## Sunday, June 12, 2011

### India's corruption crisis

Somewhere in 2010 or so, I started getting much more gloomy about India's problem of corruption. For a snapshot of the zeitgeist, see this group of articles from August 2010. A large swathe of the economy operates in close contact with government. If government will not sensibly make rules, and then fail to impartially enforce rules, then the entire enterprise of the market economy is under threat.

In the months that followed, the topic of corruption exploded in the Indian public policy discourse. The two main events were the Commonwealth Games scandal and the 2G Spectrum scandal. But alongside these, many smaller events also played a role, such as the Adarsh Housing Society scandal.

### The two spoilers

I was, at first, hoping that this energy would be channeled into making progress on core issues of governance. But sadly, the first flush of interest in the field was wasted thanks to the Anna Hazare spoiler followed by the Baba Ramdev spoiler. These have provided comic relief, but more importantly they have taken the focus away from the genuine problem of corruption. They have helped increase an entrenched sense of pessimism that nothing can be done about corruption (given that these prominent efforts were irrelevant).

However, the lesson is not that nothing can be done about corruption. The lesson is that such spoilers are not the answer. Genuine institutional reform is. The problem of corruption will resist quick fixes proposed by people who only dimly understand it. Careful thinking in incentives and public administration is required, in diagnosing where corruption comes from and how it can be addressed. Now that the two spoilers seem to be getting out of the way, can we get back to this main quest?

### The main quest

Under the topic of sensibly making rules', we have had two kinds of problems. The first is the problem of old Indian thinking, where socialism and autarky have impeded good sense. But alongside the process of this obsolete economics being weaned out of the system, the new problem is that of hard-driving entrepreneurs rigging the system to make rules that favour themselves.

Under the topic of impartially enforcing rules', the puzzle is: How do we get humble civil servants in enforcement agencies (CBI / Police / SEBI / RBI / TRAI) to go about doing their job? This task is under fire from three points of view. On one hand, humble civil servants are often outgunned by the sophistication of hard-driving entrepreneurs. When the civil servant is presented with a sufficiently complex scheme, he might just not have the energy to unravel it and pinpoint the skullduggery. It requires an exceptional capability in government, by Indian standards, to hammer down the details of the arrangements that firms might undertake [example]. The second problem is that politically powerful people might try to block investigations. The third problem is simple outright corruption, where the humble civil servant is bribed to not do an investigation properly. In the real world, all three elements are at work.

The Indian development project critically requires institution-building in order to address this. High quality rule making procedures are required, so that the rule-making process cannot be rigged. The hardest job is that of creating an organisational culture for enforcement, so that agencies like SEBI can write the top quality orders of the kind which came out in recent years.

And then, we need the surrounding infrastructure of courts such as SAT and the Supreme Court. These are required to play two kinds of roles. First, when a government agency tramples upon an innocent, the courts have to protect the innocent. Second, when these agencies smell an agency that is about to fold and not actually go through with an investigation or the following court process, they have to be tough about it, as the Supreme Court has been doing in recent months.

To make a difference to corruption, we have to go after these questions. This requires a slow careful process on three fronts:
1. Recruiting top quality individuals, who combine high competence with the highest ethical standards,
2. Modifying rules and procedures so as to make them more robust to corruption, and
3. Strengthening the courts.
There will be no quick results, but over time, this hard work will yield results.

1. I am in total agreement with your proposal to weed out corruption. But I believe a lot of effort need to be done to condition the perception indifference amongst us to fight this evil. For us, bribing an agent to to get our driving license made is out of the ambit of graft but a high transaction deal in shenanigans is.

We need to ensure,
- to combat pressure from corporate lobby to force their business interests to be passed despite them being against the institutional rules
- to show incentives to govt workers and representatives for being honest at their work
- Stringent punishment for those in dwindling crimes irrespective of their stature
- publicly declaring the funding for elections. The EC should play a larger role in this.

And many more such guidelines need to drafted for a quicker turnaround.

2. sorry to say ,but the problem is never lack of honest or competent people at all.you have a tendency,sorry i dont want this to be an adhominem,like I guess Paul krugman,to think that wonkocracy is what we need.nope.not even god is omniscient or omnipotent.there already exists a mechanism.it is called the market.i know,you are a realist about the possibility of true free market reforms in our country,but i find the faith in bureacratic institutions as long as they are headed by highly qualified people(like you,i presume),everything will be alright.sorry,that doesnt work in the real world.

http://www.livemint.com/2011/06/12215009/India8217s-wobbly-regulator.html..

The landscape in India is very depressing. The new SEBI chief was supposed to be someone who would take the good work done by his predecessor forward. What he is doing is the complete opposite. SEBI, one regulator which did not do the bidding of Delhi is fast becoming an outpost of Delhi.

4. I sincerely believe, the real possibilities lie not in such parallel institutions (on a sidenote: JLP can be a good thing, if certain things are ammended), but in bringing and fulfilling the Ribiero Committee recommendations on Police Reforms.

Additionally, I am a strong believer that Government of India must do away with "3500-500-15000" kind of payscale. Its idiotic to say the least. Allow people in the trenches to hire the people they want to work with.

@Dyslexic How much ever, paeans we might sing of free market(I am a libertarian btw), individuals will always seek to maximize their payoff, by subverting national interest. Not that its bad, lobbying is another form of it, and its often good, but there is an increasing need that such efforts are generalized for a particular industry and not showered on a particular entity; which is what is happening in India off late

5. I agree with most of what you say..............but you glossed over the key issue ........IMPLEMENTATION of the laws/rules.......you can have as many 'good' rules as you want but how do they get implemented ? And as long as the bureaucrats have the 'pay' for their postings - there will be corruption. I don't have the answer - each person HAS to take responsibility as each level not to bribe anyone .......that will be a start - if all the folk who supported the farcical 'hunger strikes' actually took individual responsibility NOT to be part of the problem and not bribe on any level - then a start will be made.

6. Your blog touches a point that has been intriguing me for some time now. I am frankly puzzled at how scams of such magnitude happen in today's age. Adding to your points I feel IT should be used more rigorously to make things linked and transparent. That I believe will be able to point at scams much before they turn massive.
Secondly some well thought of algorithm is needed to create laws and rules to break the collusion of government agencies. Everyone should have someone else sniffing into their activities and each one should have an incentive to do so and unearth guile and trickery at each level.
And most importantly, Indians need to wake up and move out of their inertia.

7. 1) We Indians are crooks- add a few more thousand Gods, we will still be crooks. There are probably a few hundred people who are an exception to this rule.

2) We need an entirely new framework of beuracracracy. Exiting one accomodates too much incompetence and incentivises adherence to status quo

8. I think one thing that Pratap Bhanu Mehta and all other wise policy folks (including the author here) miss is that the wounds have been allowed to fester for too long and its now a cancer.

The elite thinks that the problem can still be managed/fixed by antibiotics that have been proven to work before. But, there seem to be signs that the problem has worsened and chemotherapy, shock treatment is needed.

Perhaps, someone should quantify the scale of the problem and scale up the prescription dosage (or alter the mode of treatment) accordingly.

With the above argument in mind, Anna/Ramdev's idea was perhaps better than conventional methods (in attempting more drastic measures), but unfortunately they still don't have the right treatment. It doesn't mean we go back to antibiotics though. And, yes, there will be collateral damage with more drastic methods just like it happens with chemotherapy.

9. Ajay,

With all due respect, you suggest we RESEARCH the subject of corruption for another 50 years?

I don't understand the reason to undermine the importance of Anna's campaign. If other stakeholders had supported the campaign with genuine intent to solve the problem, it would have yielded positive results (though I don't agree with the timelines Anna was pushing for, they certainly aren't realistic)

Please keep in mind that just scholarly efforts are not enough many a times. If it was, India would have been a superpower by now. We need people like Anna to motivate masses, people who have devoted their lives for just causes.

- Another IITin

10. Dear Ajay,
It is enough that we have lost>65 years, in diagnosing the problem and fixing the causes, to have most effective, efficient and transparent Mechanism of Governance. Now it is time to act. Following key inputs may be deliberated upon:
1. Our Constitution must be revisited, our Political Party System, Election of Government, Election system, their Responsibilities, Accountability, Authorities their Remunerations - CTC. Feeling of Super Powerful, Supremeness and Almightiness has to vanish. Work as a common Man, but with a Ministerial position, given.
2. To start with, Corruption should go. Baba and Anna, must be supported without any Question, views, without fail. Once JLP is enforced, point No-1 comes in propriety. Remenber,Non implementation of Transparent Mechanism is mother of all evils.
3. Finance /economy of country needs to be thoroughly looked into, many lapses, biased decisions, favors, inequality etc. must immediately be have ZERO weightage. Uniform Taxation system, Revenue system.
4. Judiciary: Clean and clear action shall be ensured to dispose off 5 Crs pending cases. Formulate amendments, endorsed by parliament.
5. Focus on Agriculture and Manufacturing Industry; Education and Health; Social security-police be a helper to society, not harassing, torturing and looting agency.
6. We must have equality among society-No reservations on cast, genderor…. ONLY Economic condition wise.
7. Assets declarations based on Tax paid / contribution to Country ONLY.
8. more……

11. Hi Ajay,

It is disturbing that you think Anna's and Baba's efforts have failed. The two unglamorous last generation type leaders have made inroads into the mindspace of the educated and uncaring youth who hate to read anything written on the topic of India's politics and politicians. It was all over the social networking sites which tells you that people not only read about the anti-corruption efforts but also processed the information in their minds and expressed their feelings (disgust) in public.
I think you might have missed the buzz completely.

12. Hi Ajay

Your writings on corruption tend to be the only ones that are not reality-based. You should pause and ponder on why you wrote a sentence this way: Careful thinking in incentives and public administration is required, in diagnosing where corruption comes from and how it can be addressed.

Why didn't you write it in active voice? Why didn’t you say, “X should think carefully of incentives in public administration, and diagnose where corruption comes from and work out how to address it.” The reason is clear, there is no feasible X.

The kind of people who can be X do not exist in /sufficient numbers/. As you know better than most bloggers I read, the world is quantitative. An overwhelming number of politicians and civil servants (civil servants in the broad sense, not just the IAS etc) are criminals. They are not just morally weak people who stray a bit (as was the case till perhaps the eighties or so), they are actual criminals, right till the very top. At best, they are doting mother-in-laws of criminals.

Extreme pessimism, even nihilism, is actually a reasonable and sane reaction to the Indian situation. In this light, the actions of Anna Hazare and Arvind Kejriwal make sense. (As an aside, it puzzles me deeply why you think of Hazare and Ramdev in the same vein. Even granted that they are both useless, surely a man of your perspicacity must see that Hazare must be a (well-intentioned (and sorry for the excessively nested parentheses ;-)))) fool but Ramdev merely a knave.

Kejriwal and Hazare and the rest of them look as if they are just tilting uselessly at windmills, but perhaps no more than Gandhi looked so c. 1919.

Anyhow, let me not complain too much. Thank you very much for everything you write that's not about corruption.

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