Why does corrupt India grow fast?

How serious is corruption in India, and how great an obstacle to fast growth? Most people would say corruption is very high and a serious obstacle to the 10% growth now sought by politicians. A joint study by CMS and Transparency International in 2005 asked people of their experiences in dealing with 11 government departments. No less than 62% of people said that they had paid bribes or paid “facilitators” to get goods and services that they were entitled to. The study estimated that Rs 21,068 crore per year was paid in such “small” corruption. Three-fourth of citizens felt that corruption was increasing. An interesting point has been made about corruption by Deena Khatkhate in his recent book Ruminations of a Gadfly. He cites sociological studies to show that in non-corrupt states like Denmark, people in a village hardly know one another, and family ties are weak — members do not even regularly attend family weddings. But people in an Indian village are in close contact with neighbours, and have strong ties within families and communities. People in authority will be much more corrupt in India, says Khatkhate, since tradition approves the giving of priority to one’s family, caste and religious group over abstract ideals like the public interest. But in Denmark and other developed countries, public interest is viewed as top priority, and this notion is facilitated by the lack of strong family and social networks. He also gives examples of Indians who blossomed when they went abroad, but could not have achieved similar success in Indian conditions, marred by cronyism, political interference, and wooden bureaucratic rules. Lakshmi Mittal says that if he tried to buy an existing steel plant in India, he would spend half his life chasing netas and babus, whereas he could complete takeovers abroad in a few months. Economists like Amartya Sen and Jagdish Bhagwati, management gurus like CK Prahlad and Pankaj Ghemawat, and astronomers like S Chandrashekhar all attained great heights abroad, which they couldn’t have in India. If corruption, political interference and senseless rules in India make life so difficult, economic growth should be slow. Investment and growth can be high only if property rights are safe and contracts are honoured. If both are endangered by corruption, then investment and growth should be low. But, surprisingly, India has averaged almost 9% growth in the last four years. Look at different states. The 2005 survey showed that the five least corrupt states were Kerala, Himachal Pradesh, Gujarat, Andhra Pradesh, and Maharashtra. These states (with the possible exception of Kerala) have attracted a lot of investment in the last decade. This suggests that low corruption does indeed improve growth. The five most corrupt states, according to the survey, are Bihar (worst by far), Kashmir, Madhya Pradesh, Karnataka and Rajasthan . Investors certainly avoid the three worst states, but invest massively in Karnataka and Rajasthan, both of which are fast-growing. Tamil Nadu is also corrupt and fast-growing. How do we explain this? Maybe petty corruption is high in Karnataka and Rajasthan but big corruption — serious extortion — is low. We simply do not know.

Source: Economic Times