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What Nirav Modi Case Tells About India


The story of Nirav Modi leading a rather comfortable life in London appears to have galvanised Indian authorities to action. Reports now say the Central Bureau of Investigation (CBI) has sought his immediate arrest and that a United Kingdom (UK) warrant could be only weeks away. The swift response after the UK Telegraph’s interview with Modi, in which he merely repeated “no comment” six times, tells us about the kind of (or lack of) attention, focus and skills at use to bring Nirav Modi to justice. In fact, the headlines in The UK Telegraph newspaper says it all: “India’s most wanted man Nirav Modi – accused of £1.5bn fraud – living openly in London,” and “Nirav Modi: Diamond king on run from authorities is free to walk our streets.”

Soft State

A house in London’s West End, where the rent of his apartment should be in the region of Rs 15 lakh a month, a jacket that The Telegraph tells us is worth about Rs 9 lakh, an attendant to walk his dog and a new business make for a good life for the fugitive involved in one of the biggest banking frauds in India. With the other fugitive Vijay Mallya as well ensconced reportedly in rural England, the question that should bother many Indians is how and why and when did the UK become the sanctuary of the most inglorious of rogues running away from India. A bigger question should be directed home: What have the Indian authorities been doing all along? If, as The Telegraph reports, a national insurance number has indeed been issued by the UK’s Department for Work and Pensions in order to enable Modi work legally in Britain and operate online bank accounts, what concerns or objections did the Indian government raise?

Need to fix problem

Nirav Modi and team stand accused of sucking out over one billion US dollars from the banking system. But that fraud did more than loot the vaults. It looted the trust that is at the heart of the banking system. What is worse, we don’t seem to have fixed the problem either. The report in the British press comes around the time the Reserve Bank of India has imposed penalties totalling Rs 71 crore on 36 public banks representing the bulk of the banking sector of India for non-compliance with various directions made to fix the very loopholes that led to the Nirav Modi

At the same time, lending restrictions and an assortment of other checks and balances called ‘Prompt Corrective Action’ (PCA) imposed on certain banks that have had high Non-Performing Assets (NPAs) have been withdrawn by the RBI. The withdrawal comes under a Governor, who recently took office after his predecessor quit following much-publicised differences with the government. The action is amazing to say the least, caused not by any tightening at the banks’ end but because the government of India infused fresh capital. Allahabad Bank and Corporation Bank received Rs 6,896 crore and Rs 9,086 crore, respectively. This has shored up their capital funds and also increased their loan loss provision to ensure that the PCA parameters were complied with. With this money from the government, the Net NPA and other ratios fell to meet PCA norms, and the banks went scot free to do some more lending.

Weak governance

So at election time, the banks are left open to accommodate preferred constituencies at what essentially is cost to the ordinary people of India. Frauds like the one involving Nirav Modi even when they carry political implications are not acted against swiftly enough by a government that otherwise knows how to make all the right noises and speak of tough action. This gives us the picture of a State that is unable or unwilling to muster the political courage to act. Weak governance is at the heart of a ‘soft State.’ The term ‘soft State’ has its origins in a treatise developed half a century ago by the Swedish economist Gunnar Myrdal in his three-volume classic, ‘Asian Drama: An Inquiry into the Poverty of Nations.’ This is a State which cannot exert its influence on its constituents, where the government and the powerful players both subvert the law, and a country becomes characterised by various types of social indiscipline. Myrdal says “this manifests as deficiencies in legislation and, in particular, law observance and enforcement, a widespread disobedience by public officials and, often, their collusion with powerful persons and groups … whose conduct they should regulate. Within the concept of the soft State belongs also corruption.”

This ‘soft State,’ which allows Vijay Mallya and Nirav Modi to flee, sits incongruously with the picture of a ‘hard State’ now being presented in the cases of threats at the borders. The Prime Minister said at the CISF 50th Raising Day ceremonies on Sunday (March 10): “Enough is enough. We cannot keep suffering till eternity.”

The internal battle

Yet, a lot of the battle is internal. A nation divided against itself cannot act against those who threaten it, whether this threat comes from across the borders or erupts within the territory. Apart from the deteriorating situation in Jammu and Kashmir, the last five years have been marked by alienation of vulnerable sections and bitter polarisation that has divided the nation and reduced the credibility of the government. All of this has happened while allegations of corruption are back with a bang. Corruption came well before allegations around the Rafale deal. The uncomfortable closeness between select business people and leading political figures told us that there is not much to choose between the Congress corruption and the BJP variety of corruption.

These cannot be the markers of a ‘hard State,’ tough talk and surgical strikes across the border notwithstanding. This is a ‘soft State’ that needs to make hard choices to increase efficiency and end corruption. As Gunnar Myrdal, the man who gave us the ‘soft’ versus ‘hard’ conundrum said in his Nobel acceptance speech, “Corruption, which is now almost everywhere increasing, must be exterminated on all levels.” The words were said in 1974. A lot has changed since then. But equally, it may be said, nothing has changed.

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