Corruption in India,
Cause of Instability & Inequalities

Corruption in India: one of the main causes of poverty

Bribery exists everywhere and in many different forms, but corruption in India sometimes looks like the civil servants' favorite contest nationwide. Since 2005, India has been ranking around the middle (90 out of 180) of Transparency International's league table of country perception of corruption by the people (including investors, businessmen, etc).

But what if corruption is perceived as “just the way things are in the country”? A normal part of life… But what do we mean by corruption, really? Simply the misuse of public property for private gain, as defined by the World Bank. It ranges from embezzlement of public money to abuse of power (e.g. asking for bribes).

Corruption in India affects all levels of the society but it’s in the administrative one that the biggest damage is done to the people and comes to exacerbate poverty.

The most simple daily-routine administrative tasks cannot be performed without a bribe to the civil servant in charge of the paperwork. Got your stuff stolen? Had a car accident? Need to register your name for a permit, a loan, a government grant or subsidy? Don’t forget your bribe money.

That creates three kinds of situations: first you don’t turn to your government to protect yourself and you get used to getting things done by yourself. Whatever business you’re in you end up not paying taxes anymore. Whatever problem you’re having you’ll deal with it on your own, which can easily get out of hand if you have to settle on your own an argument over a car accident (which sometimes comes down to who's got the biggest baseball bat).

Secondly, well you don’t trust the authorities anymore and any new policy or plan they have has meager chances of working because the whole system resists it, even the people. Third if you’re actually trying to be a good law-abiding citizen, you pay your bribes and you end up even poorer than before. Bribes suck a significant share of the poor's income.

So there’s no doubt poverty and corruption are linked. And corruption in India is quite the thing. In 2003, only 15% of the government's anti-poverty funds reached the poor. Anti-corruption laws have existed since 1968, supported by agencies such as the Central Bureau of Investigation and the Central Vigilance Commission and yet… failure has been the common point of these efforts. The agencies lack independence and power; of course it’d be dangerous to create a tool that actually works and risks putting its own creators in jail.

Corruption, Indian style

Index of corruption by Indian states in 2005

“The more the corruption, the slower the economic growth”
(rule of thumb confirmed by many studies)

Not only does corruption in India worsen poverty, it also drags the whole country’s development down by stealing its resources. When you think of it, if 85% of public money doesn’t go to the poor (millions of them), this money surely doesn’t land in more than a hundred people’s hands. Quite a waste. And to make things just a little worse, corruption also increases inflation (it's a general effect of it). And then... Bam, more poverty

Yet, India’s been developing and it’s become important to polish its image especially to reassure investors of the stability of the Indian market. Oh yes, because corruption also affects investment and market stability by increasing uncertainty. Quite a bummer when you’re trying to develop your country.

But people have also stepped up in the fight against corruption and citizen websites such as ipaidabribe.com have gained momentum. However they still face other problems such as the underdeveloped judicial system which – by a systemic magic trick - doesn’t pronounce any conviction in most corruption charges.

Some things have got better though. Seeing that money gets so easily re-routed into its officials’ wallets, the government opted for distribution of food to its poorest citizens. And this time “only” 30% of the food disappeared… to be sold later on the black market! That’s still a lot better. But the truth is that it’s not that easy, especially since the problem of corruption in India has been around for a while. Corruption grows “naturally” as societies and cities grow and become more complex. More and more intermediaries are needed between the central government and the people.

investment and corruption in India

At the scale of India (or China which has the same issue) that’s hell of a lot of intermediaries just while the country is undergoing tremendous changes. Transitions are always a good time for corruption: the social rules are blurrier as the law evolves and the society changes.

With Indian cities growing very fast, new layers of administration appear for which no code or rule has been really established yet.

It takes time for a routine to take root. The biggest danger is that by not tackling this problem soon enough, corruption will become the routine and the norm. In a way it’s already happened. And corruption has already become a major obstacle to investment in India.

The politics of corruption in India

Discrimination & effects of corruption in India

Corruption in India is so much present in politics as well that sometimes it’s as if people really believed it’s a natural or inborn feature of the Indian democracy. Due to its huge size and the socio-ethnic diversity of the country described in previous articles, India has loads of national and local political parties.

It not only has 7 national parties, but also over 50 State political parties and hundreds and hundreds of local ones that all compete to represent as many ethnic groups as possible. So in theory that sounds like a good thing no?

But here it implies a huge political marketplace where citizens exchange their votes for favors, to themselves or their group. Now that may sound like what a democracy does, but the kind of favors they ask for are more of the administrative sort.

The type that should be equal across all citizens, be it to get a permit, register something, or receive your due allowance (rather than seeing it disappear and reappear into another social groups’ hands). This makes corruption in India a perfectly normal mechanism to the functioning of the democratic life. It’s just another wheel of bureaucracy. “Not cool”, right?

So this creates kind of a social pyramid whereby the lower your group belongs to in the pyramid, the less able you are to capture public resources. And in the lowest social layers the competition gets harder and harder until you hit the bottom layer with migrant workers scattered in the slums, who aren’t organized in groups, and hence receive… nothing.

Adding to that out-of-the-blue taxes that public servants create everyday just to make them pay a little something for “working over their territory”, and you have a bunch of a happy citizens.

In a way this type of corruption (as opposed to bribe-asking) feeds on discrimination. Well in fact bribe-asking also feeds on discrimination: against the poor and the voiceless. The inconsequential citizens, those who aren’t “somebody” and lack the connections to make their voices heard.

Where is corruption worse?

Now what are the most corrupt areas in the Indian system? Studies have shown that all government departments are corrupt but the worst of the worst were those of customs (of course), revenue collection (what a surprise), public works (technically there’s money to develop the slums, obviously it’s disappeared), and agencies in charge of licenses and permits.

Oh and best of all: the organized corruption in railways, with an elaborate system of redistribution of bribes according to seniority! Team spirit in action, kids. Watch and learn.

State efforts to fight corruption in India

World map perception of corruption in India

World map of the perception of corruption

The Central Vigilance Commission (CVC) was created in 1964 and put in charge of implementing the Prevention of Corruption Act, focusing on high officials. Although over the years the powers and mandate of the Commission have been increased to make it more effective, its focus is still more on bureaucracy than politics.

Insofar as in India poverty is more directly affected by bureaucratic corruption this is a good thing, but you should surely appreciate the meaning of an anti-corruption body not being allowed to look into politics. Especially in the light of recent corruption scandals that came from both the current government and opposition parties.

Steps for the future

According to an article in the Harvard International Review on corruption in India , the CVC will now check for political links within bureaucratic corruption, which should be of great help not only for Indian politics but also to - hopefully – put a stop at the practice of discriminative corruption that favors one social or ethnic group over another. At this game the poorer ones are always sure to lose.

The government’s also planning to update anti-corruption laws by “eliminating loopholes and introduce an amnesty period of three months during which all those who have black money can claim it legally by paying an income tax of 21%” (Harvard International Review (HIR)).

Now, that is a well-thought out plan. I’m clapping my hands, really (and for once I’m not being ironic). Why is the amnesty period crucial? Because otherwise you’ll never stop corruption unless you fire everyone all at once and then you find yourself with no one to govern the country! Plus, everyone will simply try to hide their corrupt practices even better than before in order not to get caught. And then corruption takes an even deeper root in daily practice. So: well done. Okay, no, let’s rather say: we’ll see !

The other remaining beef is with justice. The CVC could be as efficient as earthly possible in fighting corruption, once public servants are brought in a court of law, the conviction rate on corruption charges is as low as 6% (HIR).

One way to deal with that has been to improve cooperation between the CVC and government departments to take action within these ones (from minor to major penalties, aka "you're fired") in order to avoid further overwhelming the sluggish legal system.

Anti-corruption policies: what works then?

Part of the corruption in India can be fought by promoting a more open and transparent government. Hence the Right to Information Act (2005) has signed the beginning of a new era in which the right to freedom of information becomes a tool to fight corruption in India that citizens use to make their governments more accountable.

But for this to be truly efficient, government agencies such as the Central Vigilance Commission, the Central Bureau of Investigation as well as the judicial system need to be truly independent and powerful. Otherwise you just have the right to denounce corruption and see how nothing is done. “Not cool”, again.

Fighting corruption in India with rewards

In general, monetary incentives haven’t proved very effective in reducing corruption. However there are a few monetary reward systems that can make a difference. The ideal system must be designed so that as many officials as possible can win, across all departments. Or else the corrupt majority knows very well that the same non-corrupt few will systematically win the awards. If everyone can win then everyone’s trying really hard. Remember, the aim is to change social habits so it has to concern as many people as possible.

The rewards should be received almost immediately after nomination, not 6 months after. It’s a psychological thing, you need to get rewarded for good behavior in a timely fashion otherwise you lose the “psycho-educational” effect you’re looking for. Obviously the reward-granting system must be based on very clear criteria that leave out the possibility of partiality - or precisely - corruption.

If people have only a feeling of smelling a rat somewhere, or do not trust the senior officials in charge of distributing the rewards, it’s likely they won’t play the game. And that’s exactly what happened in the Indian tax department a few years back, when no one trusted the “jury”.

Simpler rules and procedures

In many ways, having a more simple and straightforward bureaucracy – which is incredibly easier today with digital technology – is one of the most effective ways to fight corruption in India.

Simpler procedures in the tax realm for example make things easier on both sides than having a billion exceptions to go through. The result is more transparency and accuracy in the tax department, and an elimination of abusive powers its officials have when they “help” citizens in need of support or assistance.

Liberalization-induced troubles kick in (again)

Yes, it appears that liberalization not only made inequalities worse (in the absence of safety nets), it also worsened corruption in India… in the absence of government mechanisms for oversight and enforcement. Where the international advocates of a neoliberal-style liberalization (typically the IMF, World Bank and other global institutions) had it wrong, or “the wrongest”, was to argue that liberalization had to come along with the waning of the state, its role and responsibilities.

And what the Seoul Development Consensus of 2010 showed on the other hand is that developing countries need in fact context-based development plans, and that in many cases they need the presence of the state to handle the economic transition and set long term goals.

The need for trained civil servants

In the case of corruption in India, research has shown that India would have benefited from a stronger and more developed administration by training its civil servants to a more professional level with skills in auditing, accountancy, and legal matters. For developed countries liberalization was easy because their staff was already trained, and they already had an educate workforce in general. For developing countries that’s a whole other story that the decline of the state induced.

Having a widely trained public workforce in the country would help increase oversight and scrutiny from within the administration as well as instill a greater understanding and respect of administrative procedures, thereby reducing corruption in India. It would be easier in general for specific civil servants to go over the expenses of different departments if all the procedures are respected and standardized.

The need for a stronger government?

Finally, as media coverage intensifies and activist organizations gain weight in fighting corruption in India, the government tends to yield to public pressure more easily for obvious populist and short-term political calculations.

While this is in part a good thing, there’s also the risk that it impairs the government’s ability to design long term anti-corruption policy (like training its staff) and prefer focus on high profile cases brought up by the media without addressing the origins of corruption itself.

The country risks being seen as somewhat unstable and lose many precious investors. Corruption in India is to be handled cautiously: acting for the short term only or not acting at all would make the government look like it's unable to act on its own and establish long term goals.

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