The heart of the problem

Just as the witticism in American politics today is that the intellectually challenged Tea Party activists are pitted against the snobbish Coffee House elites, a witticism for the current Indian situation is that ‘Anna’ Hazare is taking on what we might call the ‘Rupaiah’ politicians and bureaucrats who have corrupted Indian governance. Indeed, he is. But if he is to flog the problem, instead of flagging it, the nature of the beast to be tamed must be understood.

Corruption in India, whose absence was among the hallmarks of Indian political virtue in the 1950s, has broken out like the devastating bubonic plague of the mid-14th century. But if it is to be attacked effectively, we need to distinguish between two forms of corruption.

First, corruption is rampant at the level of politicians selling licences and top bureaucrats using their discretion to get perks in kind. This is corruption where the authorities are rewarded for doing what they are supposed not to do: i.e. giving licences to those who bribe rather than to those more deserving. This may be called high-level corruption and is the legacy of the permit raj which created what economists call “rents”; windfall profits generated by enacting licence-defined barriers to entry by domestic and foreign firms, leading to monopolies.

A recent Supreme Court bench, composed of judges Sudershan Reddy and Surinder Singh Nijjar, in a judgment in a case involving unaccounted monies, attacked “neoliberal” reforms starting in 1991 as the cause of corruption. In fact, the reforms reduced high-level corruption. Foreign firms could now enter most industries, though not yet freely. Entry by domestic firms was made even easier with the virtual elimination of conventional industrial licensing. And while some focus on the gigantic family firms like that of the Ambanis to suggest that India is like Russia with its privatisation-created oligarchs, they forget that gigantic new firms, with no historical family brands like Birlas and Tatas, have been springing up in India often from scratch entirely thanks to the substantial freeing of entry. Just think of Infosys, Wipro and the Kotak Mahindra Bank.

The ability of huge firms or cronies to bribe governments into creating monopolies that create rents which they capture and share with the obliging politicians and bureaucrats is no longer what it was when we had strict licensing and government-created monopolies in all kinds of activities were accepted as ‘normal’ and even desirable. The 2G spectrum scam is far less stereotypical today than it would have been in the pre-reforms era.

On the other hand, we have now a far more pervasive second type of corruption: the low-level corruption where one has to bribe clerks to get them to do what they are supposed to do. The middle class, in both urban and rural areas, has long been fed up with having to grease every palm that handles documents such as birth certificates and driving licenses. The huge response to the Anna-centred agitation is the surface manifestation of this deeply felt sense of malaise that has been growing on the Indian scene with recurrent encounters with bribe-taking petty bureaucrats and officials.

The original article appeared in the Times of India.