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 a culture thousands of years young.

In addition to patriotic fervour, R-Day is also fitting occasion for solemn contemplation. In thus ruminating over the state of the nation, one can't help but rue what ails its fortunes. Today, the most prominent such malaise is corruption. The affliction is hardly new, but has become so endemic at the top, so brazen in its extent, that it is 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 corruption. 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 the Confoederatio Helvetica (or the Bahamas, Caymans, BVI, or other similar global money-laundering havens). Enough exists around us, in the form of you 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 that 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 advocated legalising 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 claim immunity as a public-spirited citizen merely unearthing the corrupt. Rinse, repeat, till a pliable babu is found. Voilà.

My other bone with such legalisation 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, here 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 imminent. It may take a regime change for the requisite political will to surface, and perhaps thats what one must pin hopes on, this 26 January.

Shape-shifting Monster

Being a toddler-parent means toys of assorted shapes and sizes are an inescapable part of existence. I have one of either gender, and would like to believe that neither is overly pampered. Yet, there are 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. Equally, I cannot help but marvel at the ingenuity and imagination that power many of these. Colour-changing cars and shape-shifting beasts fall into 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 institutional indulgence — government, courts, banks etc — to support the fledgling sector. At some point in the evening, the conversation turned to ULIPs, one of my pet peeves, thereby prompting the monster reference. I don't know how the tête-à-tête ended (some Dalmore was involved!), but perhaps a few notes from it bear repetition.

In a nutshell, that India is under-insured is beyond doubt, but there is more to the picture. We ought to know that, second only to bank deposits, insurance is the most popular financial product in town. It has a legacy that goes back decades: LIC itself in its present avatar is over half a century old, National started in 1906, and there were companies in this business even in the 1800s. So the industry is no babe in the woods.

Cut to the present, and data shows 20% of household savings going into insurance — while all of equity inflows, including mutual funds, hover around a paltry 5%. Likewise, consider AUM: insurance is 10 times the size of equity MF, with ULIPs alone being more than double at last count. Insurance, therefore, can hardly claim not to have had enough of show-me-the-money.

This brings us back to the point on ULIPs. Just the last decade saw the industry peddle them aggressively to a gullible public, backed by 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 spurred on by the SEBI turf war — attempt to rein in the monster. Fee structures and rudimentary visibility parameters were mandated. Yet, even after 2010, the messaging was around ‘new, improved’ plans accompanied by significant switching costs. Shape-shifting right there.

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

Summarising, 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 perplexingly averse to equity), the heat on insurers could, in fact, have been worse. For now though, the monster lives to see another day.