FE Editorial : Corruption window

Written by The Financial Express | Updated: Dec 10 2012, 07:02am hrs
Low Transparency scores dont matter for a while

India, with a score of 36, once again ranks low (94 out of 176 nations) in the Transparency Internationals Corruption Perception Index. Predictably, the Index is dominated by small and rich countries at the top (Denmark, New Zealand, Finland) and failed states at the bottom (Sudan, Afghanistan, Somalia). Most developing economies occupy the lower mid-ranking spot with China at 80, Thailand 88 and Sri Lanka 79. Indias ranking definitely captures the frequent frustration that citizens face when seeking allowances or pension, the delays that businessmen put up with when trying to obtain a licence or permission to set up a plant or the crass influence of money in politics the casual observer gets disgusted with. But an interesting question remainsdoes this really impede our efforts to develop China, which has exhibited an average growth rate of over 10% in the past decade, too, seems profoundly corrupt (with a score 39, not so far ahead of India).

The answer is mixed. Often a times, in a developing large economy like Indias or Chinas (the fourth and second largest economies in the world at PPP), the benefits of a large market, and cheap labour and services outweigh the costs of corruption. This perhaps explains the relatively good showing of both India and China in the international competitive indexChina ranks 29, and India 59; both outrank other less corrupt economies like Greece, which ranks 96. And if you look at foreign investments, certainly inflows into countries like China dont suggest that corruption is a really big impediment.

But theres obviously a price to be paid for corruption since, while it may not impede a China or an India right now, the richest countries in the world are those whore ranked high on the transparency index. In other words, investors may not baulk at investing in countries which are corrupt, this may apply only as long as the costs of corruption are lower than the benefits to be got from lower wages and large marketscosts of corruption include not just the costs of giving bribes to do business, but also the risk of getting projects cancelled where some foul play is believed to have taken place; A Rajas telecom licences being a good example of this. Over a period of time, as the costs of corruption rise and the benefits of lower wages disappear, foreign investors too start going away. In other words, theres a very definite window of corruption that a country can enjoy without it affecting growth too much. Whats not clear is how short that window is.