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

October 09, 1986|RONE TEMPEST | Times Staff Writer

NEW DELHI — 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.

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