Corruption is a big challenge to economic growth. It corrodes democracy by weakening and hampering economic growth, further aggravating inequality, poverty, and environmental crisis. We need to understand how corruption works so that corruption can be ended.
Corruption comes into picture when large sums of money are involved, multiple ‘players’, or huge quantities of products are at stake. It is known that corruption attacks the very basics of democracy by overriding the rule of law and creating a bureaucratic swamp.
Fighting the issue of corruption is assumed as ever more important today. Not just government, but media interventions also focus more on corruption and scandals. The recorded data by World Bank registers a loss between $1 trillion and $1.6 trillion globally every year for illegal activities. Corruption brings down the wealth in a nation, and the standard of living comes down. The economists consider corruption as a major roadblock to economic development. It throws low-income groups into critical poverty traps.
Corruption means “the abuse of public power for private gain“. There is a large amount of money lost due to bureaucratic corruption. It includes bribe to judges, bribing in commercial and criminal courts, payments to inspectors for overlooking violations of rules, payments to obtain licenses, to obtain property rights during privatization process, trying to gain public procurement contracts, and more.
The desire for luxury, money, and more power tends to motivate sidestepping the law and makes space for more corrupt practices. Due to lower literacy, people get attracted to illegal practices. Micro-institutions to macro-institution, local to government institutes have their own set of corruption activities. The executive body in India has many selfishly motivated politicians and bureaucrats.
India fares a very strong position in terms of the financial institution’s strength, business sophistication, and innovation. But for corruption, we are ranked at 85th by the Corruption Perception Index. This changes the perception of international business for India. And the worst part is that there has been no considerable change in India’s position in a few years.
Negative Impact Of Bureaucratic Corruption On Growth
Due to corruption, there is a misemployment of talent and skills from productive activities. Corruption has been in our societies for long, and governments are still struggling to combat this devil. Also, corruption is very hard to measure, and the economic research on this is fairly meagre too.
Corruption itself misrepresents the decisions about what public goods to produce and its costs. So there is a differential impact on the investment and various other areas influencing the growth outcomes. According to an economist (Mauro), if corruption in India came down to the level of Scandinavian countries, investments would rise by 12% annually.
It limits the inflow of foreign direct investments by limiting the country’s trade openness. The effects of corruption can be seen in trade policies and political instability and contribution to various channels.
The public revenue is reduced, and public spending goes up, contributing to larger fiscal deficits. It becomes a challenge for the government to maintain a sound fiscal policy.
Corruption also distorts markets and reduces the government’s ability to impose regulatory controls. The fundamental role of the government comes to a low. Injustice increases along with disregard for the rule of law.
Petty corruption affects the elementary rights and services of the common man. Beyond that, scandals and scams also come into the limelight many times. The status of bribery in India can be established from the report published by Trace International; it states that – government officials demanded 91% of the bribes. The most noticeable effect of corruption can be seen in the loss of national wealth. Millions are lost in scams like 2G spectrums, Indian Coal Allocation Scam, and many more.
This serious issue promotes inefficiencies, promotes compromise on quality, and lately has become a threat to national security.
Poor and weaker sections of the economy get deprived further. Some surveys have predicted a loss of ₹2 lakh crores annually to the government because of tax evasion. ₹40,000 crores were lost due to deferment in projects.
If corruption were not there, Public Sector Enterprises would perform well and improve profits by at least 20%.
In the case of India, corruption is the foremost hindrance in the way of development. Many ambitious infrastructure projects are delayed consciously seeking more government funds, which finally puts an end to such projects or leads to their failure.
India has been left behind by many countries in the fields of Defense, Research, etc. Despite every facility being offered in these sectors, the end-user still suffers due to inadequate supplies.
In the wake of corruption, the higher costs of government are filled by incompetent candidates at higher positions. They lack leadership and other skills required for the job, and the administration suffers more.
Criminal activities rise due to corruption in Police administration. It gives way to Injustice and anti-social activism.
Economies like India afflicted by a high level of corruption are not capable of flourishing because the economy’s natural laws go inoperational, and governments cannot function freely. This causes its entire society to suffer.
Transparency Index-TI pointed out that India is one of the worst offenders in terms of press freedom and political graft. This is an indicator of the extent to which politicians use the power for personal gains. In India, corruption is an accepted evil due to personal convenience.
The kind of corruption India is facing may lead to the formation of oligopolies and monopolies. Those who can use connections to bribe government officials also manipulate policies and market mechanisms. They may want to ensure that they are the sole provider of goods or services in the market. This is done so that they do not have to compete against alternative providers. Consequently, they keep their prices high at the low quality of goods or services. Such costs also represent illegal costs of corruption that were necessary to reach such a monopolistic stage.
It leads to the irregular distribution of wealth due to which small businesses have to face unfair competition. A lot of small businesses do not get qualified to win government contracts because these projects are often awarded as a result of bribery.
Education and healthcare also depreciate in such economies, bringing down the country’s citizens’ overall standard of living. According to the International Monetary Fund (IMF), corruption increases the cost of education and health in such countries. Also, corruption in various stages of healthcare for the recruitment of personnel, procurement of medical supplies, etc. leads to insufficient healthcare treatment. There is substandard or restricted, medical supply and lowered quality of healthcare.
A Shadow Economy starts to exist simultaneously as the small businesses avoid having their businesses registered with tax authorities. This is done to avoid taxation, and therefore, the income generated by many businesses exists in the official economy. They are not liable to pay taxes and are thus not included in the calculation of the country’s GDP. Such businesses pay decreased wages and do not provide acceptable working conditions.
Various Legislative Provisions For Fighting Corruption
Government servants come under the purview of the following acts if caught taking bribes. Public servants in India can be penalized for corruption under the Indian Penal Code (IPC), the Prevention of Corruption Act, 1988, The Benami Transactions (Prohibition) Act, The Prevention of Money Laundering Act, 2002 penalizes public servants for the offence of money laundering.
They can face rigorous imprisonment for three to ten years and a fine of up to ₹5 lakhs. India has sufficient laws to deal with corruption, but there needs to be a strong agency to implement those acts. Some collective efforts taken by the judiciary may help some positive results. CBI and other central and state investigation agencies for a fair investigation may be brought in. Existing laws should be strengthened. Participation of citizens and transparency in decision making along with judicial reform and police reform will, in turn, eradicate this menace.
Analysis & Conclusion
Some studies advise that the prevalence of corruption can have some benefits also. This is for the countries that fail to provide public services adequately. The study suggests that paying bribes help firms in the immediate short-run in terms of productivity. The current government came with the agenda to rid of corruption. There were immediate economic reforms like the introduction of demonetization and GST. But the reality of the situation shows that either nothing changed or things just got worse.
The PNB scam is an example of the situation currently in India. Lower-ranking for India in TI –Transparency Index is a question of the government’s efficiency. Several studies have found that corruption slows growth. But the decision of the country to be more transparent will have a positive impact on FDIs and capital formation leading the way to steady economic growth.