How serious is corruption in India, and how great an obstacle to fast growth? Most people would say corruption is very high and a serious obstacle to the 10% growth now sought by politicians.
A joint study by CMS and Transparency International in 2005 asked people of their experiences in dealing with 11 government departments. No less than 62% of people said that they had paid bribes or paid \”facilitators\” to get goods and services that they were entitled to. The study estimated that Rs 21,068 crore per year was paid in such \”small\” corruption. Three-fourth of citizens felt that corruption was increasing.
An interesting point has been made about corruption by Deena Khatkhate in his recent book Ruminations of a Gadfly. He cites sociological studies to show that in non-corrupt states like Denmark, people in a village hardly know one another, and family ties are weak — members do not even regularly attend family weddings. But people in an Indian village are in close contact with neighbours, and have strong ties within families and communities. People in authority will be much more corrupt in India, says Khatkhate, since tradition approves the giving of priority to one\’s family, caste and religious group over abstract ideals like the public interest. But in Denmark and other developed countries, public interest is viewed as top priority, and this notion is facilitated by the lack of strong family and social networks.
He also gives examples of Indians who blossomed when they went abroad, but could not have achieved similar success in Indian conditions, marred by cronyism, political interference, and wooden bureaucratic rules. Lakshmi Mittal says that if he tried to buy an existing steel plant in India, he would spend half his life chasing netas and babus, whereas he could complete takeovers abroad in a few months. Economists like Amartya Sen and Jagdish Bhagwati, management gurus like CK Prahlad and Pankaj Ghemawat, and astronomers like S Chandrashekhar all attained great heights abroad, which they couldn\’t have in India.
If corruption, political interference and senseless rules in India make life so difficult, economic growth should be slow. Investment and growth can be high only if property rights are safe and contracts are honoured. If both are endangered by corruption, then investment and growth should be low. But, surprisingly, India has averaged almost 9% growth in the last four years.
Look at different states. The 2005 survey showed that the five least corrupt states were Kerala, Himachal Pradesh, Gujarat, Andhra Pradesh, and Maharashtra. These states (with the possible exception of Kerala) have attracted a lot of investment in the last decade. This suggests that low corruption does indeed improve growth.
The five most corrupt states, according to the survey, are Bihar (worst by far), Kashmir, Madhya Pradesh, Karnataka and Rajasthan. Investors certainly avoid the three worst states, but invest massively in Karnataka and Rajasthan, both of which are fast-growing. Tamil Nadu is also corrupt and fast-growing. How do we explain this? Maybe petty corruption is high in Karnataka and Rajasthan but big corruption — serious extortion — is low. We simply do not know.
The Corruption Perceptions Index of Transparency International measures business perceptions, covering big as well as petty corruption. It does not provide statewise data for India, but provides comparisons across countries. It measures corruption on scale from 0 (totally corrupt) to 10 (no corruption at all).
This index consistently shows countries like Denmark, Finland New Zealand and Singapore among the least corrupt countries, with a score of more than nine. Developing countries generally have appallingly low scores, but improving over time. India scored just 2.63 in 1996. This rose gradually to 3.5 in 2006 (see chart). This is only a marginal improvement. But it\’s better than the worsening that many citizens claim to see. China is no better than India. China\’s score has also improved just marginally, from 2.43 in 1996 to 3.5 in 2006. Pakistan fares worse, edging up from 1 to 2.4.
But all three are fast-growing countries. Indeed, China is a growth superstar. This would seem to imply that high corruption is not fatal for growth. Yet in Africa, corruption appears to be a major cause of economic stagnation.
How do we explain this puzzle? First, there are many sorts of corruption, and some are worse than others for growth. In states where businessmen pay a hundred fixed, petty sums for clearances, corruption can be no more onerous than a modest tax. In some states, politicians want to maximise money to the exclusion of all else, while in other places politicians want to facilitate industrial growth even while making money. Businessmen say there are \”honest\” politicians (and states) that will take money and deliver, while other \”dishonest\” ones will take money and then not deliver.
We need a lot more research to throw light on differenst sorts of corruption and their different impacts on growth. Only then will we understand why exactly corrupt Bihar grows slowly while corrupt Tamil Nadu grows fast.