India does pretty badly on Transparency International indices. We scored 2.7 on the corruption perception index in 2001. The higher the value, the lower the corruption. And the lower the value, the higher the corruption. The range is from 0 to 10. It is of course extremely comforting that we are less corrupt than Pakistan. There are 20 countries (for which data are available) that are more corrupt than India.
Corruption has many dimensions. At the upper end, it is impossible to see how corruption can be weeded out without reforming electoral funding and perhaps the electoral system also. And this is also linked to government procurement. At the World Trade Organisation, there is a government procurement code. This is plurilateral, not multilateral. That is, it is not mandatory that a WTO member has to sign it. Why dont we sign it and make government procurement more transparent So that some corruption is eliminated But we dont want to sign it. If developed countries push for transparency in government procurement, we must automatically resist the idea.
Logically, as a country reforms, transparency increases and corruption declines. However, this happens eventually. It is perfectly possible that during the transitory process of reforms, corruption actually increases. During transition, there are many more avenues for rent seeking through discretionary behaviour. Witness how the entire privatisation process was carried out in Russia. In India too, there is general perception that reforms have contributed to corruption. That is, corruption of the high-end variety.
We can be cynical about this and throw up our hands in despair. Alternatively, there can be an attempt to improve governance. This is where Rudi Guilianis model in New York has relevance. The idea is to attack the more visible forms of corruption, the smaller ones. Leave out the high-end types to sort themselves out. Mr Vittal has also been propagating this micro-type endeavour. In economic terms, there are three clear strands to reducing corruption. First, remove opportunities for arbitrage by reducing and aligning rates. I think the evidence that trade invoice-related corruption has declined is fairly compelling. Thanks to reasonable direct tax and exchange rates. If stamp duties become more reasonable, much of land-related corruption should also disappear. If corruption still plagues excise, sales tax and customs, that is partly because rates are not standardised.
Second, remove discretion. Some, but not all, discretion is related to rates. There continues to be discretion with inspectors on issues connected to power, land use, indirect taxes, labour laws and the environment. In that sense, we may have eliminated the license raj. But we have not eliminated the inspector raj. Ask anyone from small-scale industry. This strand of corruption is often ignored. It is not distributionally neutral. It hurts the small more than it hurts the large. Unfortunately, removing the inspector raj is largely a state government subject. Hence, some states have attempted to reform. Others merrily chug on.
Third, entry barriers lead to shortages and corruption. Hasnt bribery associated with telephone connections declined Hasnt this also happened for gas connections At least in some parts of the country. But the point is that entry barriers may have been removed for industry with the end of licensing, they continue to exist elsewhere. In virtually all services, education being a case in point. If education is a priority, why should there be entry barriers for primary, higher and professional education In each of these, there is a recognition-cum-licensing system. This leads to artificial shortages and bribes related to admissions. There can be an argument for ensuring quality and removing asymmetry of information for students. However, this can also be done through market means. We dont need State Directorates of Education, the All India Council for Technical Education or even the University Grants Commission. While on education, why must salaries be centrally determined Why cant salaries and tuition fees be decided by the institution concerned
Of course, Sidhu made most of his money through government jobs. This is at the entry stage. Money is also made in government jobs through transfers. For instance, I am told that the favoured location for a police inspector in Delhi is Chandni Chowk and the unfavoured location is the VIP circuit in Central and South Delhi. Like Tughlak Road. But this is correlated with avenues for bribery in those locations. If that problem is addressed, the bribery associated with transfers should logically decline.
As for entry into government jobs, the government is unfortunately not going to disappear. We will still need cops and judicial officers. However, that does not necessarily mean we need Public Service Commissions in their present form. And with income and employment growth, other government jobs should become less attractive. After all, the government today (defined very widely) employs 20 million people. This is 5 per cent of the workforce, 95 per cent of the workforce does not work for the government. And never will.
Mr Vittal is indeed right when he argues that corruption in India has become a low risk and high profit activity. Like what investing in the Unit Trust of India used to be. But this is a reference to prosecution and conviction, through courts and the CVC. However, several forms of corruption can be addressed through economic means. The caste certificate is a controversial example of this. Why do we need caste certificates Positive affirmation should logically be based on class, not caste. I dont think it is entirely wishful thinking if one argues that countervailing pressure by civil society (media and non-governmental organisations) is increasing. In the last resort, corruption will continue unless we do something about it.