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Corruption in India

By Bibek Debroy and Laveesh Bhandari

There are many different ways that corruption can be defined but arguably the best working definition is an action of a public official for private gain. Corruption can broadly be divided into petty and big-ticket and both of these appear to be endemic in India. A large part of the corruption in India is associated with the delivery of public services and is spread throughout the hierarchy, it has high frequency but each case is characterized by a relatively low amount. Much more apparent and played up by the media is the big-ticket corruption and the recent 2G spectrum example is only one among a long history of such examples that have come up in the public domain. Corruption is not a cultural phenomenon but an administrative one. Improper allocation of discretion, not backed up by adequate monitoring, poor enforcement of laws, and lack of punishments all add up to create an environment where corrupt behavior has become more a norm rather than an exception. Add to that the inadequate use of technology within the government – IT systems, meters, and testing apparatus, etc. But clearly the critical element has to do with a surfeit of laws, rules and regulations that reduce economic freedom on the one hand and create incentives for side payments on the other. Many such laws and rules hail from pre-independence times when discretion was allocated to government functionaries without adequate controls on their functioning. But states within India are reforming, and efforts are on across the country to reduce corruption – these efforts are coming in from the political system as it is now in the self-interest of the political parties to reduce corrupt behavior by public officials.

Corruption is most often defined as public corruption, corruption committed by public servants, sometimes also referred to as bureaucratic corruption. Most discussions of corruption in the economic literature also define corruption in this sense.1 Corruption in the private sector is increasingly regarded as an issue and perhaps India’s laws will also eventually capture this. But as of today, India’s corruption laws are mostly about public corruption.

Within this, there is petty corruption, associated with delivery of public services. This type of corruption is different from the big-ticket corruption, such as the scams reported now and in the past. We have had several such instances – Haridas Mundhra (1957), Nagarwala (1971), Antulay and cement (1982), Bofors (1989), Harshad Mehta (1992), palmolein oil imports in Kerala (1992), Telgi (1995), SNC Lavalin in Kerala (1995), Sukhram and telecom (1996), fodder in Bihar (1996), Jain hawala (1997), Ketan Parekh (2001), the Barak missile (2001), Kargil coffins (2002), the Taj corridor (2003), the PDS scam in Arunachal (2004), oil for food (2005), Scorpene submarine deal (2006), stamp papers (2006), cash for votes (2008), Satyam (2008), Madhu Koda and mining (2009), 2-G (2010), Commonwealth Games (2010), Adarsh Housing Society (2010), housing loans by banking and financial institutions (2010), Belekiri port in Karnataka (2010), foodgrains in Uttar Pradesh (2010) and Bellary mines (2011). These are of the big-ticket variety. Although the dividing line between small-ticket and big-ticket corruption is not water-tight, corruption has become an issue in India because the big-ticket corruption has increased. This is more than perception. The monetary values associated with these scams have increased over the years. Not only have they increased in nominal terms, they have increased in real terms too. And since 1991, which is when the present cycle of reforms started, the frequency of scams has also increased. Despite greater external scrutiny by civil society and media, and therefore better reporting, the value and frequency of scams have actually increased. Therefore, this kind of corruption doesn’t ease with economic reforms. If anything, the evidence is to the contrary. Reforms seem to throw up opportunities for big-ticket corruption, as this corruption has links with the electoral process and the role of money in elections.

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