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BW Businessworld

Historical Hostility

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Rejecting completely my recent writings arguing that corruption in India had a systemic basis (Systemic Scamming), the expat CEO of a Fortune 500 company let me know the other day that we had amongst us a large population of people who were in principle perverse about ALL laws! "Everybody knows that you are expected to drive on the left but any number of citizens will drive on the right. You will throw rubbish on the road when the bin is ten feet away. Standing in a line takes a few minutes more and you have all the time but you just won't. I can't persuade my employees to follow the simplest of company rules. Why can't people just comply?" I could feel his pain for sure but I could not sympathise with his condemnation. There is an entirely rational basis why Indians have so much trouble following laws in India.

Let's start with the rather narrower subject of corporate compliance. The fact of the matter is that most global corporations set up their compliance laws in the obscure belief that there is something universal about compliance generally, a bit like the law: "Thou shall not kill". This is bunkum of course. There is no such thing as universal law or compliance because there is no such thing as universal history. At the end of the day, all laws are historically contextualized.

As a general proposition, the laws we make, the rules we frame and the compliance we expect all flow from three interconnected factors. First, there is the state of the economy and the economic institutions that power it. Somalia doesn't need an insider trading law just as Norway doesn't need a law on inheritance of ancestral property in a joint family. Second, compliance rules flow from the objectives of the compliance regime. Trust me, Saudi Arabia doesn't want a competition law and Germany doesn't want agricultural land ceiling law. So far, all of this is fairly obvious: where our understanding of the problem hits a wall is when we fail to appreciate how the history of a people impacts their attitude to law and compliance. Indulge me in explaining what I mean.

What does the briefest understanding of medieval Indian history tell us? Right to the British period, competing feudal states dominated south and central India. North India first experienced Afghan rule as early as 1206 and for the next 750 years, Persians, Turks, Mongols and Huns - all foreigners - rampages all over the northern plains. What makes this period interesting from our view point is that every dynasty, indeed every king of every dynasty, set up his own laws that lasted as long as his life, or more frequently, his mood. In this unstable world of ever changing opaque laws and rule by executive fiat, what do you expect will accumulate in the collective subconscious of the ruled? Can anyone argue that medieval Indian kingdoms were anything but predatory? Do we expect prey to sympathize with the predators, or their laws?

Okay, all this is medieval alien stuff you may argue: modern Indian law started in the British period and we have had 250 years to get used to it. Not so. It's not as if the British empire in India did any better than the Mughals or their predecessors. There are studies aplenty to show that the East India Company maximized profit and inflicting misery. The Great Bengal Famine of 1770 was no natural disaster. Peasants were forced to grow "cash crops" to feed British industry rather than food. As a result, 10 million people - that is one in three - died of hunger. Large areas were depopulated and returned to the jungles for decades. Direct British rule since 1858 did not create utopia. India exported primary goods and imported manufactured goods. Domestic industry was decimated and this too is well documented. Why would Indians trust British laws, given who they benefited? Many of those same laws are still on the statute books, or hasn't anyone noticed?

Just so you don't think I am xenophobic or anti British, it's not as if we did any better after 1947. Independent India inherited British institutions, governance structures and bureaucratic attitudes. Socialism sought to control the commercial impulse of its people, creating the quota-license-permit Raj. In the context only of the attitude to governance, how were the British fundamentally different from central Asian warlords and how is post-independence India different from the Government of the British Indian dominions? Why would we expect Indians to identify with their current colonizers or the laws they create?

The essential upshot of 800 years of Indian history shows us that Rousseau's social contract theory has no application in India because there is no "consent of the governed". The Government and its laws continue to be viewed as predatory. A good example why would be the absence of any relationship between tax and service. Just to make a point, I live in Gurgaon and all around me are people who pay some very serious taxes - each enough to pay the salaries of more than a few senior civil servants - but they don't get health care, pension, social security, police security or infrastructure in return. Indeed, they are excluded from the very Government clubs, quotas and facilities that their tax payments fund. There is no concept of "tax payer's money". No one will ask them how their money gets spent. While we are on the subject, don't tell me that they can vote in their representative because we all know how parliament functions too, or doesn't. I may understand why this must be so, but a great many Indians do not. I don't blame them.

It's no different for business. I fall about helplessly holding my belly and laughing till I cry as I watch corporate honchos mouth platitudes about compliance and probity when everyone knows that if you don't pay large sums of money to the provident fund inspectors and the state electricity boards and the multitude of tax guys and who else besides, you are going to get hit so bad you'll have to fund an institute to train top flight shrinks just to treat your post-traumatic stress. For the average Indian, the government is a school yard bully who steals your tiffin every other day. In this country, the worst thing that can happen to you is not the mafia; it is a government on your case. Stick around and see what a rabble rouser can do to someone like the Tatas in Bengal.

That is not the worst of it. What does compliance get you? Businesses in India seem to thrive where there are no laws, of which cross border outsourcing is just one example. When the government smells money, it comes over and says "okay, just to make sure you behave as a responsible member of society, we are going to set up a regulatory structure which we expect you to comply with". Lofty isn't it, but what does it mean in practice? It means crazy rules that get interpreted according to the mood of the interpreter, and it means inspectors, lots of them, with all kind of pre-emptory powers to harass and condemn, accuse and prosecute. This monkey circus is backed up by an ascorbic media which feeds on churning out contrived Infotainment that can destroy your reputation, and your business. Out here in the badlands, regulation is extortion by a fancy name. The wise man would say that the best thing you can do in India is live well below the radar screen. Lots of people could own Audis and BMW's in India but it's in less than twenty towns that they can be sure that they won't be subject to extortion demands by their very protectors for their lack of modesty.

So to summarize, the Government and its laws are controllers, not enablers. Compliance is in a sense a question of succumbing, not cooperating, leave alone pursuing one's civic duty. Many laws have no general application public purpose to them at all. Following the law is sometimes the worst option because it can quickly erode value in your business, or your life. Every compliance invites additional scrutiny, every compliance return is an invitation to an additional show cause notice. If you want to survive, your best bet is to not be noticed at all and if you are, to try to stay one step ahead. It is a jungle out there…and the lion king is contemptuous of you. Doing things the way the lion king says you should is unlikely to do anything for you. It works for the lion though!

The author is managing partner of the Gurgaon-based corporate law firm N South and author of the pioneering business book Winning Legal Wars. He can be contacted at rcd (at) nsouthlaw (dot) com