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India: Getting Anti-Corruption Battle Back on Track

June 26th, 2011
in Op Ed

India-corruption  by Ajay Shah

Somewhere in 2010 or so, I started getting much more gloomy about India's problem of corruption. For a snapshot of the zeitgeist, see this group of articles from August 2010. A large swathe of the economy operates in close contact with government. If government will not sensibly make rules, and then fail to impartially enforce rules, then the entire enterprise of the market economy is under threat.

Follow up:

In the months that followed, the topic of corruption exploded in the Indian public policy discourse. The two main events were the Commonwealth Games scandal and the 2G Spectrum scandal. But alongside these, many smaller events also played a role, such as the Adarsh Housing Society scandal.

The two spoilers
I was, at first, hoping that this energy would be channeled into making progress on core issues of governance. But sadly, the first flush of interest in the field was wasted thanks to the Anna Hazare spoiler followed by the Baba Ramdev spoiler. These have provided comic relief, but more importantly they have taken the focus away from the genuine problem of corruption. They have helped increase an entrenched sense of pessimism that nothing can be done about corruption (given that these prominent efforts were irrelevant).

However, the lesson is not that nothing can be done about corruption. The lesson is that such spoilers are not the answer. Genuine institutional reform is. The problem of corruption will resist quick fixes proposed by people who only dimly understand it. Careful thinking in incentives and public administration is required, in diagnosing where corruption comes from and how it can be addressed. Now that the two spoilers seem to be getting out of the way, can we get back to this main quest?

The main quest

Under the topic of `sensibly making rules', we have had two kinds of problems. The first is the problem of old Indian thinking, where socialism and autarky have impeded good sense. But alongside the process of this obsolete economics being weaned out of the system, the new problem is that of hard-driving entrepreneurs rigging the system to make rules that favour themselves.

Under the topic of `impartially enforcing rules', the puzzle is: How do we get humble civil servants in enforcement agencies (CBI / Police / SEBI / RBI / TRAI) to go about doing their job? This task is under fire from three points of view. On one hand, humble civil servants are often outgunned by the sophistication of hard-driving entrepreneurs. When the civil servant is presented with a sufficiently complex scheme, he might just not have the energy to unravel it and pinpoint the skullduggery. It requires an exceptional capability in government, by Indian standards, to hammer down the details of the arrangements that firms might undertake [example]. The second problem is that politically powerful people might try to block investigations. The third problem is simple outright corruption, where the humble civil servant is bribed to not do an investigation properly. In the real world, all three elements are at work.

The Indian development project critically requires institution-building in order to address this. High quality rule making procedures are required, so that the rule-making process cannot be rigged. The hardest job is that of creating an organisational culture for enforcement, so that agencies like SEBI can write the top quality orders of the kind which came out in recent years.

And then, we need the surrounding infrastructure of courts such as SAT and the Supreme Court. These are required to play two kinds of roles. First, when a government agency tramples upon an innocent, the courts have to protect the innocent. Second, when these agencies smell an agency that is about to fold and not actually go through with an investigation or the following court process, they have to be tough about it, as the Supreme Court has been doing in recent months.

To make a difference to corruption, we have to go after these questions. This requires a slow careful process on three fronts:

  1. Recruiting top quality individuals, who combine high competence with the highest ethical standards,
  2. Modifying rules and procedures so as to make them more robust to corruption, and
  3. Strengthening the courts.
There will be no quick results, but over time, this hard work will yield results.

Related Articles

Economic Freedom in the States of India  by Ajay Shah and Mana Shah
India:  Telecom Scam Prosecution Getting Tough  GEI News (by Sanjeev Kulkarni)
India:  Hazare Wins Round One  GEI News (by Sanjeev Kulkarni)
India:  Hunger Strike Against Corruption   GEI News (by Sanjeev Kulkarni)

Dr. Ajay Shah is a Professor at the National Institute for Public Finance and Policy (New Delhi) holding a Ph.D. in Economics (University of South California) and B.Tech in Aeronautical Engineering (I.I.T. – Bombay). His hard cover book “India’s Financial Markets: An Insider’s Guide to How the Markets Work” is available at Amazon, and pens his thoughts on Ajay Shah’s blog. Econintersect cannot begin to summarize Dr. Shah’s impressive resume, which includes being listed in the Top Ten Economists in India. 









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1 comment

  1. Sanjeev Kulkarni says :
    *****

    Ajay,

    Your article is right on.

    India has sufficient constitutional and institutional mechanisms to tackle corruption.

    But there are systemic issues which need attention.

    1. Inefficient speedy delivery of justice due to overburdened judiciary,

    2. Paucity of higher skill set employees in enforcing agencies for effective prosecution.

    3. Decoupling the local [read taluka, teshil etc], state police and administrative machinery from clutches of local politicians.

    4. The police laws are based on arcane laws enacted by colonial British.

    They have to be changed to reflect the genuine aspiration of the people and not be abused by those in power as happened in case of Ramdev.

    The anti corruption spontaneous movements are significant in that they capture the mood of disgust against corruption; however systemic tackling of issues is critical as you have pointed out.

    Finally creating one more institution does not seem to be an effective option.
    "Quis custodiet ipsos custodes?" aka Who watches the watchmen?

    Sanjeev








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