIIs for full takeover. The recent SEBI norms on takeovers which describe them as a perfectly healthy business practice in a competitive economy, has already set things in that direction.
Why the crackdown now? The excise evasions which came to light way back in 1992 had been in the cognisance of the enforcement agencies since then but it took them four years to crackdown on the company now on FERA violations after going soft on massive excise frauds. The Chitalia brothers, partners in crime but subsequently fallen apart with ITC, had spilled the beans and their subsequent filing a law-suit against the latter for damages and defamation had already piled up pressure on the enforcement agencies to make the much delayed crackdown on the company. With the country witnessing activism from the judiciary and the enforcement agencies the raids at ITC offices throughout India and the arrests of 2 former chairmen and 8 executive directors, made sensational headlines and gave the impression that a generalised crackdown on corporate crimes may be in the offing.
However, to radicalise it as an Armageddon of the bourgeois state against the erring individual members of the class is wishful thinking. One, these revelations are but the tip of the iceberg of thousands of crores that the corporate crooks have swindled for years. Two, corporate crime does not take place without the sanction of politicians and bureaucrats, with whom the bourgeoisie share a reciprocal symbiosis. Deve Gowda was quick to go all out to allay fears of the industry that a spate of raids were to follow or this was a new ‘raid-raj’. Even a shaky Bal Thackrey was seen assuaging the fears of his corporate friends. Even at the time of VP Singh as FM, all talk of cleaning up the corporate world fizzled out after few initial raids on business houses like Kirloskars etc. Sometimes, the bourgeois state does crackdown on some individual members of the ruling class, politicians, businessmen, bureaucrats etc., and usually those who would go a bit too far, in the overall interests of the class and class rule. And the media laps this up as the widening dragnet of a neutral state though the holes are so big that the majority escape and only a few are netted. One of the biggest crooks, Reliance Industries was let off the hook recently when the CLB granted permission for compounding of all offences (28 cases out of 29) in the duplicate share certificates and share-switching scandal.
Even the press at large, though with a mild condemnation of ITC’s corrupt practices, was sympathising with ITC calling it a victim of imperialist conspiracy and wishing Deveshwar to bring back a ‘respectable’ and ‘India’s very own’ multinational back on the tracks. Most of the parties, including the left partners of UF, were rather reserved in their reactions. Instead of demanding of the government to continue with the crackdown on other corporate defaulters, some of the left MPs from CPI-CPI(M) who spoke up individually, only spoke of this as a BAT-Chitalias inspired crackdown on ITC. After all, these are the parties which theorised that Indian big bourgeoisie is opposed to liberalisation in the context of Bombay Club and it is the CPI(M) veteran EMS who characterised the UF as an alliance of communists and progressive and forward-looking bourgeoisie. The ITC experience should serve as an eye-opener for these opportunist leftists to cast away their illusions about the Swadeshi bourgeoisie and the government of the‘forward-looking’ bourgeoisie. Can a bunch of crooks be the leaders of economic nationalism in India?
—SiddarthaHome > Liberation Main Page > Index Page January 1997 > ARTICLE