RISING INDIA: RISING CORRUPTION A PARADOX
India has been facing a paradoxical phase since reforms period. Rising India, rising corruption; shining India, crying Bharat; inclusive Government, exclusive system; inclusive growth, autocratic market; people eating medicines for digestion of food, starving people under−nourishing children and mothers − these scenarios present a paradoxical situation. The paper aims at showing a paradox between the growth of India and rising corruption.
Corruption is a world wide phenomenon. It, in one form or the other, has existed for ages. The ancient and medieval literature is full of extensive commentary on corruption in private and public life and its gigantic effect on society. Back to the fourth century B.C. in India, Kautilya writes in ’Arthasastra: "Just as it is impossible not to taste the honey that finds itself at the tip of the tongue, so it is impossible for government assistant not to eat up, at least a bit of king’s revenue" (Kangle: 1972). In ancient Egypt, problems of bribery and nepotism were clearly recognized. The section of people on the apex of socio−political hierarchy with power and authority, uses their influence in diversified ways in order to make vast fortunes for themselves and for their near relatives and friends. Recently corruption has taken a global dimension in developed and developing countries. It is often said that developing countries are more corrupt than developed countries. It may be more correct to say that developed countries have forms of corruption that are legal, while developing countries have forms of corruption that are illegal, though law itself is subject to change and is not cast in stone (Bibek Debroy: 2011). Small− ticket corruption is what we often confront in our day−to−day interface with the government, either as a citizen, or as an enterprise. For such kind of corruption, there is an oft−cited formula that has a lot of validity. Corruption= (Monopoly + Discretion) − (Accountability + Integrity + Transparency). The literature on corruption shows that (a) it is neither a new phenomenon nor found only in developing countries, and (b) its levels and effects influence and get influenced by the existing socio−economic and political conditions of the country in question (Pillai: 2000). Corruption knows no ’ ism’. It enjoys a free visa to visit any nation, whether developed or not, at any stage. There is a close relationship between tax evasion, black money and corruption and all feed on each other. In 2008, UNDP produced a primer on corruption. This has something like taxonomy of corruption and covers several types: bribery, fraud, money laundering, extortion, kickback, peddling influence, cronyism, nepotism, patronage, insider trading, speed money, embezzlement and abuse of public property. No such taxonomy can ever be perfect and one form of corruption spills over into another. But there are clearly two kinds of corruption one has in mind. There is the big ticket kind of corruption, associated with the electoral and political system and abuse of discretion in allocation of natural resources.
Like most things in economics, corruption has also two sides− demand and supply. It requires two willing and able parties− the giver and taker. The ’demand’ for nepotism, favours and under−priced resources (corruption) comes from us, the citizens, on the retail side and corporations seeking control over some vital assets or licences, or some advantage over competition etc on the other.
There is a clear correlation between corruption and level of economic development, however defined. We have statistical correlation between levels of corruption and levels of economic development. But the direction of causation is by no means clear.
Corruption has been observed in literature having two aspects in economic development− as cancer, retarding economic development and grease, speeding up the wheels of commerce. The relationship between corruption and development is murkier than economists would admit. There are several channels through which corruption hinders economic development including reduced domestic investment, reduced foreign direct investment, overblown government expenditure and distorted expenditure on education, health and infrastructure. Corruption acts as a source of macroeconomic vulnerability and lower economic growth.
On the basis of corruption ranking data assembled from the Business International Correspondents in 70 countries in the early 1980s, Mauro (1995) finds a significant negative association between the corruption index and the investment rate or growth. When inefficient projects due to corruption are accepted, the rate of return and hence the growth rate would be lower.
The study done by a panel of 69 countries over a seven−year period from 1995−2001 mentioned that: Corruption works as a regressive tax− the poor pay a disproportionate share of their income in the form of bribes to secure access to public services. Bribes and official extortion act as an extra tax and therefore deter potential foreign direct investment into developing countries.
Corruption may be helpful as a grease for squeaking wheels of a rigid administration. Oiling the wheels of the administration can result in considerable savings of time, effort and money. In the US, during the "gilded age" of 1960s and 1970s widespread corruption of state legislatures and city governments by business interest and those seeking for franchises for public utilities is reported to have helped rather than hindered economic growth. If corruption is just a law and fixed cost of doing business, it might be less harmful than variable corruption that creates uncertainty for business decisions. Indonesia flourished for a long time under Suharto though corruption there was perceived to be much worse than in India in the early 1980s but this corruption was much more centralized and hence more predictable. Bangladesh has grown quite rapidly for a long period of time (as Shanta Devarajan of the World Bank pointed out) despite scoring very low on measures of governance. And Tamil Nadu has grown rapidly under Jayalalithaa and Karunanidhi´s wizard in equal stature in the dark art of malfeasance.
The economy was showing growth indicating a balanced and sustained growth. The year 2000−01 registered the growth rate of 4.4 per cent since then the growth rate has been showing uptrend till 2007−08 except 2002−03. Indian economy has grown at an average rate of about 8.5 per cent per annum during 2004− 08. The country’s GDP growth rate in 2007−08 was placed at 9.3 per cent. The financial markets around the globe had witnessed turbulence due to sub−prime crisis in the US, rising oil prices with resultant upward drive on commodity prices as well as inflationary pressures witnessed in the domestic market. This meltdown applied a sudden brake to the growth story of the country. After clocking an annual growth of 8.9 per cent during 2003−08, the country registered a GDP growth of only 6.8 per cent in 2008−09. After that a GDP growth rate gained momentum and the year 2009−10 was marked by recovery and revival. In India, the economy has exceeded expectations to record an impressive 8.0 per cent GDP growth rate. In 2010−11, the overall growth in GDP clocked 8.5 per cent. (Table: 4).
# Forecast is based on Citi reports
CORRUPTION SCENARIO IN INDIA
At the inception of our Republic, there was the jeep scandal, besides serious allegations against several state chief ministers; irregularities committed by the Life Insurance Corporation (LIC) in 1957 were only the proverbial tip of the iceberg. Then we have had the Bofors scam, the securities scandal, the sugar and vanaspati import controversy, the fodder scam, and myriad other sinister infractions.
The year 1969 was a watershed in a way. Since the then Prime Minister Indira Gandhi commenced a desperate battle for political supremacy, personal corruption by politicians took new dimensions. Soon a new version of political manoeuvring came into being. John Elliot put it succinctly: "Before it was canalized, centralized and coordinated. Now it’s decontrolled, liberalized; three times as big and out in the open." The ever−deteriorating moral standards in an environment of splintered politics have taken the incidence of corruption to intolerable levels.
Economic reforms dismantled the license− permit raj. The philosophy behind this policy was to abolish opportunities for corruption. Prevention of corruption through systemic change was critical to these changes. Huge transaction costs involved in the process disappeared at one go. The reduction of rates of both income tax and customs demolished another wall of corruption.
It was hoped that reforms will demolish the wall of corruption but this hope collapsed when people felt distressed to see the quantum jump of corruption with rising India. We live enwrapped in a state of ethics deficit and a governance deficit, culminating in a trust deficit vis−à−vis the government. Amidst gloom and despair at the ubiquitous graft, the two mothers of scams, CWG and 2G spectrum, epitomized the government’s inaction and inaptitude, bordering on collusion and connivance. Not only did these mega scandals typify daylight robbery but showed the country in a very poor light
The last Corruption Perceptions Index was for December 2011 which ranked 178 countries, India was 95th. India, the biggest democracy of the world has been placed in the bottom four among the 22 leading economies in a statistical index drawn up by Transparency International in the Bribe Payers Survey.
Change in Corruption over the last three years in India Increased: 74% Stayed the same: 16% Decreased: 10%
Indian Experience: Paradoxical Situation
From the observations we can say that in regards of corruption and development India has its own experience of paradoxical situation between corruption and development. . A paradox about India is that casual observers of the Indian scene believe the problem of corruption has, in fact, become a bigger one despite the fact that the Indian economy is performing better and its democracy thriving more than ever. There is enough evidence in India today to suggest that Marcos−type "10 per
cent" corruption has not harmed development. We can consider a state like Tamil Nadu, where successive governments belonging to different political parties have been charged with Marcos− type corruption for over three decades now. Yet, Tamil Nadu remains one of India’s better administered and more developed states. But even the Marcos−type corruption can harm development, as one has seen in a state like Maharashtra which has fallen behind Gujarat in recent years because investors find the government in Gujarat to be less corrupt.
India has much better roads today but the ministers who have built them and their parties have also prospered. Rising India has led to bigger revenues and new or expanded areas of economic activity. Mobile telephony, Public− Private Participation (PPP) in infrastructure sector, coal and iron ore mining are some such areas. It has led to the rapid expansion of government budgets. These changes have provided new areas for corruption. The growth process has thus, thrown up new challenges.
The above analysis reveals that the corruption has been rising as India is rising. It does not mean that India’s growth is not affected adversely with corruption. Corruption cloud darkens India’s robust growth story.
Corruption has blocked the investment. If there is adequate investment in both physical and human capital (such as education and health care), there is no reason why India should not close the gap on China just as the Middle Kingdom is catching up with America.
EPILOGUE: The evidences show that with the rising of India corruption has also been rising. We have to fight both the demand and supply sides of corruption to accelerate the pace of economic growth. Controlling corruption is related to the quality of public institutions, including democratic accountability, the bureaucracy, the police and judiciary. If the demand disappears, the market for corruption will collapse. So we as consumers should take a pledge not to try to buy a railway ticket out of turn by bribing, however urgent our need be, not to bribe the traffic cop when challaned, nor to seek and use influence to favour ourselves. Likewise if corporations pledge not to pay bribes, for whatever reasons and we work on ways to control government purchases, the demand for corruption will surely diminish.
1. Debroy, Bibek (2011): "The Corruption Trade−Off", the Economic Times, November 7. 2. Kangle, R. P ( 1972): (" The Kautilya Arthsastra Part II" University of Bombay, Bombay, p−91. 3. Mauro, Paolo (1995): "Corruption and Growth", Quarterly Journal of Economics, August, pp. 681−712. 4. Pillai, S. Iyyam (2000): "Socio−Economic and Political Dimensions of Corruption", the 83rd Conference Volume, Indian Economic Association, pp 673−680