India’s Top Businessmen Pressuring Gandhi to Ease Campaign Against Corruption

When he became prime minister two years ago, Rajiv Gandhi was hailed as the hero of the business community and the emerging middle class.

Gandhi’s promises to root out corruption and curb the huge underground economy, known here as “black money,” were celebrated as exactly the tough, aggressive talk that the country needed. He was dubbed “Mr. Clean.”

Recently, however, some of the same people who praised the young Indian leader have begun to pressure him to rein in his cleanup campaign. Government raids on suspected tax evaders, an important part of the cleanup campaign, have touched many of India’s prominent families, including industrialists, doctors and film stars, leaving them bitter and fearful.

“I feel humiliated and cheated by my own country’s people,” said a New Delhi radiologist whose home and office were recently raided by tax officials. The doctor said his family silver was confiscated by the raiders, who demanded food and fresh orange juice as they examined his possessions.

$30-Billion Economy

The hardest thing to understand, the doctor said, was why his clinic had been chosen.

“Every income tax officer gets his X-rays done free here,” he said.

One of the ironies of Indian life is that the upper- and middle-class citizens who complain most about the deceit and waste of the underground economy, estimated in one government study at more than $30 billion a year, are often its biggest beneficiaries.

Virtually all countries have some kind of black money, income not reported to the government. What makes India different, according to business writer Seema Gupte, is that its underground economy makes up such a high percentage of India’s gross national product--approximately 21%, contrasted with 8% in most developed countries.

‘All-Encompassing’

Gupte has also written: “Black money in India is not a phenomenon attributable to the Mafia or to mendacious plumbers who file dishonest income tax returns. It is an all-encompassing phenomenon that touches nearly every aspect of the economy. If you run a business, at least some of your payments will be in black. If you wish to get a phone installed, obtain a gas cylinder, procure a ration card or do any one of a number of things that you are perfectly entitled to do, the chances are you will still have to pay a premium.”

The business community’s latest outcry over tax raids came after the Sept. 4 arrest of wealthy industrialist Lalit Mohan Thapar on charges that his company failed to declare millions of dollars in foreign-generated income. Sixty prominent businessmen and industrialists confronted Gandhi in Calcutta, where he was meeting with leaders of the state government.

Industrialist Ram Prasad Goenka, 56, long a loyal supporter of Gandhi’s political party, the Congress-I, spoke for the businessmen. Goenka started by complimenting the prime minister on his reforms, particularly his policies of lowering tax rates and generally relaxing restrictions on business.

Before Gandhi assumed office, income tax rates were almost confiscatory, in some cases higher than 75%. As a result, few people paid them. Gandhi lowered the rates, but his reforms and better enforcement have also resulted in an increase in income tax revenues.

Warning Over Raids

However, Goenka went on to warn that too many arrests and many raids on established businesses would “demoralize the industries and have an impact on growth.” India, he said, was in danger of becoming a “raid-raj”--a rule by raids.

According to Gandhi aides present at the meeting in Calcutta, the prime minister attempted to mollify the business leaders by promising that “there is no intention to rule by raids.”

Gandhi pledged to investigate the publicity that has accompanied the raids, including the use of press releases and photo opportunities. The publicity and the resulting public shame has been one of the main objections of the businessmen.

“It almost amounts to character assassination,” D. H. Pai Panandikar, secretary general of the Federation of Indian Chambers of Commerce, said. “An outstanding member of society may be equated with a common criminal.”

Singh Emerges as Power

Most important to the businessmen, however, was Gandhi’s promise to discuss the raids with Finance Minister Vishwanath Pratap Singh, the man who organized the crackdown on black money and personally supervises the raids on prominent businesses.

Singh, 54, the adopted son of a Rajput prince, has emerged in the last year as a powerful new force in Indian politics. In a poll conducted by India Today magazine, Singh was rated the second most respected leader in India, after Gandhi. Singh is one of the most impressive speakers in the Indian Parliament, and even his critics describe him as scrupulously honest.

But while he has earned widespread respect and near-idolization among many young, educated Indians, he has also gained the enmity of the rich industrialists and professionals, who view him as a grandstander threatening to undo reforms initiated by Gandhi.

In order to avoid even the impression that he is influenced by business leaders, Singh refuses to meet with individual industrialists, though he will meet with delegations. Singh has defiantly defended his office in Parliament, especially when he came under attack for a raid last January when his investigators interrogated industrialist Shantanu Laxmanrao Kirloskar, 83, in his Bombay offices until 4 a.m.

Singh gave details of raids on four large conglomerates case by case, offering justification for each one. In the case of Kirloskar, he said, the man’s company had avoided more than $5 million in excise duties by undervaluing compressors that it was importing for air conditioning units while overvaluing non-taxable parts. He said that the efforts of his investigators had uncovered evasion of more than $300 million, more than five times the amount uncovered in any previous year.

Rumors of Infighting

“I leave it to the judgment of the members of the House as to who is guilty--these industrialists and executives who willfully and knowingly defrauded the government or my officers, who took action against them irrespective of their money, power or stature in society,” Singh told Parliament.

Until the confrontation in Calcutta, there had been no hint that Rajiv Gandhi had any difference with Singh on policy, although there had been rumblings of infighting between Singh and other members of the cabinet.

By the end of September, however, most political pundits here were predicting a cabinet reshuffle. Singh, in Washington to attend a meeting of the World Bank, returned to New Delhi on Sept. 25, several days earlier than scheduled. The big question is whether the finance minister, who more than any other Cabinet minister in recent Indian history has built an independent power base, will survive any such shuffle.

So far, Gandhi has managed to remain popular with the Indian business elite. “Somehow, the raids have not been associated with the prime minister,” Panandikar, the chambers of commerce official, said.

Solid Foundation

Early in his term, Gandhi established a solid foundation in the business community--something in between what business analyst Jay Dubashi calls the “mutual suspicion” that existed under former Prime Minister Jawaharlal Nehru and the bhai-bhai (brother-brother) chumminess that existed under Indira Gandhi, the incumbent’s mother and predecessor.

“Over the years,” Dubashi wrote, “the nexus between big business and big politics has been something of a problem, both for the health of big business as well as that of the political system.”

Obviously shaken by the arrest of the industrialist Thapar, industry and business leaders are looking for new signs of the government’s attitude toward them. Privately, business leaders say they hope that Singh, the finance minister, will be slapped down as a result of the Thapar arrest.

Thapar, 55, is chairman of the $700-million-a-year Thapar House conglomerate, one of India’s largest industrial firms, with interests in mining, paper, chemicals, textiles and sugar.

1952 USC Graduate

In many ways, the handsome, suave Thapar, a 1952 graduate of USC, is the very model of a Rajiv-era Indian businessman. He is even chairman of the board of governors of Gandhi’s prep school, the exclusive Doon School in the Himalayan foothills, which has produced many of the country’s leading businessmen and senior bureaucrats.

Thapar and one of his company’s director were arrested Sept. 4, one day after the Finance Ministry’s enforcement division raided more than 100 of his company’s offices. After he was denied bail by a magistrate, he was fingerprinted, inspected for disease and locked up overnight in a crowded holding cell at Central Tihar Jail. His fellow inmates at Tihar were the three men convicted of assassinating Indira Gandhi on October, 1984, and Charles Sobraj, a notorious killer who was the subject of Thomas Thompson’s best seller “Serpentine.”

“It was a most unpleasant experience,” Thapar said. “We were treated like convicts. We were denied bail while smugglers and dope dealers get bail at the drop of a hat.”

After spending one night in jail, Thapar and his associate, Shyam Sunder Lal, were released on bail after a special hearing before the Indian Supreme Court. Jail officials said that 25 Thapar company cars waited outside the jail to escort him home.

Blackmail Claimed

Thapar, considered one of India’s most eligible bachelors, claims that the government raids were the result of allegations made by an ex-mistress who is trying to blackmail him. Although he says he remains a strong supporter of Rajiv Gandhi and his administration, he is perplexed by the raids.

“I don’t think they have found anything more than a few technical violations,” he said in an interview.

Indian industry is still mainly controlled by large industrial houses associated with prominent families. In the raids that began last December, nearly every major industrial house has been raided at some level.

“What is the purpose?” Thapar asked. “Do they want to make us into criminals in the eyes of foreign bankers and industrialists? Then do they want us to go out and entice these very same people to bring money and technology into India? Where is the logic of it all?”