We in India have reached a turning point, where growth and corruption are playing their roles in equal measure. How these two pan out, and the extent to which corruption becomes central to the life of the nation will determine India’s polity and reputation in the next few years.

The reputation has taken a huge beating over the last few months. Make no mistake about that. I remember March 2001 in Washington DC, just after an excellent budget of Yashwant Sinha, when Tehelka’s spy-cam caught BJP President Bangaru Laxman accepting a bundle of Rs.1 lakh. For the next few days, I had to deal with one sniggering question after the other about politicians taking bribes as little as $2,200. It was terribly embarrassing. But trivial in today’s context.

The big fish are no longer interested in minnows. Today, we are talking of several thousands of crore, and billions of round-tripped dollars. Transparency International’s 2010 Corruption Perception Index ranks India 87th out of 178 countries. Things have worsened. The rank was 84th in 2009; 85th in 2008; and 72nd in 2007. I suspect that the 2011 index will show an even greater decline, given the public discourse on, and universal disenchantment with, the monumental telecoms corruption.

Here’s my take on growth and corruption. Some days ago, the government released its final figures for real GDP growth during 2009-10, as well as the estimates for 2010-11. Last year’s GDP growth has now been frozen at a very creditable 8 per cent. For this year, growth is estimated at 8.6 per cent — close enough to the 9 per cent that we now consider our birthright.

I have no doubts that we will witness several years of GDP growth in the region of 9 per cent per annum. It has everything to do with outstanding entrepreneurship at all levels, across all sectors, in urban as well as rural areas, and covering all manner of goods and services. This growth has created, and will continue to create, greater prosperity for many and, hence, the desire for more wealth, income and consumption among the beneficiaries. The gainers from growth will multiply over the years, as they have in the last decade.

Within this framework of high growth sits the central and state governments which, for all their liberalisation, still have a plethora of permits and quotas for doing business. The World Bank’s Doing Business, 2011 survey ranks India as 134th out of 183 countries. It involves activities like starting a business, dealing with construction permits, registering property, getting credit and enforcing contracts. We are in great company. Some of the countries as bad or worse are the West Bank and Gaza, Algeria, Nigeria, Lesotho, Tajikistan, Madagascar, Sierra Leone and Syria — just so that we know where we belong.

In this vast kingdom of permits sits a few choice emperors. These have to do with what I call the “Zamin key neeche aur aasman key upar” licenses — mining, hydrocarbons, civil aviation and spectrum. The investments are large; the gains are huge; and governments have total monopoly over the power to grant entry. It is not surprising, therefore, that 2G seems to have been the font of the biggest bribes in modern India, followed by mining. As we continue to grow, there will be greater pressure on such resources. In addition, there will be burgeoning demand for land — be it for highways, housing estates, industrial parks and special economic zones.

Each of these high income earning resources will increasingly demand heftier approval prices. Superimpose this with the shortening half-lives of ministers and the rapidly rising costs of election campaigns throughout India, and the story of corruption growing hand in glove with growth becomes complete.

Up to the mid-1980s, we had low growth and purely re-distributive corruption. By that I mean a large number of chaps trying to get their tiny slices of a very small pie. By 2011, we have fully transited to growth oriented corruption, where the permission giver demands much more because he is giving the permission seeker an opportunity to tap exponential growth. Unfortunately, the stage of rampant growth-driven corruption tends to have a long shelf life, especially in Asia. It is not surprising that Transparency International ranks China 78th, Kazakhstan 105th and Indonesia 110th. Anybody in the know will vouch for the manner in which officials in local governments and the People’s Liberation Army make money by giving permits in China; or that the 5 per cent culture is alive and well throughout Indonesia.

The real question is when will India transit to growth without pervasive, high priced corruption? That depends upon the quality of governance in the states and in Delhi. Which is why one must expect the worst — and so fight against the shame every passing day.
 

 

Published: Business World, February 2011