Friday, July 10, 2009

Corruption in India

Finland remains the least-corrupt country in the world, according to the latest annual index compiled by Transparency International, a Berlin-based organisation. The index, which measures perceived levels of corruption, focuses on the misuse of public office for private gain. The United States ranks as the 18th least-corrupt country, only a little less so than Chile. Botswana is reckoned to be less corrupt than Italy.

India ranks 83 in the list of least-corrupt countries. Finland is the least corrupt and ranks first; Singapore is fifth; Botswana is ranked 30th — thus leading India by about 50 places.

In the Indian neighborhood, there are no clean countries. On a scale where 10 is the cleanest, India gets a score of 2.8 (with a standard deviation of 0.4, a fairly low standard deviation.) Compared to that, China scores marginally higher at 3.5 but has a greater standard deviation of 1.0 and therefore the estimated error is larger.

The Islamic Republic of Pakistan and the Islamic Republic of Bangladesh both score — surprise, surprise — lower than India. Pakistan gets a 2.5 with a large 0.9 standard deviation, and Bangladesh has the dubious distinction of being the least uncorrupt country of the 133 surveyed by Transparency International and has a score of 1.3 (std deviation 0.7).

I suppose if Sri Lanka were in that list, it would get a higher score than India. And I also suppose that the northern states of India (UP, Bihar, etc.) would be more found to be more corrupt than the southern states (Kerala, AP, TN).

Corruption and Underdevelopment

It is no mystery that underdevelopment and high degrees of corruption are highly correlated. There are causal links between the two and most likely these are bi-directional. Corruption is endogenous in most systems and clearly reflect the dominant cultural traits.

In India, the web of corruption probably has a bureaucratic core. A vast bureaucracy that is instituted to control every aspect of economic life creates the incentives for individual and institutionalized corruption. Then the “democratic” political system uses that bureaucracy to extract rents that are used for fueling the vast political machinery.

Dismantling the bureaucracy would be the first step to fixing the problem of corruption in India, followed by reduction of the public sector. This would lead to reduced rents that political parties could extract through the bureaucratic machinery and have the salutary effect of getting rent-seeking thugs out of the political system in India.

India’s development is critically dependent on reducing corruption.

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