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September 18th, 2015

Understanding India’s corruption ecosystem: What drives it and how can it be reformed?

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Estimated reading time: 5 minutes


September 18th, 2015

Understanding India’s corruption ecosystem: What drives it and how can it be reformed?

2 comments | 5 shares

Estimated reading time: 5 minutes

sandip-sukhtankarDmvaishnavDespite ample media coverage of corruption, there remains a gap between headline-making scandals, policy options under discussion, and the actual evidence base drawn from empirical research on corruption. Drawing on an extensive review of the literature on corruption in India, Sandip Sukhtankar and Milan Vaishnav highlight the underlying factors driving corruption, establish a classification of corrupt activities, and distill five general principles that should guide future reform efforts.

Last year on the campaign trail, Narendra Modi touted the catchy slogan, “na khaunga na khane dunga.” If the Bharatiya Janata Party (BJP) were elected to power, Modi would neither indulge in corruption, nor tolerate it in his government. It was, at least in part, on the basis of such pledges that the BJP stormed to power in the May 2014 general election and in a raft of state polls to follow.

Yet fifteenth months into Modi Sarkar (government), corruption allegations once again dominate the headlines. The recent monsoon session of Parliament was a washout thanks to opposition protests over the Vyapam scandal haunting the BJP government in Madhya Pradesh, and allegations that two senior party officials improperly used their influence to assist fugitive cricket magnate Lalit Modi. The BJP responded to the barrage of allegations by releasing a laundry list of scandals in seven “graft-tainted” states under Congress Party rule.

But, despite ample media coverage of corruption, there remains a gap between headline-making scandals, the policy options under discussion, and the actual evidence base drawn from empirical research on corruption. The scams that gain widespread attention are often the ones that make for the best ratings or the most sensational headlines. Our cursory inventory of corruption scandals taking place since the year 2000 — scams that merited serious media coverage — sums to over Rs. 2,607 lakh crore (US$43.45 trillion approx.), with the median scam valued at Rs. 12,000 crore (US$2 billion approx.). Equally costly, but far less commented upon, is day-to-day corruption that never reaches the media’s glare. Transparency International estimates that Indians pay bribes totaling Rs. 21,000 crore (US$3.5 billion approx.) every year to access government services. One study places the annual cost of teacher absenteeism alone at Rs. 9,300 crore (US$1.55 billion approx.) (Muralidharan et al. 2014).

Understanding India’s corruption ecosystem

In a paper published in July in the India Policy Forum, published by the Brookings Institution and NCAER (National Council for Applied Economic Research), we address three pressing questions about India’s corruption ecosystem: What are the underlying factors driving corruption in India? How can one classify the surfeit of corrupt activities observed in India? And what remedies have proven effective to tackle corruption? (Sukhtankar and Vaishnav 2015) To narrow the scope of our inquiry, we rely on the most common definition of corruption as “the misuse of public office for private gain.”

Our reading of the voluminous literature on the subject suggests that four drivers set the stage for the vast majority of corruption in contemporary India. The first two — lack of enforcement capacity and regulatory complexity — are ‘deep’ causes, or foundational characteristics of India’s institutions. The other two — inadequate regulation of political finance and shortcomings in public sector recruitment and postings — are more ‘proximate’ offshoots of India’s institutional infirmities.

These four drivers give rise to three distinct types of malfeasance: facilitative, collusive, and extractive corruption. Most Indians will immediately recognise facilitative corruption from their regular interaction with the state machinery: officials demanding bribes to perform or expedite the basic functions of their job, like issuing passports or ration cards. Collusive corruption involves bribes paid to circumvent regulations, kickbacks from government procurement, and bribes paid to illegitimately obtain government contracts or licenses all fit into this category. Extractive corruption comprises diverse crimes, from embezzlement and harassment bribery to shirking and simply not showing up to work. The empirical evidence of these three categories of corrupt activities is widespread.

What can India do to decrease corruption?

From a policy perspective, the most relevant question is: what, if anything, can India do to decrease corruption? Fortunately, India’s federal system has been a hotbed of experimentation and states are slowly learning which innovative strategies work and which do not. Anti-corruption experiments have rigorously tested a broad range of tools, including: information provision and bottom-up monitoring, technological solutions, financial incentives, as well as legal and policy reform. While the paper delves into the relative effectiveness of each of these remedies, here we distill five general principles that should guide future reform efforts.

First, information provision is an important tool in the toolbox, but, on its own, it is not always an effective anti-graft strategy. Studies in India show that increasing the level of transparency about government performance produces the greatest returns when it is accompanied by reforms that enhance the bargaining power of ordinary citizens, improve coordination and collective action, or strengthen the state’s ability to punish impunity (Peisakhin and Pinto 2010, Ravallion et al. 2013, Niehaus and Sukhtankar 2013). For instance, when it comes to the persistence of criminal or corrupt actors in electoral politics, there is compelling evidence that the factors that give rise to this nexus have more to do with social divisions embedded within India’s weak rule of law society than information asymmetries (Vaishnav 2012).

Second, technological approaches to tackling corruption are appealing but face their own set of challenges. Technological innovations still rely on higher levels of government to monitor and enforce punishments for malfeasance, which they may be loathe to do for political economy reasons.  In addition, the logistical details of last mile delivery can severely hinder effectiveness. Technology-based solutions work best with concerted institutional support, and when they decentralise enforcement, circumvent middlemen bureaucrats, and empower ordinary citizens. For example, a technologically innovative programme in Andhra Pradesh used biometrically authenticated “smartcards” to decentralise payment-making authority for the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) and Social Security Pensions (SSP), resulting in a more than 40% reduction in leakage (Muralidharan, Niehaus and Sukhtankar 2014). In light of this success, the Modi government has a unique opportunity to leverage the Aadhaar programme to further marginalise middlemen in service delivery.

Third, political reform is perhaps the most straightforward component of anti-corruption policy. In fact, a wide-ranging and sensible legislative agenda to reduce corruption already exists. With an assist from the government, Parliament should pursue it with greater vigor. The Election Commission has succeeded in minimising the most blatant forms of electoral fraud, but it has struggled to contain the flow of dirty money in politics (Sridharan and Vaishnav 2016). Amending the body’s legal authorities so it can insist on absolute transparency for political contributions and sanction would-be violators is an easy first step. In addition, pending measures such as the Right to Services and Public Procurement bills can constrain abuse of government discretion and shift bargaining power in favour of ordinary citizens. While these bills are promising, they require more serious thinking about implementation capacity. For instance, a new Right to Services bill, which guarantees citizens’ right to a specified list of services in a fixed period of time, adds a new channel for redressing grievances to a system already overburdened with legislative mandates.

Fourth, as reformers and legislators debate new ideas to counter corruption, they should bear in mind that progress is only possible if the effort to pass new laws is accompanied by an equal effort to repeal outdated laws. It is both natural and politically convenient for legislators to focus on creating new anti-corruption regimes, but neglecting the less flashy task of streamlining India’s legal regime is short sighted. The complexity and sheer volume of laws in India make both compliance and enforcement needlessly difficult. Simplifying the legal code may also have anti-corruption value beyond increasing enforcement capacity. Labour regulation, for instance, is a domain badly encumbered with onerous and excessive laws that do more to provide venal government officers with tools to extort businesses than to protect the rights of workers. A simpler, more logical legal regime would reduce corrupt incentives.

Finally, circumventing weak institutions may be necessary to curb corruption today, but it is not a sustainable or even desirable state of affairs in the long term. While the local state has often preyed on the aam aadmi (common man), rather than advocated on its behalf, anti-corruption efforts can only achieve a limited amount without engaging and strengthening the state. At the end of the day, even the most immaculate laws require competent state institutions to enforce them and effective judiciaries to adjudicate disputes. Yet police vacancy rates in India hover around 25% while existing forces are poorly trained, starved of resources, and subject to political interference. Similar shortcomings plague the judiciary even as the volume of litigation is rapidly increasing. The Right to Information (RTI) Act gives average Indians greater recourse to redressing grievances than ever before, but if government information officers remain in short supply and appeals processes remain backlogged, empowerment could quickly turn into disenchantment. In reforming the state, the right balance must be struck between restraining government’s worst excesses while simultaneously allowing government functionaries to do their jobs. For example, elements of the 1998 Prevention of Corruption Act are so poorly drafted that even the most upright bureaucrat can be charged with taking a decision that results in anyone obtaining “for himself or for any other person any valuable thing or pecuniary advantage.”

The stakes are high

Tackling corruption in India is a massive task, but the enormity of the challenge should not dampen reformers’ spirits. The stakes are high – left unchecked, corruption will hamper India’s ability to grow its economy and to provide opportunities for its young population. Worse, corruption also risks diminishing the faith ordinary Indians have in the rule of law and the democratic system; such distrust can trigger a negative spiral as even honest reform initiatives are viewed with suspicion and stymied. Reformers should take comfort in knowing that they are not forging a new path; the literature is replete with examples of effective, inexpensive, and logistically simple solutions. India stands to gain immensely from combining these fixes with the more arduous task of strengthening important institutions and state capabilities. While the ability of these solutions to circumvent weak public sector institutions has its limits, the potential gains from reform suggest that such an agenda should be pursued with urgency.

This article originally appeared 16 September 2015 on Ideas for India. It is reposted with permission.

Image: India Against Corruption poster at Bangalore rally in April 2013. Credit: Sonali Campion

Note:  This article gives the views of the author, and not the position of the South Asia @ LSE blog, nor of the London School of Economics. Please read our comments policy before posting.

About the Authors

sandip-sukhtankarSandip Sukhtankar is an Assistant Professor in the Department of Economics at Dartmouth College, an affiliate of the Jameel Poverty Action Lab (J-PAL), and a Giorgio Ruffalo Research Fellow at the Harvard Kennedy School (2012-2013). Sukhtankar received his Ph.D. from Harvard University in 2009, and a B.A. from Swarthmore College in 2000.

DmvaishnavMilan Vaishnav is an associate with the South Asia program at the Carnegie Endowment for International Peace in Washington D.C.

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