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Sanjaya Baru: Corruption and development

There is the paradox of rising corruption in a rising India, but credible reform is possible

Sanjaya Baru  |  New Delhi 

It was in response to Nobel economist Gunnar Myrdal’s famous observations on corruption in India in his three-volume tome, Asian Drama, that Indira Gandhi famously observed that “corruption is a global phenomenon”. Indeed, it is. The question for us Indians, however, is why has corruption, like inflation, returned to haunt policy-makers three decades later despite economic liberalisation and greater play of market forces?

A paradox about India is that most 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.

How is it that in a rising India, an India of 9 per cent annual economic growth, there seems to be as much, if not more, corruption as in the stagnant India of 3.5 per cent growth?

To be sure, there is no necessary inverse relationship between corruption and development. There is the famous joke about the infamous former President Ferdinand Marcos of Philippines and the deposed dictator of Zaire, the late President Mobutu Sese Seko, and the homes the two presidents built.

The apocryphal story goes something like this: President Mobutu visits Manila and is invited home for dinner by President Marcos. Mobutu is awe-struck and jealous of the palatial home that Marcos has built. “Where did you get the money to build this palace for yourself Mr President,” Mobutu asks of Marcos.

Marcos takes him to a window and shows a massive bridge built across the river. “Do you see that bridge,” asks Marcos, “I got a loan of $100 million from the World Bank!” Yes, yes, yes, says Mobutu, but where has the President got the money for his palace, he asks. “10 per cent!” replies Marcos.

Few years later, President Marcos visits Zaire and President Mobutu is happy to invite him home for a meal. Marcos arrives bewildered at Mobutu’s huge palace. “Mr President, where did you get the money from to build this palace,” asks Marcos of Mobutu.

Mobutu takes him to a window and shows him a bridge across a river. “Mr President, I got a $100 million from the World Bank to build a bridge across that river.” True, true, Mr President, says Marcos, “but I don’t see any bridge across the river?!” “Exactly!” says Mobutu, “a 100 per cent!”

This tale has been told many times by development economists to explain the inability of development aid to make as much of an impact in Africa as it did in South-east Asia. It is also often said that the so-called “Asian tigers”, have done well economically despite high levels of corruption, perhaps with some exceptions like Singapore where a more intrusive and strict government has kept corruption in public life under check, if not kept it out altogether.

Consider India’s own experience. Economic liberalisation of the past two decades has eliminated corruption of one sort. Remember the bribes that had to be paid to get a berth on a train, to get a telephone connection, to get a Bajaj scooter without waiting for years! All that is gone. No one has to bribe anyone today to get onto a train or get a telephone connection of buy a scooter or a car. Excess supply has eliminated such rents. But petty corruption thrives wherever there is administrative discretion.

Such petty corruption is not the focus of public attention today. The current focus is on high-level and large-scale corruption. This comes in two forms: first, the Marcos-type percentage cuts; second, the Mobutu-type wholesale plunder of the public exchequer.

There is enough evidence in India today to suggest that the Marcos-type corruption has not harmed development. 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. The former mentor of the Confederation of Indian Industries, Tarun Das, has been quoted in the Niira Radia tapes suggesting that a certain Union minister generally extracts a rent of 15 per cent!

Today, however, the focus of public attention is not so much on the Marcos-type “10 per cent” rent, nor the Mobutu-type 100 per cent, but on an intermediate model of high and unsustainable rent extraction. This has been encouraged partly by the ease with which politicians have been able to identify and extract rents, and partly by their desperation to extract as much as possible in as little a time as available in an adequately lucrative portfolio.

Can electoral reform eliminate the problem? Not necessarily. Can decisive penal action act as a deterrent? More likely. Can economic solutions be found? Most certainly.

Rather than allow the present mood of utter cynicism to persist, the government of the day can take several steps to identify and punish the guilty, dis-empower the incompetent and those suspected of likely corrupt practice, and introduce a series of reforms that can reduce incentives for rent-seeking and offer rewards to the honest.

There is a doable agenda of administrative and economic reform that must be pursued. Every crisis is an opportunity, and this one most certainly is.

First Published: Mon, December 20 2010. 00:23 IST