Bribe Outlook | Corruption and its Effects on the Indian Economy
India has witnessed two major paradigm shifts that paved way for tremendous economic growth ever since it attained independence and economic liberalisation. According to figures backed by the International Monetary Fund published in a 2011 report, the Indian economy is the eleventh largest in the world by Nominal GDP and is ranked the third largest by Purchasing Power Parity (a theoretical concept used to value currencies).
Corruption has also emerged across these two paradigms. Licence raj acted as an incubation period for the sort of graft we see today. Of course, it has escalated to such a level that it has infiltrated every social sphere, directly or indirectly hampering our growth and development as a country.
Corruption has pushed the country’s economy into a trajectory of slow economic growth. The highest rate of GDP of 9.2% was observed in the year 2006-2007 diminishing significantly in the following years. It stands at 6.5% for the year 2011-2012. With a high growth potential owing to large human as well as natural resources, our economy certainly has not been able to harness its resources due to various reasons.
There are two types of corruption that exist at different levels- retail corruption that has pervaded every stratum of the society and wholesale corruption, the kind of graft our politicians and bureaucrats are getting infamous for.
Wholesale corruption can be dealt directly, using the various legal weapons and safeguards devised by the government although it is undoubtedly turning in to a challenging menace, difficult to curb and control. Yet retail corruption is much harder to track as this form of graft is systemic that requires changes in the system and polity.
Black money stems from bribery by those holding public office – such as by grant of business, leakages from government social spending programmes, ‘speed money’ to circumvent or fast-track procedures, black marketing of price-controlled services and altering land use to regularize unauthorized construction.
Many are of the assumption that corruption has not had any effect on them. This is a major misconception. The fact is that corruption indirectly affects every other citizen.
The widening divide between the rich and poor can also partially be blamed on corruption. Economic programmes are meant to alleviate poverty among citizens. These programmes usually get mired in corruption as politicians end up pilfering large sums of money allotted by the government. For instance, the National Rural Employment Guarantee Act (NREGA) scam in which the money allocated to create job opportunities for the underprivileged across the country was embezzled by Uttar Pradesh, Gujarat, Orissa and Madhya Pradesh governments as revealed by an evaluative study conducted by V V Giri National Labour Institute.
Corruption at the level of infrastructure development also affects economic growth. Substandard and inadequate infrastructural facilities in our country are another factor dampening the mood of a foreign investor who intends to invest in our country. This again can be blamed on corruption. Funds allocated to build roads, government buildings and logistics are siphoned off indiscriminately. The Taj Corridor scam displayed precisely this in which Mayawati’s government was caught pilfering 175 crore rupees meant to build a shopping corridor next to the Taj Mahal.
Corruption has a snowball effect on the entire system. It acts as a fodder for the various economic imbalances such as inflation. The country then experiences disturbance even in the political circle with one party slinging mud at the other for their respective involvement in some corruption scam or the other, resulting in adversarial politics.
Such rampant corruption can repel investors from investing in our economy owing to instability plaguing the whole system, leading to stunted economic growth.
Corruption manifests itself in the form of tax evasion. High tax rates lead to corporates fending off taxes causing a great loss to the revenue department. Companies liable to pay taxes skirt the payment by projecting incorrect profit and savings statements. The government introduced Minimum Alternative Tax (MAT) to levy taxes on companies’ book profits. The common man too evades taxes but tracing this is a far bigger challenge to the government.
There are various factors that have contributed to the country’s dismal state of economic affairs, flawed economic policies, the inability to check and control spiralling rates of corruption, cut-throat competition in the corporate sector feeding the growing corruption rates.
All these underline one major correlation between corruption and economy. They affect each other in different ways as illustrated above. Arriving at a definite cause and effect relation may not be viable. However, keeping corruption rates low in all its forms will certainly give the Indian economy a chance to redeem its growth rate as witnessed in 2006-2007.
-By Juwairia Mehkri