How to combat corruption in India

What corruption is?

Corruption refers to the abuse of power or position for personal gain, typically involving bribery or dishonest behaviour. It involves the use of one’s public or private office for personal benefit or the benefit of a group to which one belongs, rather than for the public interest or common good. Corruption can take many forms, including accepting or offering bribes, embezzlement, nepotism, fraud, and other illegal or unethical activities. Corruption undermines democratic processes, weakens the rule of law, and harms economic and social development.

Much evidence indicates that corruption has been around for thousands of years, but in recent years it has attracted increasing attention. Does the attention reflect an increasing awareness or an increasing scope of the problem? Probably, corruption has increased in recent decades. Actions can be taken to reduce corruption, but the fight against it cannot be seen independently from the need to reform the role of the state. The reason is that a certain role of the state almost inevitably creates a fertile ground for corruption.

Defining Corruption

• Corruption is a term of many meanings, but at the broadest level, corruption is the misuse of office for unofficial ends. Office is a position of duty, or should be; the office-holder is supposed to put the interests of the institution and the people first.
• Corruption can go beyond bribery to include nepotism, neglect of duty and favouritism. Corrupt acts can involve third parties outside the organisation (in transactions with clients and citizens, such as extortion and bribery) or be internal to an organisation (theft, embezzlement, some types of fraud). Corruption can occur in government, business, civil society organisations and international agencies. Each of these varieties has the dimension of scale, from episodic to systemic.

What are the major causes of corruption?

Corruption is a phenomenon with many faces. It is characterised by a range of economic, political, administrative, social and cultural factors, both domestic and international in nature. Corruption is not an innate form of behaviour, but rather a symptom of wider dynamics. It results from interactions, opportunities, strengths and weaknesses in socio-political systems. It opens up and closes down spaces for individuals, groups, organisations and institutions that populate civil society, the state, the public sector and the private sector. It is, above all, the result of dynamic relationships between multiple actors.

Principal-agent

• A principal-agent problem exists when one party to a relationship (the principal) requires a service of another party (the agent) but the principal lacks the necessary information to monitor the agent’s performance in an effective way.
• The “information asymmetry” that arises because the agent has more or better information than the principal creates a power imbalance between the two and makes it difficult for the principal to ensure the agent’s compliance.
  • So, for instance, public servants or elected officials (who in this case would both be the agents) may be able to abuse their public office to secure private rents in exchange for public services because members of the public (the “principals” in this case) cannot hold them to account.

States and markets

• Economic systems where the state is heavily interventionist (India before 1991) are also more prone to corruption.
• The logic is that large involvement of the state in the economy, especially where checks and balances and wider accountability mechanisms are lacking, allows individual politicians and bureaucrats to manipulate markets as a means of generating profits through non-competitive mechanisms.
• They use such mechanisms not only to enrich themselves but also to build a basis of patronage and political support.

Weak institutions

• Weak governance is one of the fundamental causes of corruption. The political and economic opportunities available in different political systems, as well as the strength and effectiveness of state, social and economic, shape the conditions in which corruption can thrive.
• In particular, the centralisation of power in the executive and in accountability mechanisms that are deficient gives actors (especially elites) too much discretion.

Much of the literature on institutions and corruption argues that corruption tends to be especially prevalent in so-called (neo-)patrimonial systems, where:

• There is weak separation of the public and private spheres, which results in the widespread private appropriation of public resources;
• Vertical (e.g. patron–client) and identity-based (e.g. kinship, ethnicity, religion) relationships have primacy over horizontal and rights-based relationships;
• Politics are organised around personalism or “big man” syndrome, reflected in the high centralisation of power and patron–client relations replicated throughout society.

More generally, it is countries undergoing processes of political and economic transition (because of struggles over sources of accumulation, distribution of access, cost of buying legitimacy, etc.) that are particularly susceptible to corruption.

Corruption and democracy/electoral competition in Plurality Systems:

• Overall plurality systems (Like in India) are more candidate-centred, which tends to provide greater incentives for politics based on the allocation of patronage, especially if the systems encourage internal (i.e. within-party) competition among candidates.
• Are less likely to produce desirable public goods. This is because so-called “pork barrel politics” (or the appropriation of government spending for localised projects secured to benefit a narrow group of citizens often in the politician’s home district) are more prevalent where the electoral system is based on candidate-centred electoral competition and candidates need to differentiate themselves from other candidates.
• Are more prone to electoral malpractice. This is because, by contrast, parties operating in PR systems parties have a greater incentive to enforce compliance with electoral rules to protect party reputation than in plurality systems, which gives individual candidates greater leeway to manipulate the rules.
• In addition, under plurality, in a close contest only a small number of votes needs to be manipulated to alter electoral outcomes, whereas a far greater number of votes would need to be altered in PR systems to achieve the same result.

Corruption and natural wealth: the resource curse

• Ample evidence from across the developing world shows countries rich in natural resources also tend to be highly corrupt and poorly governed, in part because of the dynamics and incentives extractive resources tend to generate for the ruling elites.

Corruption as embedded in social relations

• First, there is evidence that the public sector in some Sub-Saharan African countries is undergoing a process of “informal privatisation”. Rather than signifying an absence of rules, this process is characterised by an excess of complex de facto norms that are at odds with formal rules and blur the boundaries between licit and illicit practices.
• Second, the boundaries between corrupt practices and other behaviour or actions are often difficult to define because corruption is situated within wider everyday practices that are not corrupt but often facilitate and legitimise corruption.

What are the major impacts of corruption?

• Macroeconomic costs of corruption
  • Corruption need not have deleterious effects on growth, with countries that vary considerably in terms of their governance environments equally able to achieve high levels of sustained growth over time.
  • As governance quality increases, corruption becomes more damaging to economic growth.
  • Improved governance quality may be able to mitigate the effects of corruption
• Microeconomic costs of corruption: firms, efficiency and domestic investments
  • There is a substantial body of evidence assessing the impact of corruption on firm profitability, and on the commercial behaviour and choices of individuals and businesses. The evidence overwhelmingly suggests corruption has negative impacts on productivity, on investment and, overall, on profitability and growth.
• Corruption, trade and foreign direct investment
  • Just as domestic investors are likely to make decisions about production and investment affected by corrupt business environments, so importers, exporters and foreign investors are likely to amend their commercial calculations based on such factors.
  • Typically, they will have to weigh up the costs of engaging in corrupt activities against the benefits of short-term efficiency and/or longer-term profitability.
• Corruption and inequality
  • Lower income households and businesses pay a higher proportion of their income in bribes than do middle- or upper-income households: as such, bribes are like a regressive tax, since they must allocate a greater amount of their income than the rich to bribes.
• Corruption and public services
  • Perceptions of a government as corrupt may reduce tax revenues, in turn affecting the delivery of public services.
  • Corruption reduces not just the total level of public investment but also the quality of services procured.
  • The effects of corruption in public service delivery may have gender-specific effects: where women are unable to generate income, they are particularly vulnerable to shortfalls in public service provision.
• Corruption, trust and legitimacy
  • Trust in public institutions
    • There is a large and statistically significant negative correlation between corruption and levels of confidence in public institutions.
    • Corruption drives down levels of confidence in public institutions; others suggest lower public confidence increases corrupt practices
  • Corruption and social trust
    • Increased levels of corruption undermine social trust
  • Corruption, fragility and conflict
    • Corruption and political instability is positively correlated.
    • Corruption “has doubly pernicious impacts on the risks of violence, by fuelling grievances and by undermining the effectiveness of national institutions and social norms”.
    • Deeper analysis explores some of the circumstances in which corruption may 1) mitigate for or 2) exacerbate conflict
• Corruption and the environment
  • Corruption leads to worsened environmental outcomes, such as increased polluting emissions, higher rates of deforestation, increased depletion of natural resources and trafficking in illegal or highly regulated environmental products like wildlife and wood.

What are the measures which can act against corruption?

• Public financial management
  • Public expenditure tracking: Budget tracking reduces leakage (a proxy indicator for corruption).
  • Procurement: reforms can be effective at reducing corruption.
  • Central budget planning and management: has positive effects on reducing corruption.
• Supreme audit institutions (SAIs)
  • SAIs carry out audits on government accounts to ensure the proper and effective use of public funds, the proper execution of administrative activities, the development of sound financial management and the satisfactory sharing of information with public authorities and the general public.
  • SAIs are more effective at reducing corruption compared with other anti-corruption institutions, such as anti-corruption authorities (ACAs).
• Direct anti-corruption interventions
  • Anti-corruption authorities (ACAs): are ineffective in curbing corruption, but these are often constrained by a poor data foundation and lack of a systematic approach to evaluating performance.
  • National anti-corruption strategies: Design and implementation are critical to the success of NACSs and warns against a one-size fits-all approach. There is currently no evidence to suggest a NACS adds value above and beyond the constituent reforms and initiatives it aims to pull together and coordinate.
• Social accountability
  • Social accountability mechanisms are intended to enable citizens to hold public institutions accountable in ways other than the traditional vertical channels (e.g. elections) and horizontal channels (e.g. legislatures, courts and institutional checks and balances) of formal political accountability.
  • It includes a broad range of mechanisms: participatory budgeting; public expenditure tracking (PETS); citizen monitoring of service delivery; information dissemination; and public complaints mechanisms, among others.
  • Transparency, and, linked to this, Access To Information, is generally expected to have a positive impact on corruption control.
  • Freedom of the press can reduce corruption and that the media plays a role in the effectiveness of other social accountability mechanisms.
  • Mobilisation and involvement of civil society organisations (CSOs) helps constrain corruption, although the impact is not always direct and is highly dependent on the conditions within which they operate.
• Civil service reform
  • Factors accentuating corruption include proliferation of opportunities for corruption linked to economic growth; lack of focus on integrity in recruiting, training, appraising and promoting civil servants; failure to establish a merit-based civil service; and macro-level factors such as general accountability and transparency in the public service.
  • E-government initiatives may help reduce corruption and increase accountability in the civil service.

Overall, the evidence on the conditions under which different types of anti-corruption interventions help effectively reduce corrupt practices (or fail to do so) is mixed, and causal effects are hard to prove. The evidence on contextual factors influencing the effectiveness of anti-corruption reforms is still sparse, although its importance is increasingly being recognised, in particular for social accountability mechanisms. The difficulty of separating contextual factors from reforms, and the complexity of identifying the direction of causality, remains a challenge to clearly identifying contextual factors and their effects on reforms.