An analysis of India's pathetic 95th rank in the Corruption Index and its far reaching social impact!

Amongst the many critical predicaments that the Indian economy suffers from, corruption has been one of the biggest monsters, and thankfully the most talked about in recent days. Needless to say, corruption has corroded every delivery system and has made it completely dysfunctional. The entire Indian public life is riddled with overriding rates of corruption – from the Adarsh land scam to Commonwealth Games misappropriations to the 2G spectrum scam – the list here has been endless, and the magnitude, obscene. In fact, India’s public life was never clean – the infamous Bofors scandal, Harshad Mehta’s nexus with senior politicians and Ketan Parekh’s stock market manipulation – all had their own perilous impact on the economy! It requires no empirical study or statistical survey to exhibit that we comfortably are the top performers in all corruption related global indices.

Take for instance, Transparency International’s Corruption Perception Index (CPI) where India’s rank has been slipping consistently – languishing at the 95th position now with a score of 3.1 (on a scale of 10), a sizable 23 ranks down from 2007! We are far behind China that stands at 75th position with a score of 3.6. CPI score is not only about corruption but is more about the way corruption has got institutionalised in our system. Also, it is a fact that India’s score could have been better had it not been battered with the monstrous 2G spectrum scam. Interestingly, all the least corrupt countries like New Zealand, Denmark and Finland with 9.5, 9.4, and 9.4 scores respectively are not just socially developed but also economically progressive. And that’s why these are those nations that experience very few cases of crime, corruption and other forms of social malaise – unlike India.

The thumb-rule that set the pattern is that the developed countries mostly have high CPI scores, whereas at the bottom of the table are the countries mired by civil strife and oppressive regimes; and in-between are the emerging economies as well as former communist blocks. There is also a direct correlation between CPI rankings and Human Development Index (barring some aberration like Greece, which, in spite of being a developed country is ranked below China at number 80; and South Korea, which is ranked 12th in HDI and is 43 in CPI). Most of the African as well as Asian nations have a combination of low CPI and low HDI scores and most of the European and North American countries have the opposite; thus reflecting a direct bearing between the two indices! On hindsight, it may appear that there is no impact of corruption on GDP growth and investments. China and India, both scored quite low on CPI, yet have been riding on decent economic growth and FDI inflow. Vietnam and Indonesia are even lower in ranks in CPI (2.9 and 3.0 respectively) are recipient of quantum investments with their economy kicking!

Another case in point of disconnect between GDP growth and corruption is Brazil with a score of 3.8 and Russia appallingly with 2.4, who are at the bottom half of the draw! However, there is an interesting catch here, particularly, with respect to India. We have an increasing income inequality with a dubious distinction of possessing the highest number of poor in the world. An OECD report reveals that the people belonging to the top 10 per cent of our income group are 12 times richer than the bottom 10 per cent. And this is increasing as the difference 20 years ago was only 6 times, that is, before the beginning of our magic potion of liberalization! Gini Coefficient another notable measure to evaluate inequality, is on a rise too – it has increased from 0.32 in 2000 to more than 0.37 now! There is no secret in the fact that the income inequality assuages the chances of employment to many, lowers purchasing power for consumption expenditure, halts the access to borrowing, and hinders the ability to save and invest! For the uninitiated, CPI also takes into account various parameters that have a higher social impact. India fares badly on almost all parameters considered under CPI – viz. bribery, extortion, nepotism, patronage, graft, embezzlement. The 2G spectrum scam, CWG scandal, cash-for-vote bribery case have set infamous benchmarks on all these parameters and surely are the reasons for such poor showing in the index.

More alarmingly, as India develops, there is an ascent of illicit money being stashed in foreign shores as well. There is no doubt that due to this corruption plaguing India, the fruits of development are certainly not reaching the desperately poorer sections of the society – a fact quite evident from the increasing gap between the rich and the poor. World Bank too has drawn a poor picture of India’s achievements in curbing corruption! The report is one on Governance Indicators, where India has fared quite poorly and is below the half level on most parameters. In the parameter ‘Rule of Law and Control of Corruption’, which directly addresses corruption related issues like crime, tax evasion, black markets, and judicial independence – India has scored a lowly 56th percentile! That said, India’s low score is quite expected and obvious on this particular scale. India is probably the worst performer globally with respect to tax evasion as a humungous amount of black money gets stashed abroad (we top the global list with more than $1 trillion of Indian black money floating around the world). Added to that, the efficacy of the Indian judiciary has been in question too as even such a corrupt nation like ours can still hardly boast of any political or business leader who has ever been sentenced to long years of imprisonment.

Shamelessly, leaders like Kanimozhi and many others who were arrested on corruption charges are now roaming scot free. And a few who are still behind bars are leading a luxurious life inside the prison with all luxuries at their disposal. This speaks volumes on the credibility of the so-called ‘Rule of Law’. Such lousy rules of law are the vital motivating factors for our political and business class to adhere to such corrupt practices.

Another research and advocacy organization, the Global Financial Integrity (GFI), released a report called ‘The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008’. The report alluded to some jaw dropping facts! As a direct result of black money stashed abroad, India has lost a humungous sum. Tax evasion, bribery and kickbacks, cases of crime and other forms of corruption – all are listed between 1948 and 2008! The 2G spectrum is a classic case of a royal kickback scam by A Raja and it is intriguing how our system managed it to keep it off-the-hook, more so as this was done during the Bofors era. Notwithstanding, in our gigantic corruption saga, the present valuation of this illegal capital flight is more than double the US external debt! Even at the corporate level, the private sector always preferred overseas financial centers – the share of which (in terms of deposits), went up from 36.4 per cent in 1995 to 54.2 per cent in 2009.

Because India was positioned as a nation-state post Independence, corruption developed a strong foothold in Indian politics. Moreover, given the series of scams that have come to limelight in the last one year, it is tempting to assert that Indians are by nature immoral and are liable to be corrupted easily. However, researches have shown that Indians are as prone to become corrupt as their peers in other developing nations of Asia. But one thing that sets Indians apart is their willingness to tolerate such corrupt measures. This is evident from the amount of bribes the common man in India pays for availing of even the basic services in his day to day life. From getting a service in the hospital to lodging an FIR or getting a driving license, every service requires a common man to pay bribe for getting the work done without much bureaucracy. Almost all the public services like the Public Distribution System (PDS), hospitals, schools, water supply, are corrupt from head to toe. As per the India Corruption Study 2010 by CMS, rural households of 12 surveyed states have paid an amount close to Rs 4700 million as bribes during the last one year. Critically, the most affected people by these corrupt practices in public services are those from socio-economically weaker sections of the society, particularly in rural areas.

Above all, such widespread corruption has a great opportunity cost attached to it, especially at the social front. If the money has been channelized properly, we would not have had such a shortage of schools or hospitals in India. Further, the quality of services in the existing institution would not have been compromised to such a low level. Such widespread corruption results in a loss of faith in the society and in its functioning to say the least. In other words, realizing that the society wasn’t progressing towards a lesser corrupt situation, many would be encouraged to seek individual solutions and further discount the societal processes. But what about the people below the poverty line who can’t afford to adopt such a practice? This ultimately has led to fragmentation and the loss of national spirit at large – which is beyond any calculation.

Worse, even the taxes generated from the common man are also not spared. Instead of using them for social and infrastructural development, they are being used to provide a luxurious lifestyle and five-star services to jailed politicians. The Tihar Jail incident, where a surprise visit exposed the luxurious lives of the 2G scam accused politicians, is a case in point.

What is more intriguing is the fact that corruption in India is not only elite but also centered around the common man – this is quite unlike in the US. Corruption in developed nations like the US only impacts the lives of the rich and powerful – through lobbying or financial manipulation and such practices. The scenario is completely opposite in India’s case.

Coming back to the topic of black money, it is reported that India has more black money stashed in Swiss banks than all other countries combined! That’s a truly mind boggling data! The number eclipses $1,500 billion, a figure that no one else can touch or even come close to. A distant second on this ignominious list is Russia with $470 billion black money, followed by UK with $390 billion and China at $96 billion.

In a country like India, with an increasingly younger demography having their dreams of riding the wave of India’s economic growth... recent scams have only sowed seeds of discontent; a disgruntlement with the State and its apparatus. Corruption, perhaps, is fast wearing down the belief in the State. Such a development would not only be dangerous for the society but also threaten the very integrity of the nation at large. Our economic indicators reveal this social malaise more than can mere ranking figures; and even these indicators, I feel, are actually understated, as no index in the world can calculate the actual social loss we incur through our shameless indulgences.

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