The completion of the Indian government’s first three years in office seems to have galvanized the Prime Minister, Manmohan Singh, into some critical reflections about what is wrong with Indian society. Three weeks ago he spoke about India’s crony capitalism, and this week he has been unusually outspoken about growing corruption in government and business. Addressing a conference about rural roads on May 23, he said that corruption on construction projects had “spread like cancer to every corner of our vast country” and was a major reason for poor quality roads. Today he returned to the subject on a broader canvas when he told a Confederation of Indian Industry (CII) conference “the cancer of corruption is eating into the vitals of our body politic,” adding that “corruption need not be the grease that oils the wheels of progress.”
As with crony capitalism, this is unusual territory for prime ministerial speeches. But Manmohan Singh is an unusual prime minister. He has been an academic economist, a top bureaucrat (finance secretary and governor of the reserve bank), and a minister (finance) ,and he is known to be shocked by the corruption and sloth in government and by the way ministers are oiled by business on the crony circuit. He shares power with Sonia Gandhi, the leader of the Congress Party and of the governing United Progressive Alliance coalition, who picked him for his job. That severely limits his opportunities to implement ideas and policies that are opposed by other ministers.
So he sensibly chose a business audience to underline worries he has voiced in the past because, in the supply and demand economics of corruption, they supply the money and other favors demanded by politicians and bureaucrats. He may not be able to do much about the demand, but he can, and did, try to persuade the supply side to curb its activities. “There are many successful companies today that have refused to yield to the temptation – others must follow,” he told his audience. And in a dig at businessmen who enter politics, he said that they should “erect a Chinese wall between their political activities and their businesses” – which, of course, they rarely do.
The subject of his speech was making India’s booming economy more equitable so as to increase support for economic change. He launched a ten-point program which included a plea to businessmen to “resist excessive remuneration” and discourage “vulgar displays of wealth.”
After the speech, stories were recounted by businesspeople of how impossible it is to work without paying bribes – especially where land acquisition, construction projects and occupancy of buildings are concerned. “Lakhs of rupees have to be shelled out for the most minor approval,” said one businessman involved in setting up a new office building – a lakh is 100,000 so that translates into thousands (or maybe tens of thousands) of dollars.
Corruption is rife on big defense contracts as elsewhere in the world. Other cases – which rarely if ever lead to convictions – range from illicit allocations of petrol station licenses and army meat contracts to large scale diversion of public funds and bribing to influence government decisions at all levels. These often involve politicians holding high office in the states and in central government. On public construction contracts, huge amounts of money are siphoned off by officials and contractors, and poor quality materials are used to cut the contractors’ costs and generate more work when repairs are needed. In a subsequent speech at the conference, Palaniappan Chidambaram, India’s Finance Minister, said that in the past five years $5.5 billion funding on a roads program had been 93% committed, but only 55% of the designated road works had been completed because of corruption, plus some uncompleted works.
This clashes with the findings of some opinion surveys, such as Transparency International, which suggest that the impact of Indian corruption is declining. That is probably because the surveys usually cover foreign companies, who find that demands for bribes have decreased as government controls on businesses have reduced over the past 15 years. But corruption is rife, as the prime minister said, wherever the private and public sectors meet (and sometimes within the private sector on contracts between companies).
Coincidentally, a report published today by Transparency International on judicial systems internationally said that, while India’s upper judiciary was “relatively clean” (with some exceptions), corruption is “systemic” in the broader justice institutions because of a “high level of discretion in the processing of paperwork during a trial, and multiple points where court clerks, prosecutors and police investigators can misuse their power without discovery.” The primary causes of corruption were found to be delays in the disposal of cases, shortage of judges, and complex procedures, all exacerbated by a preponderance of new laws.
Sunil Mittal, the CII’s new president and founder and chairman of the Bharti group that runs India’s largest mobile phone business, welcomed Singh’s speech, but called on him to “simplify regulations so that the need for such practices reduces and vanishes within our lifetime.”
The use of the words “the need for” was significant. The sentence would been satisfactory without them, but by using them Mittal was instinctively underlining the fact that businessmen feel compelled to pay politicians and bureaucrats in order for their companies to operate and grow. Until the Prime Minister can deal with the demand side, there seems little chance therefore of the supply being cut much.