On why India may be performing better on the corruption index

Hi all! Just read in the papers that the Corruption Index is out for 2014 and that India has bettered her score this year as compared to (the paper claimed rather gleefully) our not-so-friendly-neighbourhood. And that set off a lot of thoughts in my mind: both qualitative and as my training and profession unfortunately took over- quantitative.

On the qualitative side, a lot of papers that I had read about the issue right from classic Anne Krueger (the rent seeking one, 1974) to decriminalizing bribe “giving” by Kaushik Basu (whilst he was Chief Economic Advisor) to the rather wonderful reference to the “oligarchists” of India by Raghuram Rajan (whilst he was again the Chief Economic Advisor) started playing in my mind. The other part of this rather qualitative musing was image driven: the first image being the “I-am-Anna-Hazare” cap on the heads of quite a few young people, the Aam Admi Party’s high-on-emotion win in Delhi, the humble Zaadu becoming symbolic of lesser corruption (of course by now I associate the zaadu only with my household help on a holiday or Swachh Bharat), media reportings on the spectrum scams…

On the quantitative side, of course I was immediately crowded with thoughts as to how corruption can be measured. Its kind of interesting you know. Cos if you try to measure it using the number of scams that are uncovered by media, or the number of cases being tried for corruption, or by using proxies as to whether special courts exist in India for trying corruption related cases, or the number of business tycoons/ politicians serving a term in jail on account of corruption, then you are actually capturing the anti-corruption drives of the system, right? I mean, more is the number of scams getting uncovered and number of cases under trial and numbers of tycoons or politicos in jail, it means that we are getting to the root of the issue rather nicely, eh? So, corruption is something that does not lend itself to quantification easily…now this is a great problem when it comes to ranking countries based on corruption.

So my next stop was of course at Transparency International’s FAQs which answered how the Corruption “Perception” Index is created. What the Transparency International does is that it ropes in some international institutes of repute that have been working in countries or regions across the globe. These institutions could be banks or simply business intelligence units of journals/magazines that have cross country operations. Now the officials working in the different countries are asked to answer perception questions such as whether the Government is doing enough to control the “graft” menace or whether legal systems have been created to control the issue. It is also important to note that this index only captures the corruption related to the public sector. It is based on the perceptions supplied by these institutions that the index has been created. Now, given that there are so many perceptions that would be fed into this composite index, any change in any country would reflect very softly onto the country’s overall score. India’s 2012 and 2013 scores were at a constant 36, but have now moved up a bit to 38…the index moves from 0 (scarily high corruption) to 100 (fantastically low levels). But still, with 38, we are not even at half point, are we? The EU and Western Europe have an overall average score of 66, whereas Central Europe as well as Sub-Saharan Africa show low average scores of 33. The Asia Pacific as a region has an average score of 43, with India, at a neat 38.

Has the corruption level in India reduced? Well, given that the entire political system seems to have undergone a massive upheaval and that one of the key areas of concerns for the young voters was corruption, it does look like systematic public sector corruption has gone down. There are two reasons that I can think of.

First is largely that the public angst with corruption has been so high in the past couple of years that the brand equity of companies/ political parties/ Government departments/ bureaucrats associated with being just simple “clean” is extremely important to all players at the moment. How does this brand equity issue affect the “rent seeking” equation of firms? Let me firstly put this “rent seeking” in perspective for the uninitiated. As Wikipedia would tell you “Rent-seeking is an attempt to obtain economic rent (i.e., the portion of income paid to a factor of production in excess of that which is needed to keep it employed in its current use) by manipulating the social or political environment in which economic activities occur, rather than by creating new wealth.” Rent seeking (originally coined by Anne Krueger and superbly applicable to India pre-reforms under the controlled industrial development that the License Raj created) has a cost-benefit balancing about it which is rather obvious. So long as the illicit payment that is done to the Government (which controls the land or mines or spectrum or any which resource you want to think of) is lesser as compared to the gains that the player (or payer!) accrues from the resource, rent seeking would be natural behavior for firms. However, in the past two years, the public outrage has created a new cost: the cost of getting caught in the act of rent seeking. Now, if caught, the brand equity suffers so very badly that the costs of rent seeking rise exponentially to make the activity err…less interesting…or just plain less affordable.

Second is the more cynical (and I seem to be unable to avoid this variety) thought that the set system has been replaced by- we do not know what – system. Now that is seriously interesting. So, you don’t really mind giving that bribe, but you don’t know which button to push, whom to talk to, which official calls the shots in the new hierarchy. Lack of “cronies” in a system that has largely run off a shudh-ghee-desi brand of crony capitalism is such a new phenomenon that no one quite knows how to deal with the damn thing.

In the meanwhile, the corruption index driven score for the country has improved and the new Government is basking in its clean image. Cheers to “Swachh” Bharat!

Advertisements

One thought on “On why India may be performing better on the corruption index

  1. Corruption seems to be a deep entrenched problem in India and needs to be addressed urgently. Buy there seem to be two kinds of corruption: the first one is where people pay bribe to government officials in order to do something that the rules and law does not permit. Therefore the government officials seem justified in demanding money in order to compensate for the risk they are taking. The second one is where people pay bribe in order to get services that they are entitled for. E.g. people paying bribe to get a water connection, electricity connection etc. In my opinion this form of corruption is more dangerous and leads to pent up anger in people. The transparency index needs to capture this information as well. Any thoughts on this?

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s