Corruption: Obelix and the Magic Potion

There is much in R-Day celebrations to tug at the heartstrings. Its crowning moment is the parade: rich in nationalistic appeal, celebration of valour, and pride in the achievements of a republic but a few score years old, and culture thousdands of years young.

In addition to patriotic fervour, R-Day is also just occasion for solenn contemplation. In thus ruminating over the state of the nation, one can't help but rue as to what ails its fortunes. Today, the most prominent such malaise is corruption. The affliction is hardly new, but has become so endmeic at the top, so brazen in its extent, that it has become morale-sapping and threatens the very fabric of our motherland.

This is not scare-mongering. Take black money, which has a deeply symbiotic relationship with corrpution. A few years ago, the Swiss Banking Association reported that banks in Switzerland had around $1.5 trillion in deposits from Indian nationals. Compare this illicit stash to the size of our formal economy, especially one that is strapped for investment to spur growth, and you wonder at the possibilities.

Of course corruption is hardly the preserve of those with access to Confoederatio Helvetica (or Bahamas, the Caymans, BVI, or other similar global money-laundering havens). Enough exists around us, in form of the friendly neighbourhood policeman, sarkari babu, driving licence agent, and so on. However, when the Central Govt gets as mired in it as UPA-2 has, then the nation starts to lose its moral compass. After all, what deterrence is to be expected when not a day goes by without headlines screaming obscene amounts and prominent names neck deep in graft. It appears almost no part of Dilli sarkar is left untouched.

With the stench in Raisina Hill reaching unimaginable proportions, one looks for answers. The mind goes back to a UPA-2 corruption headline of a different kind. A year or so ago, then CEA Kaushik Basu, had offered a striking formulation (endorsed amongst others, interestingly, by INFY co-founder Narayana Murthy). Shri Basu spoke of legalizing bribe-giving so as to encourage reporting, thereby improving incidence capture.

As solutions go, perhaps we need something similarly drastic to shake us off our slumber. This idea though, however innovative, is a slippery slope. It can easily degenerate from honest reporting, to wilful entrapment (lessons from news channel sting operations that have bred their own format of corruption). Stretch the point and one could start offering bribes by default. If caught, you are protected since it was only civic duty, trying to unearth the corrupt. Rinse, repeat, till a pliable babu is found. Voila.

My other bone with such legalization is how it shifts the onus of catching the corrupt to whistleblowers, thereby diluting the ownership of the relevant authorities. Like it or not, it is the government's job to identify and nab the dishonest. Outsourcing it to sundry 'citizen journalists' of potentially dubious intent and zero oversight, sounds ominous to say the least.

Much as the heart would wish otherwise, but there is no magical solution. Very little in the proclivities of the current government thus far suggest that a different, deep-rooted attempt to counter corruoption is likely to be made soon. It may take a regime change for the requisite political will to surface, and perhaps thats what one must pin hopes on, this 26-Jan.

Shape-shifting Monster

Being a toddler-parent means toys of assorted shapes and sizes are an inveterate part of existence. I have one of either gender, and would like to believe that neither is overly pampered. Yet, there moments when I am at wit's end as to how so many trinkets make their way into the house (my childhood benchmarks clearly don't apply, outnumbered 1:16 or so). At the same time, I cannot but marvel at the ingenuity and imagination that powers many of these. Colour-changing cars and shape-shifting beasts fall in this category.

It was such an object of fantasy that offered the perfect metaphor during a fevered discussion the other day. The conversation went somewhat like this: my friend, part of the domestic Insurance industry, was trying to argue for more instiutional indulgence (government, courts, banks etc) to support the fledgeling sector. At some point in the evening, the conversation went to ULIP, one of my pet peeves, (as I have written earlier), thereby prompting the monster reference. I don't know how the tete-a-tete ended (some Dalmore was involved!); but perhaps a few notes from it bear repitition.

In a nutshell, that India is under-insured is in no doubt, but there's more to the picture. We ought to know too that, other than bank deposits, Insurance is the most popular financial product in town. It has a legacy that goes back decades: LIC in its present avatar itself is about 60 years old; National started in 1906; and there were companies in this business in most of the 1800's. So the industry is no babe in the woods.

Cut to the present as well and data shows 20% of household savings going into insurance (all of Equity including MF is at a paltry 5%). Likewise, take AUM: Insurance is 10X of equity MF, with ULIP alone being more than double of Equity MF at last count. Insurance, therefore, can hardly claim not to have felt the love.

This brings us back to the point on ULIP. Just the last 10 years have seen the industry peddle them aggressively to a gullible public, with disingenuous advertising and aggressive distributor incentives. The opaque nature of ULIP performance reporting and high exit costs were common knowledge, perhaps even deliberate. Certainly they did not speak to any genuine effort to serve the Great Unwashed.

The IRDA did (belatedly; and perhaps only driven by turf war) attempt to rein in the monster. Fee structures as well as rudimentary visibility levels were mandated. Yet, even after 2010, the most notable message we heard was ‘new, improved’ plans accompanied by significant switching cost. Shape-shifting right there!

In truth, glancing beyond ULIP at traditional plans too show up the industry as pretty lazy. Despite lofty goals of under-insured India etc, these products (term cover is a particularly glaring need) are sold with terms mired in complicated legalese, unfriendly surrender and claims processes and overly high sales commissions. Once again the IRDA has attemped some fixes, but these are arguably half-hearted or too late.

Summarizing, it is not difficult to posit that the Insurance industry has itself to blame for much of its ills. If only the Indian investor was a tad more discerning (and not perplexedly averse to equity), the heat on them could, in fact, have been worse. For now though, the monster lives to see another day.