The answer is fairly obvious. The risk-reward ratio for crooks is tilted in favour of reward. Gains from white collar crime far exceed any pain of punishment.
The judicial system is so accommodative to their requests for adjournments that the cases drag on and on, until their victims run out of resources/will to fight. The investigative system is riddled with corruption and inefficiencies. It also kowtows to political pressure, thus making it an ineffective tool for the protection of victims. The political class is concerned about their political alignments and does not haul up a feeble investigation. Until scamsters and defaulters are severely punished India will keep losing out to theft.
Consider the contrasts. Some of the worst white collar crimes in developed countries were those of Michael Milken, the junk bond king, Nick Leeson, who singlehandedly bankrupted Barings, the oldest investment banker in the UK, and Bernie Madhoff’s Ponzi scheme. Milken, after serving his sentence, is now deeply engaged in philanthropy, and has co-founded the Milken Family Foundation. He funds medical research, among other things, and, with a net worth of $2 billion, has the resources to do a lot of good. Milken was charged by the US SEC in 1988 and indicted in 1989, a year later. Why can’t we do that? Because judicial processes are time-bound there and, unlike in India, lawyers are not given leeway to adjourn cases for frivolous reasons.
Leeson was convicted in Singapore in no time and sentenced to 6½ years in prison. He was granted an early release due to colon cancer, which he survived. Having served time, he is now an educator and a professional speaker to companies about risk and corporate responsibility.
Bernie Madhoff ran a Ponzi scheme and the fraud was estimated at $64 billion. Arrested in December 2008 he was sentenced six months later to 150 years in prison, a life sentence. In India, investigations take ages and the judicial system takes even longer.
In other Ponzi schemes such as Rose Valley, Sarada and others, the investigations and the judicial process take ages, to the benefit of the scamsters (who enjoy the use of stolen money unhindered) and pain to the victims (justice for whom is truly blind).
Any wonder then that financial crimes, including defaulting on bank loans, is a continuing process? The risk-reward ratio is in their favour!
This is in the context of a risk to global GDP growth from two factors. One, the rising interest rate cycle, and two, the looming trade war initiated by Trump.
Trump’s attitude is like that of a person who says ‘the computer beat me in chess but was no match to me in kick-boxing’. Computers don’t kick back. But, when he threatens a power like China, Trump forgets that Xi can (and has) kicked back! The US sanctions will hurt it more than China in some areas. For example, over 90 per cent of the world’s containers (used for storage and sea transport) are made in China.
China has imposed reciprocal sanctions on commodities like LNG, of which China is the world’s largest consumer. Gas is a byproduct of shale oil, and, if the demand for it drops, thanks to China, e.g. in the Permian basin, it will affect production of US shale oil.
In such a scenario it is important that the Indian saver feels that he is protected and it is imperative that the Government and the judiciary wake up and realise it. Else, forget about double digit growth.
(The writer is India Head — Finance Asia/Haymarket. The views are personal.)