Cost of Corruption

Corruption is a deep-rooted menace which is prevalent in the Indian society and has decomposed the values of our society. Sadly, there is hardly any sphere of social, economic, political or even religious activity which is free from corruption today. It has become so common that we have started accepting it as a part of our everyday lives. It is one of the “necessary evils” of our society, necessary because we cannot really abandon it completely and yet get our work done.

Corruption in the form of embezzlement, nepotism, bribery, and cronyism is present in the Indian society. By all objective criteria, India today has by far one of the most corrupt governance in the world.  Political and bureaucratic corruption in India is a major concern. A 2005 study conducted by Transparency International in India found that more than 45% of Indians had first-hand experience of paying bribes or influence peddling to get jobs done in public offices successfully.

So let’s see what’s the cost of corruption?

The establishment of a company needs a lot of documentation. For this almost everyone has to pay bribes, else the documentation process is delayed for a very long time. For undertaking the production process, the company needs various licenses which can again be obtained after paying extra money under the table to the corrupt officials. If one fails to pay extra sums of money for essential inputs like water and electricity, they cannot avail 24hours facility. For the approval of any major projects, bribe is an absolutely inevitable element.  If you get in touch with any production unit, you’ll get to know that you have the excise officer, pollution officer, BMC officer, Sales Tax officer, Income Tax officer and various other officers come on rounds. And they all have to be paid the demanded amount each year. Again, the transportation process is also not free from corruption.

Transparency International estimates that truckers pay US$5 billion in bribes annually. In 2010 India was ranked 87th out of 178 countries in Transparency International's Corruption Perceptions Index.

So who do you think really pays these extra costs? Are the companies giving up on their profits? Nah! We, the end consumers, are the victims. The price that you pay for each product that you buy, right from your cold drinks to snacks to even vegetables, is composed of five elements – cost of production, cost of marketing and selling, taxes, profit margin, and cost of corruption. Or in other words,

Price = Cost of Production + Cost of marketing and selling + Taxes + Profit + Cost of corruption

The price of input raw material increases as the supplier too has to bear the same corruption cost.  And this is a vicious circle. It is estimated that nearly 70 %( including the tax paid) of our income goes in the pockets of our corrupt babus.  We shell out nearly a rupee or two from every Rs.20 that we spend on purchasing goods as corruption cost. Now this is the cost that we individually pay for corruption. Let’s look at it from a bigger perspective of the Indian Economy.

Do you know that the flower vase in all government offices has a book value of 30cr Rs? Shocked huh? The machinery which is imported for, let’s say 1cr, is purchased by the government for Rs.10cr. This includes the money absorbed by the middlemen and, of course our babus. These purchases are out of the same money that we pay as direct and indirect taxes.  This is exactly what the CWG scam and Chara Ghotala is all about – inflated bills,

Decisions taken for corrupt motive sub-optimises the allocation of scarce national resources and hence in the long run, it lowers the rate of growth in GDP. It also encourages buccaneers and robber barons to flourish instead of innovative entrepreneurs. Most businesses find way to other neighbouring countries like China which affects the GDP of the country. Technology and inventions do not find way to our country because of the same corrupt babus who look at technology and inventions as a means to fill their pockets.

Money earned by accepting bribes escapes the tax net and is mostly stashed away in Swiss Banks or kept safely in houses. This then becomes the so called “Black Money”. One of the reason for the unreasonable and unjustified response of the government to Baba Ramdev’s Satyagraha for getting Black Money back to the country was the fact that huge sums of their own money is parked in tax havens. This black money is deployed in luxury goods purchase, ostentatious life, splurging in five star hotels, real estate, and on partying.

Participatory notes(PN), instruments used outside India for making investments in the stock markets is one of the tools terrorists use to fund their activities. In his address to the 43rd Munich Conference on Security Policy on February 11, 2007, MK Narayanan, the National Security Advisor to the Government of India, listed out the various ways by which terrorist activities in India were funded. Instances of terrorist outfits manipulating the stock markets to raise funds for their operations have been reported. Stock exchanges in Mumbai and Chennai have reported that fictitious or notional companies were engaging in stock market operations. Some of these companies were later traced to terrorist outfits. Thus, the Government of India is well aware that terrorists are parking funds in Indian ventures. Yet the Finance Ministry has nothing to do about it. The terrorists are using our money to attack us.

In India, the corruption has also crept into religious institutions. Some of the Churches of North India are making money by selling Baptism certificates. The TI India study estimates the monetary value of petty corruption in 11 basic services provided by the government, like education, healthcare, judiciary, police, etc., is around INR 21,068 crore (US$4.7 billion).

The finding from an eight-city survey done exclusively for TOI reveals that corruption is a major threat to the economic development of India. 

So how can we fight against corruption?

The Right to Information Act requires government officials to furnish information requested by citizens or face punitive action, and has also led to computerization of services. This has opened up avenues to redress grievances. So we can make use of this to keep a check on the practices of government. What is needed on our part is constant vigilance.

Organisations like Lokayukta should be supported and promoted. It should start functioning efficiently like Hong Kong's Independent Commission Against Corruption (ICAC). Hong Kong of 1960s and 1970s presented a picture quite similar to present-day India. Even though industrialisation was at its best, governance was at its lowest ebb. There was no proper infrastructural development. Corrupt entrepreneurs and contractors found the backdoor easy route to get their work done. However, Hong Kong transformed itself into a bastion of transparency. They established an anti-corruption agency, the Independent Commission Against Corruption (ICAC) which uprooted corruption from their economy. Today, Hong Kong has become a top destination for multinational companies due to the environment of transparency that prevails there. India surely needs to follow the same path.

Thirdly, Whistle blowing should be promoted in the country. Whistle blowers should not only be rewarded for whistle blowing but should also be protected.  India currently does not have a law to protect whistleblowers, which was highlighted by the assassination of Satyendra Dubey. Whistle Blowers play a very important role in fighting against corruption.

I’d like to leave you with a thought – Are you really indifferent about the fact that you are slogging to ensure a lavishing lifestyle to the corrupt babus?