Now that India is playing an increasing role in the global economy, the issue of corruption, both public and private sector is getting clearer. Two scenarios are possible: In India multinational corporations develop both economic and political power, which can act as a broom, sweeping corruption from the economic sphere.
On the other hand, entrenched practices may be the strongest force, and corruption could end up being a major constraint on India's economic growth.
The License Raj and the Spoils System
A stream in the knot of corruption is the legacy of the License Raj, which ended in early 1990. The system created bureaucracies that were all but indefinite. In a context in which government employees were routinely underpaid, graft became an industry in itself. Civil servants were, and still, nothing but disinterested administrators.
Wharton management professor Jitendra Singh and Ravi Ramamurti, professor of international business at Northeastern University have been studying the emergence of multinationals in emerging economies like India. In late June, a conference on this subject in Boston, the conference papers will form the core of an edited volume is planned for publication in 2008.
"In the bad old days," Singh said in an interview, "particularly before 1991, when the License Raj dominated, and by design, all kinds of free market mechanisms were hindered or blocked, and corruption emerged almost as a illegitimate price mechanism, a shadowy quasi-market, so that scarce resources could be allocated within the economy, and decisions could be made so.
"Of course, this does not in any way condone the existence of such corruption. The shameful part of all this was that while the value was captured by some people at the expense of others, it was not those who create the value, as it should be in a fair and equitable. "
The real is not, he said, "was a distortion of incentives in the economy, so that people began expending efforts toward fundamentally unproductive behaviors because they saw that such behaviors may lead to short-term gains. Therefore, the cultivation of those in positions of power that could grant favors became more important that comes with an innovative product This last was not so important, anyway, because most markets were closed to foreign competition cars -. , for example - and if you had a product, no matter how competitive compared to 'global peers, it would sell.
"These were largely distortions created by the political-economic system. While a radical change has occurred in the years following 1991, some of the distorted cultural norms are maintained during the period before gradually being repaired by the forces of pure competition. The process will be long and slow, however. It will not change overnight. "
The cost of corruption is manifested in various parts of the economy. Inadequate infrastructure, of course, is widely recognized as a serious obstacle to the progress of India. The production of valuable goods is of limited use if you can not move in a timely manner, for example. Transparency International estimates that Indian truckers pay something in the neighborhood of $ 5 billion a year in bribes to maintain flow of goods. "Corruption is a general tax on the growth of India," Ramamurti said in an interview after the conference. "It delays execution, raises costs and destroys the moral fiber."
Corruption also cripples efforts to alleviate poverty in India and to improve the country's stock of human capital. The speed at which this happens varies tremendously from one region to another. Edward Luce, for example, author of In Spite of the Gods: The strange rise of modern India, states that "Rates of theft vary widely from state to state in India with the best states such as Kerala and Tamil Nadu, more than 80% of government-subsidized food to poor. Meanwhile, in the northern state of Bihar, India, the second poorest country with a population of 75 million, more than 80% of food is stolen. "
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