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Does India need more corruption?

In its boom years in the mid-2000s India developed something akin to this East Asian model, producing high growth but with very high corruption. India’s graft system was not as orderly as it used to be in Malaysia or South Korea. But for a few years in the mid-2000s it just about worked, until the wheels fell.

analysis Updated: Aug 09, 2018 10:49 IST
Corruption remains the central issue of Indian politics. Modi says he has stopped the mega-scams. But his record is mixed. Transparency International’s most recent global index ranked India 81st, down a few places from the year before(Getty Images/iStockphoto)

While there are few forces of unity in Indian politics, almost everyone agrees corruption is bad. But what if even that rare shared assumption is wrong? What if India needs more corruption, not less? Prime Minister Narendra Modi will fight next year’s election on his scam-busting successes. Congress leader Rahul Gandhi will battle back in turn, attacking the BJP over fighter jets and fugitive jewellery tycoons.Earlier this month, Gandhi gave a forceful speech in parliament, assailing Modi over crony capitalism. It was an impudent gambit but a potentially effective one. Of Modi’s weaknesses, few pack a punch like suit boot ki sarkar.

Corruption remains the central issue of Indian politics. Modi says he has stopped the mega scams. But his record is mixed. Transparency International’s most recent global index ranked India 81st, down a few places from the year before. Corruption is also a central faultline in what I call “The Billionaire Raj”, in which the super-rich grow powerful and graft is neither understood nor tackled. If India wants to leave corruption behind, it needs a clear account of why it is bad, and what can be done about it. There is a vibrant debate about the relationship between corruption and growth. On the one hand, there is the orthodox “sand in the wheels” view, which says bribes misallocate resources, lowering investment and growth. The other is the “greasing the wheels” school, which suggests graft can help growth. Samuel Huntington, the American political scientist, argued in the 1960s that corruption was “a welcome lubricant easing the path to modernisation”. Growth and huge corruption can go together; just look at China. Graft was so entrenched in the tiger economies of east Asia that their booming growth and rampant cronyism is often dubbed the “east Asian paradox”.

Indeed, this was often deliberate. In countries like South Korea and Malaysia, businesses were allowed to skim off the top — to extract what economics call “rents” — so long as they also built infrastructure or developed export-focused manufacturing industries. It is this investment-boosting kind of corruption that looks tempting in India, especially when investment is at its lowest in a decade.

Private sector capital formation has never recovered from the scandals of the 2000s, which left big tycoons with huge debts and banks teetering under bad loans. India’s supposedly brave Bollygarchs have downed tools. In theory, East Asian corruption could perk up their animal spirits. So should India try a bit of growth-enhancing graft? No — but it is important to understand why.

Here the critical distinction is not just between good corruption and bad, but between different kinds of political systems. Research from economist Shrabani Saha shows that what we might call “strategic corruption” can indeed be growth-enhancing, but only in autocratic regimes. In emerging market democracies it is much less successful.

The difference is one of commitment. “In democracies, it is often difficult to believe what political leaders say,” as Saha puts it. “They can’t deliver what they promise. And then they lose power, so nothing gets done.”

Put another way, if a democratic political leader offers a businessman a piece of the action, the politician might not deliver on that promise. The businessmen knows this. The investment does not happen. Then there is another problem particular to India, namely that the media, judiciary and civil society are by now so attuned to the scent of graft that it would be near suicidal for either Modi or Gandhi to attempt a policy of strategic corruption in the first place.

In its boom years in the mid-2000s, India developed something akin to this East Asian model, producing high growth but with very high corruption. India’s graft system was not as orderly as it used to be in Malaysia or South Korea. But for a few years in the mid-2000s it just about worked, until the wheels fell.

Now, though, that strategic corruption option is off the table. Whoever becomes India’s next prime minister instead faces a tragic trade-off, in which they are very unlikely to be unable to deliver the two things they want above all: sustained, very rapid growth and very little graft. Slower growth is the likely result.

James Crabtree is an associate professor of practice at Singapore’s Lee Kuan Yew School of Public Policy, and a former Mumbai bureau chief for the Financial Times. He is author of The Billionaire Raj, which has its public debate this evening at 6pm at New Delhi’s Nehru Memorial Museum Library.

The views expressed are personal

First Published: Aug 09, 2018 10:48 IST