National Coordinator of
VOTEINDIA movement

Have reforms cut down corruption ?
(July 15,2005)

The Prime Minister stated recently that corruption had declined on account of the economic reform process. Is it possible to substantiate this argument? Let us examine.

Fortunately, we can measure corruption and come to definitive conclusions. In certain sectors, our collective experience and common sense help us understand the impact of reform. Take the telecom sector. A decade ago, getting a phone connection was a Herculean task. State monopolies and a system based on licences and quotas created an economy of scarcities. In the scramble for scarce goods and services, corruption was inevitable. Phone connections, cement permits, sugar quotas, steel controls and a host of other licences bred corruption all over India. The economic freedom of citizens was eroded. Competition, choice and new technologies enhanced production, reduced costs, improved quality, and dramatically reduced corruption. Youngsters will not believe that a generation ago, a hefty premium had to be paid to buy a car!

Even where direct competition has not been introduced, technology and transparency did improve things. Railway reservation is a good example. With the introduction of online computerised reservation, most corruption has ceased.

Similarly, with computerisation in many states, obtaining birth and death certificates or land records is increasingly easy and corruption-free. In income tax, the introduction of PAN and simplification of procedures have seen significant reduction in corruption. Perhaps the most dramatic improvement is seen in issuing passports. Now, in most parts of India, passports are available for the asking, within a reasonable period.

All these are positive developments, which can be related to economic liberalisation and a spirit of openness and freedom it has spawned.

Indian society is like any other, and people respond to institutional mechanisms and incentives. We respond to risks and rewards, and competition and choice. With more safeguards in place, we are going to see greater integrity in public life.

Decentralisa-tion of power will establish greater links between aut-hority and accoun-tability, and minimise corruption. The right to information, which has recently been given teeth with the enactment of a law, will surely help promote transparency.

Just as there is no cause for cynicism, there is no room for complacency either. India still ranks abysmally low in global rankings of Transparency International (TI). The recent TI India survey, conducted by Centre for Media Studies, reveals significant corruption in many sectors. The survey covers six need-based services (rural financial institutions, income tax, municipalities, judiciary, land administration and police), and five basic services (schools, water supply, public distribution, electricity, and government hospitals). Its findings are revealing.

First, need-based service delivery is far more corrupt than basic services. This is no surprise, because government enjoys a natural monopoly in such services. In the absence of an alternative, corruption is more prevalent and virulent in these sectors. Rural financial institutions, which do not enjoy a monopoly, are less corrupt.

Basic services like schools, water supply, public distribution and hospitals are being shunned by the bulk of the population. Anyone who can afford to pay is patronising the private sector. Therefore, corruption is bound to be less. One exception is electricity, which is a state-monopoly sector, and where corruption continues. Health care is another sector where the poor are fleeced in public and private hospitals. Corruption in hospitals is the highest among basic services.

Second, there is phenomenal variation among states. Kerala, Himachal Pradesh and Gujarat are the least corrupt, and Bihar and Jammu & Kashmir are the most corrupt. While rankings in corruption cannot be very accurate, the broad patterns indicate a correlation between quality of governance and corruption. Third, the amount of money raked in by corrupt public servants is considerable. The TI-CMS study estimates the petty corruption proceeds at retail level (from citizens to low-level functionaries) in the 11 services covered at Rs 21,000 crore. The actual corruption in all sectors in India is probably close to 10 times this figure.

Indirect taxes—sales tax and excise in states, and excise and customs at the Union level—are huge sources of corruption and the citizen is completely uninvolved, except as a consumer paying a higher price because of the hidden costs. The three million trucks ferrying goods in India pay about Rs 200 each per day as bribes, thanks to check posts, octroi and entry tax. This sector alone contributes Rs 20,000 crore to the corruption kitty. The proceeds of collusive corruption related to transfer of officials, public procurement, infrastructure projects, and arbitrary exercise of power are mind-boggling.

Two broad conclusions emerge. First, corruption is declining wherever competition, choice, technology and transparency are introduced. But this corruption is shifting to sovereign areas of state functioning, where state monopoly cannot be removed. That is why the police and judiciary are now at the top of corruption list. Second, this shift is a consequence of the inexhaustible demand for illegitimate funds in our political system.

As liberalisation closed avenues of corruption in the economic sphere, more dangerous channels opened because the demand continues unabated. This demand is politically driven and can only be addressed by political reform. The message is clear. Corruption can be substantially eradicated. But it needs painstaking efforts and will and, most of all, far-reaching political reform.