In India, what is the impact of corruption on development? The metric used to measure aggregate development per individual is Human Development Index. It combines indicators of income, health and education. This index can be computed on a country, and then disaggregated to regional, income, religion, etc. groups within the country. India ranks 136. Corruption in social welfare programs (e.g., MG NREGA, NRHM, PDS) contribute directly to income and health losses in rural India which negatively impact individual development. The UP NRHM scam is expected to have siphoned off $1.6B. The UP Food Grains scam is expected to have siphoned off $33B. This is just 1 state and 2 named scams. Different people quote different numbers to aggregate corruption losses across states and scams - In 1985, Rajiv Gandhi guesstimated that 85% of spend is siphoned off; in 2009 Montek Singh Ahluwalia said that a Planning Commission Panel Study had found that 84% of spend in PDS is siphoned off. So the net loss in efficiency of spend is 6x. On the path of improving aggregate development per individual, corruption is thus a major 6x inhibitor - not a small side-effect. The metric used to measure aggregate wealth creation in a country is Gross Domestic Product. In 2012, our Industry provides 26% of GDP with Agriculture providing 18% (Services provides the rest). The 2G scam in 2008 lost the exchequer $29B. The GDP of India was $1238B in 2008. This single corruption contributed to a 2% loss in GDP. The DIAL scam in 2012 lost the exchequer $29.4B. The GDP of India was $1872B in 2012. This single corruption contributed to a 1.5% loss in GDP. These are just 2 named scams in 2 different years. The worst part is that these losses in Industrial GDP are gains by Crony Capitalists. Crony Capitalists do not develop the market pie as fast as an open transparent capital system would. So we are stuck with inefficient wealth generators who consume a lot of capital to create inefficient products and eliminate incentives for competitors and innovators, slowing our GDP further. Finally, we have an operational impact of corruption on industry too. Industry has to pay bribes to get power, water, transport and various clearances which allocates capital away from growth. These have extraneous impacts as well. For example, if you can get your pollution clearance by paying a bribe, why would you invest in pollution reduction? If you can get away with under-reported revenues, why will you pay full taxes? No wonder then that Indian cities are getting as polluted as Chinese cities and black money (e.g., benami property deals) has grown tremendously. We need accountability in public sector to combat corruption and transparency during liberalization to aid growth. These two together will accelerate development at both the HDI and GDP levels. If we continue opaque liberalization, the new rules and allocations will continue to favor crony capitalists as they have in the last 23 years. This is what Congress did 1991-96, and then NDA-2 did (1998-2004) that resulted in GDP growth and “India Shining” - but only that part of India was shining that was 1-degree from Crony Capitalists (i.e., trickle down growth in urban areas). The UPA-1 understood this and invested heavily in social welfare programs (2004-09) to increase rural HDI via “Inclusive Growth” and came back to power in 2009-14. But they continued the opaque liberalization that favors Crony Capitalists. And so Industrial GDP growth is sputtering. AAP is the only party arguing for accountability in public sector and transparency in government decisions. It wants to move away from Crony Capitalism. This approach will create the most development on both HDI and GDP levels.
Posted on: Wed, 26 Mar 2014 17:23:30 +0000
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