Opinion Sunlight to electric light

There is a difference between disclosure and information being placed in the public domain. There is greater reluctance to place information in the public domain. Witness the case of ministers or the judiciary. A paper titled “Disclosure by Politicians” was recently published in the American Economic Journal. This collated disclosure practices by MPs (or their equivalents) in 175 countries. About two-thirds of the countries surveyed had some disclosure laws,but less than one-third made those disclosures available to the public. Two sentences deserve a quote: “Countries that are richer,more democratic,and have more free press have more disclosure. Public disclosure,but not internal disclosure to parliament,is positively related to government quality,including lower corruption.”

Hence disclosure,without it being placed in the public domain,is garbage in,garbage out. India is becoming richer. It is democratic,with all the warts and blemishes. And despite some recent question marks,it has a free press. Yet the battle that there should be disclosure and that disclosure should be in the public domain,is far from over. Perhaps this is understandable. The Right to Information Act is a little over five years old and the Official Secrets Act is 87 years old.

But there is a different battle too and that is over the quality of information. Take,for instance,the 2009 statements by MPs. Praful Patel had assets worth Rs 89.9 crore. But when it comes to the ministerial declaration (2010),Praful Patel has assets worth Rs 33 crore. This may be because the former includes assets of wives and dependants,while the latter doesn’t. More importantly,the template that the EC provides isn’t specific enough.

It divides assets into moveable and immoveable. In the moveable category are cash,deposits,bonds,other financial instruments,motor vehicles,jewellery and other assets (values of claims/ interests).

Cash and deposits should be straightforward enough,though even there,we may have a problem.

Babulal Agrawal is a 1988 batch Chhattisgarh cadre IAS officer. When there was an income-tax raid,it was revealed he possessed 220 bank accounts,with several in names of his peons and maid-servants. But in principle,it should be possible to track down this kind of stuff,even without income tax raids. The EC guidelines state: “Value of Bonds/ Shares/ Debentures as per the latest market value in Stock Exchange in respect of listed companies and as per books in the case of non-listed companies should be given.” Apart from wilful non-declaration,understatement of moveable assets occurs because jewellery is declared at historical costs at which they have been acquired. The guidelines merely state that weight and value of jewellery has to be declared.

If weight is known,it should be a simple matter to revalue jewellery at current market prices. If nothing else,they can be indexed to inflation. By the same token,motor vehicles can be reported at depreciated values. This becomes even more of an issue when it comes to immoveable assets,divided into agricultural land,non-agricultural land,buildings (commercial and residential),houses/ apartments and others (interest in property).

If we raise our eyebrows at perceived under-declaration of assets by MPs,that is primarily because these are undervalued. This is not an MP phenomenon alone,since there is consistent undervaluation of property in registration deeds,partly driven by tax evasion motives and partly by high stamp duties. The point is that present EC guidelines make no attempt to link these to market prices,unlike bonds/ shares/ debentures. Once one accepts that this should be done,one can figure out ways of doing it.

For example,for land,recent registered sales of similar land in similar areas (despite under-declaration there too) are a better indicator than historical values and this is a principle adopted in land acquisition cases. For non-agricultural land,circle rates (where they exist) are also a better indicator than historical values. Real estate agents and surveyors have reasonably good ideas about values of buildings and houses/ apartments. The National Housing Bank has begun an exercise known as Residex,to track price movements for residential housing. This is primarily urban and the pilot was restricted to five cities (Bangalore,Bhopal,Delhi,Kolkata and Mumbai). But it now covers 15 cities and will eventually include all 63 JNNURM cities.

Thus,while avoiding subjectivity,it is possible to objectively determine current market prices for immoveable assets too. As is the case with circle rates,there will continue to be undervaluation. But at least the quantum of undervaluation will decrease. For instance,in property transactions in Delhi,registered property value is around 50 per cent of sale value. Reasonable circle rates will increase this to at least 75 per cent. The first step is to alter the EC’s template for declaration of assets and apply current market price norms to all other similar declarations too. The light of information and disclosure needs to improve its quality. Perhaps one should give the complete Justice Brandeis quote: “Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”

The writer is a Delhi-based economist express@expressindia.com